[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2015 Reported in House (RH)]





                                                  Union Calendar No. 89

105th CONGRESS

  1st Session

                               H. R. 2015

                          [Report No. 105-149]

_______________________________________________________________________

                                 A BILL

To provide for reconciliation pursuant to subsections (b)(1) and (c) of 
section 105 of the concurrent resolution on the budget for fiscal year 
                                 1998.

_______________________________________________________________________

                             June 24, 1997

 Reported from the Committee on the Budget; committed to the Committee 
 of the Whole House on the State of the Union and ordered to be printed






105th CONGRESS
  1st Session
                                H. R. 2015

                          [Report No. 105-149]

To provide for reconciliation pursuant to subsections (b)(1) and (c) of 
section 105 of the concurrent resolution on the budget for fiscal year 
                                 1998.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 24, 1997

  Mr. Kasich from the Committee on the Budget, reported the following 
 bill; which was committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________

                                 A BILL


 
To provide for reconciliation pursuant to subsections (b)(1) and (c) of 
section 105 of the concurrent resolution on the budget for fiscal year 
                                 1998.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Balanced Budget Act of 1997''.

SEC. 2. TABLE OF CONTENTS.

Title I--Committee on Agriculture.
Title II--Committee on Banking and Financial Services.
Title III--Committee on Commerce--Nonmedicare.
Title IV--Committee on Commerce--Medicare.
Title V--Committee on Education and the Workforce.
Tittle VI--Committee on Government Reform and Oversight.
Title VII--Committee on Transportation and Infrastructure.
Title VIII--Committee on Veterans' Affairs.
Title IX--Committee on Ways and Means--Nonmedicare.
Title X--Committee on Ways and Means--Medicare.

                   TITLE I--COMMITTEE ON AGRICULTURE

SEC. 1001. EXEMPTION.

    Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 2015(o)) is 
amended--
            (1) in paragraph (2)(D), by striking ``or (5)'' and 
        inserting ``(5), or (6)'';
            (2) by redesignating paragraphs (5) and (6) as paragraphs 
        (6) and (7), respectively; and
            (3) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) 15-percent exemption.--
                    ``(A) Definitions.--In this paragraph:
                            ``(i) Caseload.--The term `caseload' means 
                        the average monthly number of individuals 
                        receiving food stamps during the 12-month 
                        period ending the preceding June 30.
                            ``(ii) Covered individual.--The term 
                        `covered individual' means a food stamp 
                        recipient, or an individual denied eligibility 
                        for food stamp benefits solely due to paragraph 
                        (2), who--
                                    ``(I) is not eligible for an 
                                exception under paragraph (3);
                                    ``(II) does not reside in an area 
                                covered by a waiver granted under 
                                paragraph (4);
                                    ``(III) is not complying with 
                                subparagraph (A), (B), or (C) of 
                                paragraph (2);
                                    ``(IV) is not in the first 3 months 
                                of eligibility under paragraph (2); and
                                    ``(V) is not receiving benefits 
                                under paragraph (6).
                    ``(B) General rule.--Subject to subparagraphs (C) 
                through (F), a State agency may provide an exemption 
                from the requirements of paragraph (2) for covered 
                individuals.
                    ``(C) Fiscal year 1998.--Subject to subparagraph 
                (E), for fiscal year 1998, a State agency may provide a 
                number of exemptions such that the average monthly 
                number of the exemptions in effect during the fiscal 
                year does not exceed 15 percent of the number of 
                covered individuals in the State in fiscal year 1998, 
                as estimated by the Secretary, based on the survey 
                conducted to carry out section 16(c) for fiscal year 
                1996 and such other factors as the Secretary considers 
                appropriate due to the timing and limitations of the 
                survey.
                    ``(D) Subsequent fiscal years.--Subject to 
                subparagraphs (E) and (F), for fiscal year 1999 and 
                each subsequent fiscal year, a State agency may provide 
                a number of exemptions such that the average monthly 
                number of the exemptions in effect during the fiscal 
                year does not exceed 15 percent of the number of 
                covered individuals in the State, as estimated by the 
                Secretary under subparagraph (C), adjusted by the 
                Secretary to reflect changes in the State's caseload 
                and the Secretary's estimate of changes in the 
                proportion of food stamp recipients covered by waivers 
                granted under paragraph (4).
                    ``(E) Caseload adjustments.--The Secretary shall 
                adjust the number of individuals estimated for a State 
                under subparagraph (C) or (D) during a fiscal year if 
                the number of food stamp recipients in the State varies 
                by a significant number from the caseload, as 
                determined by the Secretary.
                    ``(F) Exemption adjustments.--During fiscal year 
                1999 and each subsequent fiscal year, the Secretary 
                shall increase or decrease the number of individuals 
                who may be granted an exemption by a State agency to 
                the extent that the average monthly number of 
                exemptions in effect in the State for the preceding 
                fiscal year is greater or less than the average monthly 
                number of exemptions estimated for the State agency 
                during such preceding fiscal year.
                    ``(G) Reporting requirement.--A State agency shall 
                submit such reports to the Secretary as the Secretary 
                determines are necessary to ensure compliance with this 
                paragraph.''.

SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

    (a) In General.--Section 16(h) of the Food Stamp Act of 1977 (7 
U.S.C. 2025(h)) is amended--
            (1) by striking paragraph (1) and inserting the following 
        new paragraph:
            ``(1) In general.--
                    ``(A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve for 
                allocation to State agencies, to remain available until 
                expended, from funds made available for each fiscal 
                year under section 18(a)(1) the amount of--
                            ``(i) for fiscal year 1996, $75,000,000;
                            ``(ii) for fiscal year 1997, $79,000,000;
                            ``(iii) for fiscal year 1998, $221,000,000;
                            ``(iv) for fiscal year 1999, $224,000,000;
                            ``(v) for fiscal year 2000, $226,000,000;
                            ``(vi) for fiscal year 2001, $228,000,000; 
                        and
                            ``(vii) for fiscal year 2002, $210,000,000.
                    ``(B) Limitations.--The Secretary shall ensure 
                that--
                            ``(i) the funds provided in this 
                        subparagraph shall not be used for food stamp 
                        recipients who receive benefits under a State 
                        program funded under part A of title IV of the 
                        Social Security Act (42 U.S.C. 601 et seq.); 
                        and
                            ``(ii) not less than 75 percent of the 
                        funds provided in this subparagraph shall be 
                        used by a State agency for the employment and 
                        training of food stamp recipients not excepted 
                        by section 6(o)(3).
                    ``(C) Allocation.--
                            ``(i) Allocation formula.--The Secretary 
                        shall allocate the amounts reserved under 
                        subparagraph (A) among the State agencies using 
                        a reasonable formula, as determined and 
                        adjusted by the Secretary each fiscal year, to 
                        reflect changes in each State's caseload (as 
                        defined in section 6(o)(5)(A)) that reflects 
                        the proportion of food stamp recipients who 
                        reside in each State--
                                    ``(I) who are not eligible for an 
                                exception under section 6(o)(3); and
                                    ``(II) who do not reside in an area 
                                subject to the waiver granted by the 
                                Secretary under section 6(o)(4), if the 
                                State agency does not provide 
                                employment and training services in the 
                                area to food stamp recipients not 
                                excepted by section 6(o)(3).
                            ``(ii) Reporting requirement.--A State 
                        agency shall submit such reports to the 
                        Secretary as the Secretary determines are 
                        necessary to ensure compliance with this 
                        paragraph.''; and
                    ``(D) Reallocation.--
                            ``(i) Notification.--A State agency shall 
                        promptly notify the Secretary if the State 
                        agency determines that it will not expend all 
                        of the funds allocated to it under subparagraph 
                        (B).
                            ``(ii) Reallocation.--On notification under 
                        clause (i), the Secretary shall reallocate the 
                        funds that the State agency will not expend as 
                        the Secretary considers appropriate and 
                        equitable.
                    ``(E) Minimum allocation.--Notwithstanding 
                subparagraphs (A) through (C), the Secretary shall 
                ensure that each State agency operating an employment 
                and training program shall receive not less than 
                $50,000 for each fiscal year.
                    ``(F) Maintenance of effort.--To receive the 
                additional funding under subparagraph (A), as provided 
                by the amendment made by section 1002 of the Balanced 
                Budget Act of 1997, a State agency shall maintain the 
                expenditures of the State agency for employment and 
                training programs and workfare programs for any fiscal 
                year under paragraph (2), and administrative expenses 
                under section 20(g)(1), at a level that is not less 
                than the level of the expenditures by the State agency 
                to carry out the programs for fiscal year 1996.'';
            (2) by redesignating paragraphs (2) through (5) as 
        paragraphs (3) through (6), respectively;
            (3) by inserting after paragraph (1) the following new 
        paragraph:
            ``(2) Report to congress on additional funding.--Beginning 
        one year after the date of the enactment of this paragraph, the 
        Secretary shall submit an annual report to the Committee on 
        Agriculture of the House of Representatives and the Committee 
        on Agriculture, Nutrition, and Forestry of the Senate regarding 
        whether the additional funding provided under paragraph (1)(A) 
        has been utilized by State agencies to increase the number of 
        work slots in their employment and training programs and 
        workfare for recipients subject to section 6(o) in the most 
        efficient and effective manner.''; and
            (4) in paragraph (3) (as so redesignated), by striking 
        ``paragraph (3)'' and inserting ``paragraph (4)''.
    (b) Conforming Amendments.--(1) Subsection (b)(1)(B)(iv)(III)(hh) 
of section 17 of the Food Stamp Act of 1977 (7 U.S.C. 2026) is amended 
by striking ``(h)(2), or (h)(3) of section 16'' and inserting ``(h)(3), 
or (h)(4) of section 16''.
    (2) Subsection (d)(1)(B)(ii) of section 22 of such Act (7 U.S.C. 
2031) is amended by striking ``(h)(2), and (h)(3) of section 16'' and 
inserting ``(h)(3), and (h)(4) of section 16''.

SEC. 1003. AUTHORIZING USE OF NONGOVERNMENTAL PERSONNEL IN MAKING 
              DETERMINATIONS OF ELIGIBILITY FOR BENEFITS UNDER THE FOOD 
              STAMP PROGRAM.

    (a) In General.--Notwithstanding any other provision of law, no 
provision of law shall be construed as preventing any State (as defined 
in section 3(m) of the Food Stamp Act of 1977 (7 U.S.C. 2012(m))) from 
allowing eligibility determinations described in subsection (b) to be 
made by an entity that is not a State or local government, or by an 
individual who is not an employee of a State or local government, which 
meets such qualifications as the State determines. For purposes of any 
Federal law, such determinations shall be considered to be made by the 
State and by a State agency.
    (b) Eligibility Determinations.--An eligibility determination 
described in this subsection is a determination of eligibility of 
individuals or households to receive benefits under the food stamp 
program as defined in section 3(h) of the Food Stamp Act of 1977 (7 
U.S.C. 2012(h)).
    (c) Construction.--Nothing in this section shall be construed as 
affecting--
            (1) the conditions for eligibility for benefits (including 
        any conditions relating to income or resources);
            (2) the rights to challenge determinations regarding 
        eligibility or rights to benefits; and
            (3) determinations regarding quality control or error 
        rates.

         TITLE II--COMMITTEE ON BANKING AND FINANCIAL SERVICES

SEC. 2001. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

         TITLE II--COMMITTEE ON BANKING AND FINANCIAL SERVICES

Sec. 2001. Table of contents.
Sec. 2002. Extension of foreclosure avoidance and borrower assistance 
                            provisions for FHA single family housing 
                            mortgage insurance program.
Sec. 2003. Adjustment of maximum monthly rents for certain dwelling 
                            units in new construction and substantial 
                            or moderate rehabilitation projects 
                            assisted under section 8 rental assistance 
                            program.
Sec. 2004. Adjustment of maximum monthly rents for non-turnover 
                            dwelling units assisted under section 8 
                            rental assistance program.

SEC. 2002. EXTENSION OF FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE 
              PROVISIONS FOR FHA SINGLE FAMILY HOUSING MORTGAGE 
              INSURANCE PROGRAM.

    Section 407 of The Balanced Budget Downpayment Act, I (12 U.S.C. 
1710 note) is amended--
            (1) in subsection (c)--
                    (A) by striking ``only''; and
                    (B) by inserting ``, on, or after'' after 
                ``before''; and
            (2) by striking subsection (e).

SEC. 2003. ADJUSTMENT OF MAXIMUM MONTHLY RENTS FOR CERTAIN DWELLING 
              UNITS IN NEW CONSTRUCTION AND SUBSTANTIAL OR MODERATE 
              REHABILITATION PROJECTS ASSISTED UNDER SECTION 8 RENTAL 
              ASSISTANCE PROGRAM.

    The third sentence of section 8(c)(2)(A) of the United States 
Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is amended by inserting 
before the period at the end the following: ``, and during fiscal year 
1999 and thereafter''.

SEC. 2004. ADJUSTMENT OF MAXIMUM MONTHLY RENTS FOR NON-TURNOVER 
              DWELLING UNITS ASSISTED UNDER SECTION 8 RENTAL ASSISTANCE 
              PROGRAM.

    The last sentence of section 8(c)(2)(A) of the United States 
Housing Act of 1937 is amended by inserting before the period at the 
end the following: ``, and during fiscal year 1999 and thereafter''.

              TITLE III--COMMITTEE ON COMMERCE-NONMEDICARE

        Subtitle A--Nuclear Regulatory Commission Annual Charges

SEC. 3001. NUCLEAR REGULATORY COMMISSION ANNUAL CHARGES.

    Section 6101(a)(3) of the Omnibus Budget Reconciliation Act of 1990 
(42 U.S.C. 2214(a)(3)) is amended by striking ``September 30, 1998'' 
and inserting ``September 30, 2002''.

    Subtitle B--Lease of Excess Strategic Petroleum Reserve Capacity

SEC. 3101. LEASE OF EXCESS STRATEGIC PETROLEUM RESERVE CAPACITY.

    (a) Amendment.--Part B of title I of the Energy Policy and 
Conservation Act (42 U.S.C. 6231 et seq.) is amended by adding at the 
end the following:

                   ``use of underutilized facilities

    ``Sec. 168. (a) Authority.--Notwithstanding any other provision of 
this title, the Secretary, by lease or otherwise, for any term and 
under such other conditions as the Secretary considers necessary or 
appropriate, may store in underutilized Strategic Petroleum Reserve 
facilities petroleum product owned by a foreign government or its 
representative. Petroleum products stored under this section are not 
part of the Strategic Petroleum Reserve and may be exported without 
license from the United States.
    ``(b) Protection of Facilities.--All agreements entered into 
pursuant to subsection (a) shall contain provisions providing for fees 
to fully compensate the United States for all costs of storage and 
removals of petroleum products, including the cost of replacement 
facilities necessitated as a result of any withdrawals.
    ``(c) Access to Stored Oil.--The Secretary shall ensure that 
agreements to store petroleum products for foreign governments or their 
representatives do not affect the ability of the United States to 
withdraw, distribute, or sell petroleum from the Strategic Petroleum 
Reserve in response to an energy emergency or to the obligations of the 
United States under the Agreement on an International Energy Program.
    ``(d) Availability of Funds.--Funds collected through the leasing 
of Strategic Petroleum Reserve facilities authorized by subsection (a) 
after September 30, 2002, shall be used by the Secretary of Energy 
without further appropriation for the purchase of oil for, and 
operation and maintenance costs of, the Strategic Petroleum Reserve.''.
    (b) Table of Contents Amendment.--The table of contents of part B 
of title I of the Energy Policy and Conservation Act is amended by 
adding at the end the following:

``Sec. 168. Use of underutilized facilities.''.

                     Subtitle C--Sale of DOE Assets

SEC. 3201. SALE OF DOE SURPLUS URANIUM ASSETS.

    (a) In General.--The Secretary of Energy shall, during the period 
fiscal year 1999 through fiscal year 2002, sell 3.2 million pounds per 
year of natural and low-enriched uranium that the President has 
determined is not necessary for national security needs. Such sales 
shall be--
            (1) made for delivery after January 1, 1999;
            (2) subject to a determination, for the period fiscal year 
        1999 through fiscal year 2002, by the Secretary under section 
        3112(d)(2)(B) of the USEC Privatization Act (42 U.S.C. 2297h-
        10(d)(2)(B)); and
            (3) made at a price not less than the fair market value of 
        the uranium and in a manner that maximizes proceeds to the 
        Treasury.
The Secretary shall receive the proceeds from such sale in the period 
fiscal year 1999 through fiscal year 2002 and shall deposit such 
proceeds in the General Fund of the Treasury.
    (b) Costs.--The costs of making the sales required by subsection 
(a) shall be covered by the unobligated balances of appropriations of 
the Department of Energy.

                       Subtitle D--Communications

SEC. 3301. SPECTRUM AUCTIONS.

    (a) Extension and Expansion of Auction Authority.--
            (1) Amendments.--Section 309(j) of the Communications Act 
        of 1934 (47 U.S.C. 309(j)) is amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting in lieu thereof the following:
            ``(1) General authority.--If, consistent with the 
        obligations described in paragraph (6)(E), mutually exclusive 
        applications are accepted for any initial license or 
        construction permit which will involve an exclusive use of the 
        electromagnetic spectrum, then the Commission shall grant such 
        license or permit to a qualified applicant through a system of 
        competitive bidding that meets the requirements of this 
        subsection.
            ``(2) Exemptions.--The competitive bidding authority 
        granted by this subsection shall not apply to licenses or 
        construction permits issued by the Commission--
                    ``(A) that, as the result of the Commission 
                carrying out the obligations described in paragraph 
                (6)(E), are not mutually exclusive;
                    ``(B) for public safety radio services, including 
                private internal radio services used by non-Government 
                entities, that--
                            ``(i) protect the safety of life, health, 
                        or property; and
                            ``(ii) are not made commercially available 
                        to the public;
                    ``(C) for initial licenses or construction permits 
                assigned by the Commission to existing terrestrial 
                broadcast licensees for new terrestrial digital 
                television services; or
                    ``(D) for public telecommunications services, as 
                defined in section 397(14) of the Communications Act of 
                1934 (47 U.S.C. 397(14)), when the license application 
                is for channels reserved for noncommercial use.'';
                    (B) in paragraph (3)--
                            (i) by inserting after the second sentence 
                        the following new sentence: ``The Commission 
                        shall, directly or by contract, provide for the 
                        design and conduct (for purposes of testing) of 
                        competitive bidding using a contingent 
                        combinatorial bidding system that permits 
                        prospective bidders to bid on combinations or 
                        groups of licenses in a single bid and to enter 
                        multiple alternative bids within a single 
                        bidding round.'';
                            (ii) by striking ``and'' at the end of 
                        subparagraph (C);
                            (iii) by striking the period at the end of 
                        subparagraph (D) and inserting ``; and''; and
                            (iv) by adding at the end the following new 
                        subparagraph:
                    ``(E) ensuring that, in the scheduling of any 
                competitive bidding under this subsection, an adequate 
                period is allowed--
                            ``(i) before issuance of bidding rules, to 
                        permit notice and comment on proposed auction 
                        procedures; and
                            ``(ii) after issuance of bidding rules, to 
                        ensure that interested parties have a 
                        sufficient time to develop business plans, 
                        assess market conditions, and evaluate the 
                        availability of equipment for the relevant 
                        services.'';
                    (C) in paragraph (8)--
                            (i) by striking subparagraph (B); and
                            (ii) by redesignating subparagraph (C) as 
                        subparagraph (B);
                    (D) in paragraph (11), by striking ``1998'' and 
                inserting ``2002''; and
                    (E) in paragraph (13)(F), by striking ``September 
                30, 1998'' and inserting ``the date of enactment of the 
                Balanced Budget Act of 1997''.
            (2) Conforming amendment.--Subsection (i) of section 309 of 
        the Communications Act of 1934 (47 U.S.C. 309(i)) is repealed.
            (3) Effective date.--The amendment made by paragraph (1)(A) 
        shall not apply with respect to any license or permit for which 
        the Federal Communications Commission has accepted mutually 
        exclusive applications on or before the date of enactment of 
        this Act.
    (b) Commission Obligation To Make Additional Spectrum Available by 
Auction.--
            (1) In general.--The Federal Communications Commission 
        shall complete all actions necessary to permit the assignment, 
        by September 30, 2002, by competitive bidding pursuant to 
        section 309(j) of the Communications Act of 1934 (47 U.S.C. 
        309(j)) of licenses for the use of bands of frequencies that--
                    (A) individually span not less than 25 megahertz, 
                unless a combination of smaller bands can, 
                notwithstanding the provisions of paragraph (7) of such 
                section, reasonably be expected to produce greater 
                receipts;
                    (B) in the aggregate span not less than 100 
                megahertz;
                    (C) are located below 3 gigahertz;
                    (D) have not, as of the date of enactment of this 
                Act--
                            (i) been designated by Commission 
                        regulation for assignment pursuant to such 
                        section;
                            (ii) been identified by the Secretary of 
                        Commerce pursuant to section 113 of the 
                        National Telecommunications and Information 
                        Administration Organization Act;
                            (iii) been allocated for Federal Government 
                        use pursuant to section 305 of the 
                        Communications Act of 1934 (47 U.S.C. 305);
                            (iv) been designated in section 3303 of 
                        this Act; or
                            (v) been allocated for unlicensed use 
                        pursuant to part 15 of the Commission's 
                        regulations (47 C.F.R. Part 15), if the 
                        competitive bidding for licenses would 
                        interfere with operation of end-user products 
                        permitted under such regulations; and
                    (E) notwithstanding section 115(b)(1)(B) of the 
                National Telecommunications and Information 
                Administration Organization Act (47 U.S.C. 
                925(b)(1)(B)) or any proposal pursuant to such section, 
                include frequencies at 1,710-1,755 megahertz.
            (2) Criteria for reassignment.--In making available bands 
        of frequencies for competitive bidding pursuant to paragraph 
        (1), the Commission shall--
                    (A) seek to promote the most efficient use of the 
                spectrum;
                    (B) take into account the cost to incumbent 
                licensees of relocating existing uses to other bands of 
                frequencies or other means of communication; and
                    (C) comply with the requirements of international 
                agreements concerning spectrum allocations.
            (3) Notification to ntia.--The Commission shall notify the 
        Secretary of Commerce if--
                    (A) the Commission is not able to provide for the 
                effective relocation of incumbent licensees to bands of 
                frequencies that are available to the Commission for 
                assignment; and
                    (B) the Commission has identified bands of 
                frequencies that are--
                            (i) suitable for the relocation of such 
                        licensees; and
                            (ii) allocated for Federal Government use, 
                        but that could be reallocated pursuant to part 
                        B of the National Telecommunications and 
                        Information Administration Organization Act (as 
                        amended by this Act).
            (4) Protection of Space Research Uses.--The licenses 
        assigned pursuant to paragraph (1) shall require licensees to 
        avoid interference with communications in space research and 
        earth exploration-satellite services authorized under notes 
        750A and US90 to section 2.106 of the regulations of the 
        Federal Communications Commission (47 C.F.R. 2.106) as in 
        effect on the date of enactment of this Act.
    (c) Identification and Reallocation of Frequencies.--The National 
Telecommunications and Information Administration Organization Act (47 
U.S.C. 901 et seq.) is amended--
            (1) in section 113, by adding at the end the following new 
        subsection:
    ``(f) Additional Reallocation Report.--If the Secretary receives a 
notice from the Commission pursuant to section 3301(b)(3) of the 
Balanced Budget Act of 1997, the Secretary shall prepare and submit to 
the President, the Commission, and the Congress a report recommending 
for reallocation for use other than by Federal Government stations 
under section 305 of the 1934 Act (47 U.S.C. 305), bands of frequencies 
that are suitable for the uses identified in the Commission's notice. 
The Commission shall, not later than one year after receipt of such 
report, prepare, submit to the President and the Congress, and 
implement, a plan for the immediate allocation and assignment of such 
frequencies under the 1934 Act to incumbent licencees described in 
section 3301(b)(3) of the Balanced Budget Act of 1997.''; and
            (2) in section 114(a)(1), by striking ``(a) or (d)(1)'' and 
        inserting ``(a), (d)(1), or (f)''.
    (d) Identification and Reallocation of Auctionable Frequencies.--
The National Telecommunications and Information Administration 
Organization Act (47 U.S.C. 901 et seq.) is amended--
            (1) in section 113(b)--
                    (A) by striking the heading of paragraph (1) and 
                inserting ``Initial reallocation report'';
                    (B) by inserting ``in the first report required by 
                subsection (a)'' after ``recommend for reallocation'' 
                in paragraph (1);
                    (C) by inserting ``or (3)'' after ``paragraph (1)'' 
                each place it appears in paragraph (2); and
                    (D) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) Second reallocation report.--In accordance with the 
        provisions of this section, the Secretary shall recommend for 
        reallocation in the second report required by subsection (a), 
        for use other than by Federal Government stations under section 
        305 of the 1934 Act (47 U.S.C. 305), a band or bands of 
        frequencies that--
                    ``(A) in the aggregate span not less than 20 
                megahertz;
                    ``(B) individually span not less than 20 megahertz, 
                unless a combination of smaller bands can reasonably be 
                expected to produce greater receipts;
                    ``(C) are located below 3 gigahertz; and
                    ``(D) meet the criteria specified in paragraphs (1) 
                through (5) of subsection (a).''; and
            (2) in section 115--
                    (A) in subsection (b), by striking ``the report 
                required by section 113(a)'' and inserting ``the 
                initial reallocation report required by section 
                113(a)''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(c) Allocation and Assignment of Frequencies Identified in the 
Second Reallocation Report.--With respect to the frequencies made 
available for reallocation pursuant to section 113(b)(3), the 
Commission shall, not later than one year after receipt of the second 
reallocation report required by such section, prepare, submit to the 
President and the Congress, and implement, a plan for the immediate 
allocation and assignment under the 1934 Act of all such frequencies in 
accordance with section 309(j) of such Act.''.
    (e) Minimum Recovery for Public Required.--
            (1) Methodology to secure minimum amounts required.--In 
        establishing, pursuant to section 309(j)(3) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)(3)), a competitive 
        bidding methodology with respect to the frequencies required to 
        be assigned by competitive bidding under subsection (b) of this 
        section and section 115(c) of the National Telecommunications 
        and Information Administration Organization Act (47 U.S.C. 
        925(c)), the Commission shall establish procedures that are 
        designed to secure winning bids totaling not less than two-
        thirds of $7,500,000,000.
            (2) Authority.--In establishing such methodology, the 
        Commission is authorized--
                    (A) to partition the total required to be obtained 
                under paragraph (1) among separate competitive bidding 
                proceedings, or among separate bands, regions, or 
                markets;
                    (B) to void any such separated competitive bidding 
                proceeding that fails to obtain the partitioned 
                subtotal that pertains to that proceeding; and
                    (C) to prescribe minimum bids or other bidding 
                requirements to obtain such total or subtotal.
            (3) Licenses withheld.--Notwithstanding any other 
        requirement of this section, or the amendments made by this 
        section, the Commission shall refrain from conducting any 
        competitive bidding pursuant to the methodology established 
        pursuant to this subsection unless the Commission determines 
        that such methodology will secure winning bids totaling not 
        less than two-thirds of $7,500,000,000.
            (4) Authority to rebid at a later time to secure statutory 
        objectives.--Nothing in paragraph (2) or (3) shall preclude or 
        limit the Commission from assigning the frequencies described 
        in paragraph (1) by competitive bidding at such later date 
        (than the date required by this section) as the Commission 
        determines, in its discretion, will better attain the 
        objectives of recovering for the public a fair portion of the 
        value of the public spectrum resource and avoiding unjust 
        enrichment.

SEC. 3302. AUCTION OF RECAPTURED BROADCAST TELEVISION SPECTRUM.

    Section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) 
is amended by adding at the end the following new paragraph:
            ``(14) Auction of recaptured broadcast television 
        spectrum.--
                    ``(A) Limitations on terms of terrestrial 
                television broadcast licenses.--A television license 
                that authorizes analog television services may not be 
                renewed to authorize such service for a period that 
                extends beyond December 31, 2006. The Commission shall 
                grant by regulation an extension of such date to 
                licensees in a market if the Commission determines that 
                more than 5 percent of households in such market 
                continue to rely exclusively on over-the-air 
                terrestrial analog television signals.
                    ``(B) Spectrum reversion and resale.--
                            ``(i) The Commission shall ensure that, 
                        when the authority to broadcast analog 
                        television services under a license expires 
                        pursuant to subparagraph (A), each licensee 
                        shall return spectrum according to the 
                        Commission's direction and the Commission shall 
                        reclaim such spectrum.
                            ``(ii) Licensees for new services occupying 
                        spectrum reclaimed pursuant to clause (i) shall 
                        be selected in accordance with this subsection. 
                        The Commission shall start such selection 
                        process by July 1, 2001, with payment pursuant 
                        to rules established by the Commission under 
                        this subsection.
                    ``(C) Minimum recovery for public required.--
                            ``(i) Methodology to secure minimum amounts 
                        required.--In establishing, pursuant to section 
                        309(j)(3) of the Communications Act of 1934 (47 
                        U.S.C. 309(j)(3)), a competitive bidding 
                        methodology with respect to the frequencies 
                        required to be assigned by competitive bidding 
                        under subparagraph (B) of this paragraph, the 
                        Commission shall establish procedures that are 
                        designed to secure winning bids totaling not 
                        less than two-thirds of $4,000,000,000.
                            ``(ii) Authority.--In establishing such 
                        methodology, the Commission is authorized--
                                    ``(I) to partition the total 
                                required to be obtained under clause 
                                (i) among separate competitive bidding 
                                proceedings, or among separate bands, 
                                regions, or markets;
                                    ``(II) to void any such separated 
                                competitive bidding proceeding that 
                                fails to obtain the partitioned 
                                subtotal that pertains to that 
                                proceeding; and
                                    ``(III) to prescribe minimum bids 
                                or other bidding requirements to obtain 
                                such aggregate total.
                            ``(iii) Licenses withheld.--Notwithstanding 
                        any other requirement of this paragraph, the 
                        Commission shall refrain from conducting any 
                        competitive bidding pursuant to the methodology 
                        established pursuant to this subparagraph 
                        unless the Commission determines that such 
                        methodology will secure winning bids totaling 
                        not less than two-thirds of $4,000,000,000.
                            ``(iv) Authority to rebid at a later time 
                        to secure statutory objectives.--Nothing in 
                        clause (ii) or (iii) shall preclude or limit 
                        the Commission from assigning the frequencies 
                        described in clause (i) by competitive bidding 
                        at such later date (than the date required by 
                        this paragraph) as the Commission determines, 
                        in its discretion, will better attain the 
                        objectives of recovering for the public a fair 
                        portion of the value of the public spectrum 
                        resource and avoiding unjust enrichment.
                    ``(D) Certain limitations on qualified bidders 
                prohibited.--In prescribing any regulations relating to 
                the qualification of bidders for spectrum reclaimed 
                pursuant to subparagraph (B)(i), the Commission shall 
                not--
                            ``(i) preclude any party from being a 
                        qualified bidder for spectrum that is allocated 
                        for any use that includes digital television 
                        service on the basis of--
                                    ``(I) the Commission's duopoly rule 
                                (47 C.F.R. 73.3555(b)); or
                                    ``(II) the Commission's newspaper 
                                cross-ownership rule (47 C.F.R. 
                                73.3555(d)); or
                            ``(ii) apply either such rule to preclude 
                        such a party that is a successful bidder in a 
                        competitive bidding for such spectrum from 
                        using such spectrum for digital television 
                        service.
                    ``(E) Definitions.--As used in this paragraph:
                            ``(i) The term `digital television service' 
                        means television service provided using digital 
                        technology to enhance audio quality and video 
                        resolution, as further defined in the 
                        Memorandum Opinion, Report, and Order of the 
                        Commission entitled `Advanced Television 
                        Systems and Their Impact Upon the Existing 
                        Television Service', MM Docket No. 87-268 and 
                        any subsequent Commission proceedings dealing 
                        with digital television.
                            ``(ii) The term `analog television service' 
                        means service provided pursuant to the 
                        transmission standards prescribed by the 
                        Commission in section 73.682(a) of its 
                        regulation (47 CFR 73.682(a)).''.

SEC. 3303. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY AND 
              COMMERCIAL LICENSES.

    (a) In General.--The Federal Communications Commission shall, not 
later than January 1, 1998, allocate on a national, regional, or market 
basis, from radio spectrum between 746 megahertz and 806 megahertz--
            (1) 24 megahertz of that spectrum for public safety 
        services according to the terms and conditions established by 
        the Commission, unless the Commission determines that the needs 
        for public safety services can be met in particular areas with 
        allocations of less than 24 megahertz; and
            (2) the remainder of that spectrum for commercial purposes 
        to be assigned by competitive bidding in accordance with 
        section 309(j).
    (b) Assignment.--The Commission shall--
            (1) assign the licenses for public safety created pursuant 
        to subsection (a) no later than March 31, 1998; and
            (2) commence competitive bidding for the commercial 
        licenses created pursuant to subsection (a) no later than July 
        1, 2001.
    (c) Licensing of Unused Frequencies for Public Safety Radio 
Services.--
            (1) Use of unused channels for public safety.--It shall be 
        the policy of the Commission, notwithstanding any other 
        provision of this Act or any other law, to waive whatever 
        licensee eligibility and other requirements (including bidding 
        requirements) are applicable in order to permit the use of 
        unassigned frequencies for public safety purposes by a State or 
        local governmental agency upon a showing that--
                    (A) no other existing satisfactory public safety 
                channel is immediately available to satisfy the 
                requested use;
                    (B) the proposed use is technically feasible 
                without causing harmful interference to existing 
                stations in the frequency band entitled to protection 
                from such interference under the rules of the 
                Commission; and
                    (C) use of the channel for public safety purposes 
                is consistent with other existing public safety channel 
                allocations in the geographic area of proposed use.
            (2) Applicability.--Paragraph (1) shall apply to any 
        application that is pending before the Federal Communications 
        Commission, or that is not finally determined under either 
        section 402 or 405 of the Communications Act of 1934 (47 U.S.C. 
        402, 405) on May 15, 1997, or that is filed after such date.
    (d) Conditions on Licenses.--With respect to public safety and 
commercial licenses granted pursuant to this subsection, the Commission 
shall--
            (1) establish interference limits at the boundaries of the 
        spectrum block and service area;
            (2) establish any additional technical restrictions 
        necessary to protect full-service analog television service and 
        digital television service during a transition to digital 
        television service; and
            (3) permit public safety and commercial licensees--
                    (A) to aggregate multiple licenses to create larger 
                spectrum blocks and service areas; and
                    (B) to disaggregate or partition licenses to create 
                smaller spectrum blocks or service areas.
    (e) Minimum Recovery for Public Required.--
            (1) Methodology to secure minimum amounts required.--In 
        establishing, pursuant to section 309(j)(3) of the 
        Communications Act of 1934 (47 U.S.C. 309(j)(3)), a competitive 
        bidding methodology with respect to the frequencies required to 
        be assigned by competitive bidding under this section, the 
        Commission shall establish procedures that are designed to 
        secure winning bids totaling not less than two-thirds of 
        $1,900,000,000.
            (2) Authority.--In establishing such methodology, the 
        Commission is authorized--
                    (A) to partition the total required to be obtained 
                under paragraph (1) among separate competitive bidding 
                proceedings, or among separate bands, regions, or 
                markets;
                    (B) to void any such separated competitive bidding 
                proceeding that fails to obtain the partitioned 
                subtotal that pertains to that proceeding; and
                    (C) to prescribe minimum bids or other bidding 
                requirements to obtain such total or subtotal.
            (3) Licenses withheld.--Notwithstanding any other 
        requirement of this section, the Commission shall refrain from 
        conducting any competitive bidding pursuant to the methodology 
        established pursuant to this subsection unless the Commission 
        determines that such methodology will secure winning bids 
        totaling not less than two-thirds of $1,900,000,000.
            (4) Authority to rebid at a later time to secure statutory 
        objectives.--Nothing in paragraph (2) or (3) shall preclude or 
        limit the Commission from assigning the frequencies described 
        in paragraph (1) by competitive bidding at such later date 
        (than the date required by this section) as the Commission 
        determines, in its discretion, will better attain the 
        objectives of recovering for the public a fair portion of the 
        value of the public spectrum resource and avoiding unjust 
        enrichment.
    (f) Protection of Qualifying Low-Power Stations.--Prior to making 
any allocation or assignment under this section the Commission shall 
assure that each qualifying low-power television station is assigned a 
frequency below 746 megahertz to permit the continued operation of such 
station.
    (g) Definitions.--For purposes of this section:
            (1) Commission.--The term ``Commission'' means the Federal 
        Communications Commission.
            (2) Digital television service.--The term ``digital 
        television service'' means television service provided using 
        digital technology to enhance audio quality and video 
        resolution, as further defined in the Memorandum Opinion, 
        Report, and Order of the Commission entitled `Advanced 
        Television Systems and Their Impact Upon the Existing 
        Television Service', MM Docket No. 87-268 and any subsequent 
        Commission proceedings dealing with digital television.
            (3) Analog television service.--The term ``analog 
        television service'' means services provided pursuant to the 
        transmission standards prescribed by the Commission in section 
        73.682(a) of its regulation (47 CFR 73.682(a)).
            (4) Public safety services.--The term ``public safety 
        services'' means services--
                    (A) the sole or principal purpose of which is to 
                protect the safety of life, health, or property;
                    (B) that are provided--
                            (i) by State or local government entities; 
                        or
                            (ii) by nongovernmental, private 
                        organizations that are authorized by a 
                        governmental entity whose primary mission is 
                        the provision of such services; and
                    (C) that are not made commercially available to the 
                public by the provider.
            (5) Service area.--The term ``service area'' means the 
        geographic area over which a licensee may provide service and 
        is protected from interference.
            (6) Spectrum block.--The term ``spectrum block'' means the 
        range of frequencies over which the apparatus licensed by the 
        Commission is authorized to transmit signals.
            (7) Qualifying low-power television stations.--A station is 
        a qualifying low-power television station if--
                    (A) during the 90 days preceding the date of 
                enactment of this Act--
                            (i) such station broadcast a minimum of 18 
                        hours per day;
                            (ii) such station broadcast an average of 
                        at least 3 hours per week of programming that 
                        was produced within the community of license of 
                        such station; and
                            (iii) such station was in compliance with 
                        the requirements applicable to low-power 
                        television stations; or
                    (B) the Commission determines that the public 
                interest, convenience, and necessity would be served by 
                treating the station as a qualifying low-power 
                television station for purposes of this section.

SEC. 3304. INQUIRY REQUIRED.

    The Federal Communications Commission shall, not later than July 1, 
1997, initiate the inquiry required by section 309(j)(12) of the 
Communications Act of 1934 (47 U.S.C. 309(j)(12)) for the purposes of 
collecting the information required for its report under each of 
subparagraphs (A) through (E) of such section, and shall keep the 
Congress fully and currently informed with respect to the progress of 
such inquiry.

                          Subtitle E--Medicaid

SEC. 3400. TABLE OF CONTENTS OF SUBTITLE; REFERENCES.

    (a) Table of Contents of Subtitle.--The table of contents of this 
subtitle is as follows:

Sec. 3400. Table of contents of subtitle; references.
                   subchapter a--use of managed care
Sec. 3401. State options to provide benefits through managed care 
                            entities.
Sec. 3402. Elimination of 75:25 restriction on risk contracts.
Sec. 3403. Primary care case management services as State option 
                            without need for waiver.
Sec. 3404. Change in threshold amount for contracts requiring 
                            Secretary's prior approval.
Sec. 3405. Determinsubchapter b--payment methodology
Sec. 3411. Flexibility in payment methods for hospital, nursing 
                            facility, and ICF/MR services; flexibility 
                            for home health.
Sec. 3412. Payment for Federally qualified health center services.
Sec. 3413. Treatment of State taxes imposed on certain hospitals that 
                       subchapter c--eligibility
Sec. 3421. State option of continuous eligibility for 12 months; 
                            clarification of State option to cover 
                            children.
Sec. 3422. Payment of home-health-related medicare part B premium 
                            amount for certain low-income individuals.
Sec. 3423. Penalty for fraudulent eligibility.
Sesubchapter d--programs of all-inclusive care for the elderly (pace)
Sec. 3431. Establishment of PACE program as medicaid State option.
Sec. 3432. Coverage of PACE under the medicare program.
Sec. 3433. Effective date; transition.
Sec. 3434. Study and reposubchapter e--benefits
Sec. 3441. Elimination of requirement to pay for private insurance.
Sec. 3442. Permitting same copayments in health maintenance 
                            organizations as in fee-for-service.
Sec. 3443. Physician qualification requirements.
Sec. 3444. Elimination of requirement of prior institutionalization 
                            with respect to habilitation services 
                            furnished under a waiver for home or 
                            community-based services.
Sec. 3445. Benefits for services of physician assistants.
Sec. 3446. Study and rsubchapter f--administrationEPSDT benefit.
Sec. 3451. Elimination of duplicative inspection of care requirements 
                            for ICFS/MR and mental hospitals.
Sec. 3452. Alternative sanctions for noncompliant ICFS/MR.
Sec. 3453. Modification of MMIS requirements.
Sec. 3454. Facilitating imposition of State alternative remedies on 
                            noncompliant nursing facilities.
Sec. 3455. Medically accepted indication.
Sec. 3456. Continuation of State-wide section 1115 medicaid waivers.
Sec. 3457. Authorizing administrative streamlining and privatizing 
                            modifications under the medicaid program.
Sec. 3458. Extension of moratorium.
                      Chapter 2--Quality Assurance

Sec. 3461. Requirements to ensure quality of and access to care under 
                            managed care plans.
Sec. 3462. Solvency standards for certain health maintenance 
                            organizations.
Sec. 3463. Application of prudent layperson standard for emergency 
                            medical condition and prohibition of gag 
                            rule restrictions.
Sec. 3464. Additional fraud and abuse protections in managed care.
Sec. 3465. Grievances under managed care plans.
Sec. 3466. Standards relating to access to obstetrical and 
                            gynecological services under managed care 
                            plans.
                      Chapter 3--Federal Payments

Sec. 3471. Reforming disproportionate share payments under State 
                            medicaid programs.
Sec. 3472. Additional funding for State emergency health services 
                            furnished to undocumented aliens.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this subtitle an amendment is 
expressed in terms of an amendment to or repeal of a section or other 
provision, the reference is considered to be made to that section or 
other provision of the Social Security Act.

                      CHAPTER 1--STATE FLEXIBILITY

                   Subchapter A--Use of Managed Care

SEC. 3401. STATE OPTIONS TO PROVIDE BENEFITS THROUGH MANAGED CARE 
              ENTITIES.

    (a) In General.--Section 1915(a) (42 U.S.C. 1396n(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (1),
            (2) by striking the period at the end of paragraph (2) and 
        inserting ``; or'', and
            (3) by adding at the end the following new paragraph:
            ``(3) requires individuals, other than special needs 
        children (as defined in subsection (i)), eligible for medical 
        assistance for items or services under the State plan to enroll 
        with an entity that provides or arranges for services for 
        enrollees under a contract pursuant to section 1903(m), or with 
        a primary care case manager (as defined in section 1905(t)(2)) 
        (or restricts the number of provider agreements with those 
        entities under the State plan, consistent with quality of 
        care), if--
                    ``(A) the State permits an individual to choose the 
                manager or managed care entity from among the managed 
                care organizations and primary care case providers who 
                meet the requirements of this title;
                    ``(B)(i) individuals are permitted to choose 
                between at least 2 of those entities, or 2 of the 
                managers, or an entity and a manager, each of which has 
                sufficient capacity to provide services to enrollees; 
                or
                    ``(ii) with respect to a rural area--
                            ``(I) individuals who are required to 
                        enroll with a single entity are afforded the 
                        option to obtain covered services by an 
                        alternative provider; and
                            ``(II) an individual who is offered no 
                        alternative to a single entity or manager is 
                        given a choice between at least two providers 
                        within the entity or through the manager;
                    ``(C) no individual who is an Indian (as defined in 
                section 4 of the Indian Health Care Improvement Act of 
                1976) is required to enroll in any entity that is not 
                one of the following (and only if such entity is 
                participating under the plan): the Indian Health 
                Service, an Indian health program operated by an Indian 
                tribe or tribal organization pursuant to a contract, 
                grant, cooperative agreement, or compact with the 
                Indian Health Service pursuant to the Indian Self-
                Determination Act (25 U.S.C. 450 et seq.), or an urban 
                Indian health program operated by an urban Indian 
                organization pursuant to a grant or contract with the 
                Indian Health Service pursuant to title V of the Indian 
                Health Care Improvement Act (25 U.S.C. 1601 et seq.);
                    ``(D) the State restricts those individuals from 
                changing their enrollment without cause for periods no 
                longer than six months (and permits enrollees to change 
                enrollment for cause at any time);
                    ``(E) the restrictions do not apply to providers of 
                family planning services (as defined in section 
                1905(a)(4)(C)) and are not conditions for payment of 
                medicare cost sharing pursuant to section 1905(p)(3); 
                and
                    ``(F) prior to establishing an enrollment 
                requirement under this paragraph, the State agency 
                provides for public notice and comment pursuant to 
                requirements established by the Secretary.''.
    (b) Special Needs Children Defined.--Section 1915 (42 U.S.C. 1396n) 
is amended by adding at the end the following:
    ``(i) For purposes of subsection (a)(3), the term `special needs 
child' means an individual under 19 years of age who--
            ``(1) is eligible for supplemental security income under 
        title XVI,
            ``(2) is described in section 501(a)(1)(D),
            ``(3) is described in section 1902(e)(3), or
            ``(4) is in foster care or otherwise in an out-of-home 
        placement.''.
    (c) Conforming Amendment to Risk-Based Arrangements.--Section 
1903(m)(2) (42 U.S.C. 1396b(m)(2)) is amended--
            (1) in paragraph (A)(vi)--
                    (A) by striking ``(I) except as provided under 
                subparagraph (F),''; and
                    (B) by striking all that follows ``to terminate 
                such enrollment'' and inserting ``in accordance with 
                the provisions of subparagraph (F);''; and
            (2) in subparagraph (F)--
                    (A) by striking ``In the case of--'' and all that 
                follows through ``a State plan'' and inserting ``A 
                State plan'', and
                    (B) by striking ``(A)(vi)(I)'' and inserting 
                ``(A)(vi)''.
    (d) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

SEC. 3402. ELIMINATION OF 75:25 RESTRICTION ON RISK CONTRACTS.

    (a) 75 Percent Limit on Medicare and Medicaid Enrollment.--
            (1) In general.--Section 1903(m)(2)(A) (42 U.S.C. 
        1396b(m)(2)(A)) is amended by striking clause (ii).
            (2) Conforming amendments.--Section 1903(m)(2) (42 U.S.C. 
        1396b(m)(2)) is amended--
                    (A) by striking subparagraphs (C), (D), and (E); 
                and
                    (B) in subparagraph (G), by striking ``clauses (i) 
                and (ii)'' and inserting ``clause (i)''.
    (b) Effective Date.--The amendments made by subsection (a) take 
effect on the date of the enactment of this Act.

SEC. 3403. PRIMARY CARE CASE MANAGEMENT SERVICES AS STATE OPTION 
              WITHOUT NEED FOR WAIVER.

    (a) Optional Coverage as Part of Medical Assistance.--Section 
1905(a) (42 U.S.C. 1396d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (24);
            (2) by redesignating paragraph (25) as paragraph (26) and 
        by striking the period at the end of such paragraph and 
        inserting a comma; and
            (3) by inserting after paragraph (24) the following new 
        paragraph:
            ``(25) primary care case management services (as defined in 
        subsection (t)); and''.
    (b) Primary Care Case Management Services Defined.--Section 1905 
(42 U.S.C. 1396d) is amended by adding at the end the following new 
subsection:
    ``(t)(1) The term `primary care case management services' means 
case-management related services (including coordination and monitoring 
of health care services) provided by a primary care case manager under 
a primary care case management contract.
    ``(2)(A) The term `primary care case manager' means, with respect 
to a primary care case management contract, a provider described in 
subparagraph (B).
    ``(B) A provider described in this subparagraph is a provider that 
provides primary care case management services under contract and is--
            ``(i) a physician, a physician group practice, or an entity 
        employing or having other arrangements with physicians; or
            ``(ii) at State option--
                    ``(I) a nurse practitioner (as described in section 
                1905(a)(21));
                    ``(II) a certified nurse-midwife (as defined in 
                section 1861(gg)); or
                    ``(III) a physician assistant (as defined in 
                section 1861(aa)(5)).
    ``(3) The term `primary care case management contract' means a 
contract with a State agency under which a primary care case manager 
undertakes to locate, coordinate and monitor covered primary care (and 
such other covered services as may be specified under the contract) to 
all individuals enrolled with the primary care case manager, and which 
provides for--
            ``(A) reasonable and adequate hours of operation, including 
        24-hour availability of information, referral, and treatment 
        with respect to medical emergencies;
            ``(B) restriction of enrollment to individuals residing 
        sufficiently near a service delivery site of the entity to be 
        able to reach that site within a reasonable time using 
        available and affordable modes of transportation;
            ``(C) employment of, or contracts or other arrangements 
        with, sufficient numbers of physicians and other appropriate 
        health care professionals to ensure that services under the 
        contract can be furnished to enrollees promptly and without 
        compromise to quality of care;
            ``(D) a prohibition on discrimination on the basis of 
        health status or requirements for health services in 
        enrollment, disenrollment, or reenrollment of individuals 
        eligible for medical assistance under this title; and
            ``(E) a right for an enrollee to terminate enrollment 
        without cause during the first month of each enrollment period, 
        which period shall not exceed six months in duration, and to 
        terminate enrollment at any time for cause.
    ``(4) For purposes of this subsection, the term `primary care' 
includes all health care services customarily provided in accordance 
with State licensure and certification laws and regulations, and all 
laboratory services customarily provided by or through, a general 
practitioner, family medicine physician, internal medicine physician, 
obstetrician/gynecologist, or pediatrician.''.
    (c) Conforming Amendments.--Section 1902 (42 U.S.C. 1396a) is 
amended--
            (1) in subsection (a)(10)(C)(iv), by striking ``(24)'' and 
        inserting ``(25)'', and
            (2) in subsection (j), by striking ``(25)'' and inserting 
        ``(26)''.
    (d) Effective Date.--The amendments made by this section apply to 
primary care case management services furnished on or after October 1, 
1997.

SEC. 3404. CHANGE IN THRESHOLD AMOUNT FOR CONTRACTS REQUIRING 
              SECRETARY'S PRIOR APPROVAL.

    (a) In General.--Section 1903(m)(2)(A)(iii) (42 U.S.C. 
1396b(m)(2)(A)(iii)) is amended by striking ``$100,000'' and inserting 
``$1,000,000 for 1998 and, for a subsequent year, the amount 
established under this clause for the previous year increased by the 
percentage increase in the consumer price index for all urban consumers 
over the previous year''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contracts entered into or renewed on or after the date of the 
enactment of this Act.

SEC. 3405. DETERMINATION OF HOSPITAL STAY.

    (a) In General.--Title XIX, as amended by section 3431(a), is 
amended--
            (1) by redesignating section 1933 as section 1934, and
            (2) by inserting after section 1932 the following new 
        section:

                    ``determination of hospital stay

    ``Sec. 1933. (a) In General.--A Medicaid health plan shall cover 
the length of an inpatient hospital stay under this title as determined 
by the attending physician (or other attending health care provider to 
the extent permitted under State law) in consultation with the patient 
to be medically appropriate.
    ``(b) Construction.--Nothing in this title shall be construed--
            ``(1) as requiring the provision of inpatient coverage if 
        the attending physician (or other attending health care 
        provider to the extent permitted under State law) and patient 
        determine that a shorter period of hospital stay is medically 
        appropriate, or
            ``(2) as affecting the application of deductibles and 
        coinsurance.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to discharges occurring on or after 6 months after the date of 
the enactment of this Act.

                   Subchapter B--Payment Methodology

SEC. 3411. FLEXIBILITY IN PAYMENT METHODS FOR HOSPITAL, NURSING 
              FACILITY, AND ICF/MR SERVICES; FLEXIBILITY FOR HOME 
              HEALTH.

    (a) Repeal of Boren Requirements.--Section 1902(a)(13) (42 U.S.C. 
1396a(a)) is amended--
            (1) by amending subparagraphs (A) and (B) to read as 
        follows:
                    ``(A) for a public process for determination of 
                rates of payment under the plan for hospital services, 
                nursing facility services, and services of intermediate 
                care facilities for the mentally retarded under which--
                            ``(i) proposed rates are published, and 
                        providers, beneficiaries and their 
                        representatives, and other concerned State 
                        residents are given a reasonable opportunity 
                        for review and comment on the proposed rates;
                            ``(ii) final rates are published, together 
                        with justifications, and
                            ``(iii) in the case of hospitals, take into 
                        account (in a manner consistent with section 
                        1923) the situation of hospitals which serve a 
                        disproportionate number of low income patients 
                        with special needs;
                    ``(B) that the State shall provide assurances 
                satisfactory to the Secretary that the average level of 
                payments under the plan for nursing facility services 
                (as determined on an aggregate per resident-day basis) 
                and the level of payments under the plan for inpatient 
                hospital services (as determined on an aggregate 
                hospital payment basis) furnished during the 18-month 
                period beginning October 1, 1997, is not less than the 
                average level of payments that would be made under the 
                plan during such 18-month period for such respective 
                services (determined on such basis) based on rates or 
                payment basis in effect as of May 1, 1997;''; and
            (2) by striking subparagraph (C).
    (b) Repeal of Requirements Relating to Home Health Services.--Such 
section is further amended--
            (1) by adding ``and'' at the end of subparagraph (D),
            (2) by striking ``and'' at the end of subparagraph (E), and
            (3) by striking subparagraph (F).
    (c) Effective Date.--The amendments made by this section shall 
apply to payment for items and services furnished on or after the date 
of the enactment of this Act.

SEC. 3412. PAYMENT FOR CENTER AND CLINIC SERVICES.

    (a) Phase-Out of Payment Based on Reasonable Costs.--Section 
1902(a)(13)(E) (42 U.S.C. 1396a(a)(13)(E)) is amended by inserting 
``(or 95 percent for services furnished during fiscal year 2000, 90 
percent for service furnished during fiscal year 2001, and 85 percent 
for services furnished during fiscal year 2002)'' after ``100 
percent''.
    (b) Transitional Supplemental Payment for Services Furnished Under 
Certain Managed Care Contracts.--
            (1) In general.--Section 1902(a)(13)(E) is further 
        amended--
                    (A) by inserting ``(i)'' after ``(E)'', and
                    (B) by inserting before the semicolon at the end 
                the following: ``and (ii) in carrying out clause (i) in 
                the case of services furnished by a federally qualified 
                health center or a rural health clinic pursuant to a 
                contract between the center and a health maintenance 
                organization under section 1903(m), for payment by the 
                State of a supplemental payment equal to the amount (if 
                any) by which the amount determined under clause (i) 
                exceeds the amount of the payments provided under such 
                contract''.
            (2) Conforming amendment to managed care contract 
        requirement.--Clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 
        1396b(m)(2)(A)) is amended to read as follows:
            ``(ix) such contract provides, in the case of an entity 
        that has entered into a contract for the provision of services 
        with a federally qualified health center or a rural health 
        clinic, that the entity shall provide payment that is not less 
        than the level and amount of payment which the entity would 
        make for the services if the services were furnished by a 
        provider which is not a federally qualified health center or a 
        rural health clinic;''.
            (3) Effective date.--The amendments made by this section 
        shall apply to services furnished on or after October 1, 1997.
    (c) End of Transitional Payment Rules.--Effective for services 
furnished on or after October 1, 2002--
            (1) subparagraph (E) of section 1902(a)(13) (42 U.S.C. 
        1396a(a)(13)) is repealed, and
            (2) clause (ix) of section 1903(m)(2)(A) (42 U.S.C. 
        1396b(m)(2)(A)) is repealed.
    (d) Flexibility in Coverage of Non-Freestanding Look-Alikes.--
            (1) In general.--Section 1905(l)(2)(B)(iii) (42 U.S.C. 
        1396d(l)(2)(B)(iii)) is amended by inserting ``and is not other 
        than an entity that is owned, controlled, or operated by 
        another provider'' after ``such a grant''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to service furnished on and after the date of the 
        enactment of this Act.
    (e) GAO Report.--By not later than February 1, 2001, the 
Comptroller General shall submit to Congress a report on the impact of 
the amendments made by this section on access to health care for 
medicaid beneficiaries and the uninsured served at health centers and 
rural health clinics and the ability of health centers and rural health 
clinics to become integrated in a managed care system.

SEC. 3413. TREATMENT OF STATE TAXES IMPOSED ON CERTAIN HOSPITALS THAT 
              PROVIDE FREE CARE.

    (a) Exception From Tax Does Not Disqualify as Broad-Based Tax.--
Section 1903(w)(3) (42 U.S.C. 1396b(w)(3)) is amended--
            (1) in subparagraph (B), by striking ``and (E)'' and 
        inserting ``(E), and (F)'', and
            (2) by adding at the end the following:
    ``(F) In no case shall a tax not qualify as a broad-based health 
care related tax under this paragraph because it does not apply to a 
hospital that is exempt from taxation under section 501(c)(3) of the 
Internal Revenue Code of 1986 and that does not accept payment under 
the State plan under this title or under title XVIII.''.
    (b) Reduction in Federal Financial Participation in Case of 
Imposition of Tax.--Section 1903(b) (42 U.S.C. 1396b(b)) is amended by 
adding at the end the following:
    ``(4) Notwithstanding the preceding provisions of this section, the 
amount determined under subsection (a)(1) for any State shall be 
decreased in a quarter by the amount of any health care related taxes 
(described in section 1902(w)(3)(A)) that are imposed on a hospital 
described in subsection (w)(3)(F) in that quarter.''.
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to taxes imposed before, on, or after the date of the enactment 
of this Act and the amendment made by subsection (b) shall apply to 
taxes imposed on or after such date.

                       Subchapter C--Eligibility

SEC. 3421. STATE OPTION OF CONTINUOUS ELIGIBILITY FOR 12 MONTHS; 
              CLARIFICATION OF STATE OPTION TO COVER CHILDREN.

    (a) Continuous Eligibility Option.--Section 1902(e) (42 U.S.C. 
1396a(e)) is amended by adding at the end the following new paragraph:
    ``(12) At the option of the State, the plan may provide that an 
individual who is under an age specified by the State (not to exceed 19 
years of age) and who is determined to be eligible for benefits under a 
State plan approved under this title under subsection (a)(10)(A) shall 
remain eligible for those benefits until the earlier of--
            ``(A) the end of a period (not to exceed 12 months) 
        following the determination; or
            ``(B) the time that the individual exceeds that age.''.
    (b) Clarification of State Option To Cover All Children Under 19 
Years of Age.--Section 1902(l)(1)(D) (42 U.S.C. 1396a(l)(1)(D)) is 
amended by inserting ``(or, at the option of a State, after any earlier 
date)'' after ``children born after September 30, 1983''.
    (c) Effective Date.--The amendments made by this section shall 
apply to medical assistance for items and services furnished on or 
after October 1, 1997.

SEC. 3422. PAYMENT OF HOME-HEALTH-RELATED MEDICARE PART B PREMIUM 
              AMOUNT FOR CERTAIN LOW-INCOME INDIVIDUALS.

    (a) Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
1396a(a)(10)(E)) is amended--
            (1) by striking ``and'' at the end of clause (ii), and
            (2) by inserting after clause (iii) the following:
                    ``(iv) subject to section 1905(p)(4), for making 
                medical assistance available for the portion of 
                medicare cost sharing described in section 
                1905(p)(3)(A)(ii), that is attributable to the 
                application under section 1839(a)(5) of section 
                1833(d)(2) for individuals who would be described in 
                clause (iii) but for the fact that their income exceeds 
                120 percent, but is less than 175 percent, of the 
                official poverty line (referred to in section 
                1905(p)(2)) for a family of the size involved;''.
    (b) 100 Percent Federal Payment.--The third sentence of section 
1905(b) (42 U.S.C. 1396d(b)) is amended by inserting ``and with respect 
to amounts expended for medical assistance described in section 
1902(a)(10)(E)(iv) for individuals described in such section'' before 
the period at the end..

SEC. 3423. PENALTY FOR FRAUDULENT ELIGIBILITY.

    Section 1128B(a) (42 U.S.C. 1320a-7b(a)), as amended by section 217 
of the Health Insurance Portability and Accountability Act of 1996, is 
amended--
            (1) by amending paragraph (6) to read as follows:
            ``(6) for a fee knowingly and willfully counsels or assists 
        an individual to dispose of assets (including by any transfer 
        in trust) in order for the individual to become eligible for 
        medical assistance under a State plan under title XIX, if 
        disposing of the assets results in the imposition of a period 
        of ineligibility for such assistance under section 1917(c),''; 
        and
            (2) in clause (ii) of the matter following such paragraph, 
        by striking ``failure, or conversion by any other person'' and 
        inserting ``failure, conversion, or provision of counsel or 
        assistance by any other person''.

SEC. 3424. TREATMENT OF CERTAIN SETTLEMENT PAYMENTS.

    Notwithstanding any other provision of law, the payments made from 
any fund established pursuant to the settlement in the case of In re 
Factor VIII or IX Concentrate Blood Products Litigation, MDL-986, no. 
93-C7452 (N.D. Ill.) shall not be considered income or resources in 
determining eligibility for, or the amount of benefits under, a State 
plan of medical assistance approved under title XIX of the Social 
Security Act.

  Subchapter D--Programs of All-inclusive Care for the Elderly (PACE)

SEC. 3431. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

    (a) In General.--Title XIX is amended--
            (1) in section 1905(a) (42 U.S.C. 1396d(a)), as amended by 
        section 3403(a)--
                    (A) by striking ``and'' at the end of paragraph 
                (25);
                    (B) by redesignating paragraph (26) as paragraph 
                (27); and
                    (C) by inserting after paragraph (25) the following 
                new paragraph:
            ``(26) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals enrolled 
        under the program under such section; and'';
            (2) by redesignating section 1932 as section 1933; and
            (3) by inserting after section 1931 the following new 
        section:

         ``program of all-inclusive care for the elderly (pace)

    ``Sec. 1932. (a) Option.--
            ``(1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE program 
        services to PACE program eligible individuals who are eligible 
        for medical assistance under the State plan and who are 
        enrolled in a PACE program under a PACE program agreement. Such 
        individuals need not be eligible for benefits under part A, or 
        enrolled under part B, of title XVIII to be eligible to enroll 
        under this section. In the case of an individual enrolled with 
        a PACE program pursuant to such an election--
                    ``(A) the individual shall receive benefits under 
                the plan solely through such program, and
                    ``(B) the PACE provider shall receive payment in 
                accordance with the PACE program agreement for 
                provision of such benefits.
        A State may limit through its PACE program agreement the number 
        of individuals who may be enrolled in a PACE program under the 
        State plan.
            ``(2) PACE program defined.--For purposes of this section 
        and section 1894, the term `PACE program' means a program of 
        all-inclusive care for the elderly that meets the following 
        requirements:
                    ``(A) Operation.--The entity operating the program 
                is a PACE provider (as defined in paragraph (3)).
                    ``(B) Comprehensive benefits.--The program provides 
                comprehensive health care services to PACE program 
                eligible individuals in accordance with the PACE 
                program agreement and regulations under this section.
                    ``(C) Transition.--In the case of an individual who 
                is enrolled under the program under this section and 
                whose enrollment ceases for any reason (including the 
                individual no longer qualifies as a PACE program 
                eligible individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining necessary 
                transitional care through appropriate referrals and 
                making the individual's medical records available to 
                new providers.
            ``(3) PACE provider defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `PACE provider' means an entity that--
                            ``(i) subject to subparagraph (B), is (or 
                        is a distinct part of) a public entity or a 
                        private, nonprofit entity organized for 
                        charitable purposes under section 501(c)(3) of 
                        the Internal Revenue Code of 1986, and
                            ``(ii) has entered into a PACE program 
                        agreement with respect to its operation of a 
                        PACE program.
                    ``(B) Treatment of private, for-profit providers.--
                Clause (i) of subparagraph (A) shall not apply--
                            ``(i) to entities subject to a 
                        demonstration project waiver under subsection 
                        (h); and
                            ``(ii) after the date the report under 
                        section 4014(b) of the Balanced Budget Act of 
                        1997 is submitted, unless the Secretary 
                        determines that any of the findings described 
                        in subparagraph (A), (B), (C) or (D) of 
                        paragraph (2) of such section are true.
            ``(4) PACE program agreement defined.--For purposes of this 
        section, the term `PACE program agreement' means, with respect 
        to a PACE provider, an agreement, consistent with this section, 
        section 1894 (if applicable), and regulations promulgated to 
        carry out such sections, between the PACE provider, the 
        Secretary, and a State administering agency for the operation 
        of a PACE program by the provider under such sections.
            ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program eligible 
        individual' means, with respect to a PACE program, an 
        individual who--
                    ``(A) is 55 years of age or older;
                    ``(B) subject to subsection (c)(4), is determined 
                under subsection (c) to require the level of care 
                required under the State medicaid plan for coverage of 
                nursing facility services;
                    ``(C) resides in the service area of the PACE 
                program; and
                    ``(D) meets such other eligibility conditions as 
                may be imposed under the PACE program agreement for the 
                program under subsection (e)(2)(A)(ii).
            ``(6) PACE protocol.--For purposes of this section, the 
        term `PACE protocol' means the Protocol for the Program of All-
        inclusive Care for the Elderly (PACE), as published by On Lok, 
        Inc., as of April 14, 1995.
            ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration waiver 
        program' means a demonstration program under either of the 
        following sections (as in effect before the date of their 
        repeal):
                    ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as extended by 
                section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            ``(8) State administering agency defined.--For purposes of 
        this section, the term `State administering agency' means, with 
        respect to the operation of a PACE program in a State, the 
        agency of that State (which may be the single agency 
        responsible for administration of the State plan under this 
        title in the State) responsible for administering PACE program 
        agreements under this section and section 1894 in the State.
            ``(9) Trial period defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `trial period' means, with respect to a PACE 
                program operated by a PACE provider under a PACE 
                program agreement, the first 3 contract years under 
                such agreement with respect to such program.
                    ``(B) Treatment of entities previously operating 
                pace demonstration waiver programs.--Each contract year 
                (including a year occurring before the effective date 
                of this section) during which an entity has operated a 
                PACE demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year during which 
                the entity operated a PACE program as a PACE provider 
                under a PACE program agreement.
            ``(10) Regulations.--For purposes of this section, the term 
        `regulations' refers to interim final or final regulations 
        promulgated under subsection (f) to carry out this section and 
        section 1894.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
            ``(1) In general.--Under a PACE program agreement, a PACE 
        provider shall--
                    ``(A) provide to PACE program eligible individuals, 
                regardless of source of payment and directly or under 
                contracts with other entities, at a minimum--
                            ``(i) all items and services covered under 
                        title XVIII (for individuals enrolled under 
                        section 1894) and all items and services 
                        covered under this title, but without any 
                        limitation or condition as to amount, duration, 
                        or scope and without application of 
                        deductibles, copayments, coinsurance, or other 
                        cost-sharing that would otherwise apply under 
                        such title or this title, respectively; and
                            ``(ii) all additional items and services 
                        specified in regulations, based upon those 
                        required under the PACE protocol;
                    ``(B) provide such enrollees access to necessary 
                covered items and services 24 hours per day, every day 
                of the year;
                    ``(C) provide services to such enrollees through a 
                comprehensive, multidisciplinary health and social 
                services delivery system which integrates acute and 
                long-term care services pursuant to regulations; and
                    ``(D) specify the covered items and services that 
                will not be provided directly by the entity, and to 
                arrange for delivery of those items and services 
                through contracts meeting the requirements of 
                regulations.
            ``(2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to have in 
        effect at a minimum--
                    ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such plan, in 
                accordance with regulations, and
                    ``(B) written safeguards of the rights of enrolled 
                participants (including a patient bill of rights and 
                procedures for grievances and appeals) in accordance 
                with regulations and with other requirements of this 
                title and Federal and State law designed for the 
                protection of patients.
    ``(c) Eligibility Determinations.--
            ``(1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                    ``(A) shall be made under and in accordance with 
                the PACE program agreement, and
                    ``(B) who is entitled to medical assistance under 
                this title, shall be made (or who is not so entitled, 
                may be made) by the State administering agency.
            ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined, in accordance with regulations, to be comparable to 
        the health status of individuals who have participated in the 
        PACE demonstration waiver programs. Such determination shall be 
        based upon information on health status and related indicators 
        (such as medical diagnoses and measures of activities of daily 
        living, instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible individuals.
            ``(3) Annual eligibility recertifications.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                determination described in subsection (a)(5)(B) for an 
                individual shall be reevaluated at least once a year.
                    ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be waived 
                during a period in accordance with regulations in those 
                cases where the State administering agency determines 
                that there is no reasonable expectation of improvement 
                or significant change in an individual's condition 
                during the period because of the advanced age, severity 
                of the advanced age, severity of chronic condition, or 
                degree of impairment of functional capacity of the 
                individual involved.
            ``(4) Continuation of eligibility.--An individual who is a 
        PACE program eligible individual may be deemed to continue to 
        be such an individual notwithstanding a determination that the 
        individual no longer meets the requirement of subsection 
        (a)(5)(B) if, in accordance with regulations, in the absence of 
        continued coverage under a PACE program the individual 
        reasonably would be expected to meet such requirement within 
        the succeeding 6-month period.
            ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a PACE 
        program shall be pursuant to regulations and the PACE program 
        agreement and shall permit enrollees to voluntarily disenroll 
        without cause at any time.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
            ``(1) In general.--In the case of a PACE provider with a 
        PACE program agreement under this section, except as provided 
        in this subsection or by regulations, the State shall make 
        prospective monthly payments of a capitation amount for each 
        PACE program eligible individual enrolled under the agreement 
        under this section.
            ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a contract 
        year shall be an amount specified in the PACE program agreement 
        for the year. Such amount shall be an amount, specified under 
        the PACE agreement, which is less than the amount that would 
        otherwise have been made under the State plan if the 
        individuals were not so enrolled and shall be adjusted to take 
        into account the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be appropriate. 
        The payment under this section shall be in addition to any 
        payment made under section 1894 for individuals who are 
        enrolled in a PACE program under such section.
    ``(e) PACE Program Agreement.--
            ``(1) Requirement.--
                    ``(A) In general.--The Secretary, in close 
                cooperation with the State administering agency, shall 
                establish procedures for entering into, extending, and 
                terminating PACE program agreements for the operation 
                of PACE programs by entities that meet the requirements 
                for a PACE provider under this section, section 1894, 
                and regulations.
                    ``(B) Numerical limitation.--
                            ``(i) In general.--The Secretary shall not 
                        permit the number of PACE providers with which 
                        agreements are in effect under this section or 
                        under section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                    ``(I) 40 as of the date of the 
                                enactment of this section, or
                                    ``(II) as of each succeeding 
                                anniversary of such date, the numerical 
                                limitation under this subparagraph for 
                                the preceding year plus 20.
                        Subclause (II) shall apply without regard to 
                        the actual number of agreements in effect as of 
                        a previous anniversary date.
                            ``(ii) Treatment of certain private, for-
                        profit providers.--The numerical limitation in 
                        clause (i) shall not apply to a PACE provider 
                        that--
                                    ``(I) is operating under a 
                                demonstration project waiver under 
                                subsection (h), or
                                    ``(II) was operating under such a 
                                waiver and subsequently qualifies for 
                                PACE provider status pursuant to 
                                subsection (a)(3)(B)(ii).
            ``(2) Service area and eligibility.--
                    ``(A) In general.--A PACE program agreement for a 
                PACE program--
                            ``(i) shall designate the service area of 
                        the program;
                            ``(ii) may provide additional requirements 
                        for individuals to qualify as PACE program 
                        eligible individuals with respect to the 
                        program;
                            ``(iii) shall be effective for a contract 
                        year, but may be extended for additional 
                        contract years in the absence of a notice by a 
                        party to terminate and is subject to 
                        termination by the Secretary and the State 
                        administering agency at any time for cause (as 
                        provided under the agreement);
                            ``(iv) shall require a PACE provider to 
                        meet all applicable State and local laws and 
                        requirements; and
                            ``(v) shall have such additional terms and 
                        conditions as the parties may agree to 
                        consistent with this section and regulations.
                    ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement under 
                subparagraph (A)(i), the Secretary (in consultation 
                with the State administering agency) may exclude from 
                designation an area that is already covered under 
                another PACE program agreement, in order to avoid 
                unnecessary duplication of services and avoid impairing 
                the financial and service viability of an existing 
                program.
            ``(3) Data collection.--
                    ``(A) In general.--Under a PACE program agreement, 
                the PACE provider shall--
                            ``(i) collect data,
                            ``(ii) maintain, and afford the Secretary 
                        and the State administering agency access to, 
                        the records relating to the program, including 
                        pertinent financial, medical, and personnel 
                        records, and
                            ``(iii) make to the Secretary and the State 
                        administering agency reports that the Secretary 
                        finds (in consultation with State administering 
                        agencies) necessary to monitor the operation, 
                        cost, and effectiveness of the PACE program 
                        under this title and title XVIII.
                    ``(B) Requirements during trial period.--During the 
                first three years of operation of a PACE program 
                (either under this section or under a PACE 
                demonstration waiver program), the PACE provider shall 
                provide such additional data as the Secretary specifies 
                in regulations in order to perform the oversight 
                required under paragraph (4)(A).
            ``(4) Oversight.--
                    ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE program 
                operated by a PACE provider, the Secretary (in 
                cooperation with the State administering agency) shall 
                conduct a comprehensive annual review of the operation 
                of the PACE program by the provider in order to assure 
                compliance with the requirements of this section and 
                regulations. Such a review shall include--
                            ``(i) an on-site visit to the program site;
                            ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                            ``(iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                            ``(iv) detailed analysis of the entity's 
                        substantial compliance with all significant 
                        requirements of this section and regulations; 
                        and
                            ``(v) any other elements the Secretary or 
                        State agency considers necessary or 
                        appropriate.
                    ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the State 
                administering agency) shall continue to conduct such 
                review of the operation of PACE providers and PACE 
                programs as may be appropriate, taking into account the 
                performance level of a provider and compliance of a 
                provider with all significant requirements of this 
                section and regulations.
                    ``(C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to the PACE 
                provider, along with any recommendations for changes to 
                the provider's program, and shall be made available to 
                the public upon request.
            ``(5) Termination of pace provider agreements.--
                    ``(A) In general.--Under regulations--
                            ``(i) the Secretary or a State 
                        administering agency may terminate a PACE 
                        program agreement for cause, and
                            ``(ii) a PACE provider may terminate such 
                        an agreement after appropriate notice to the 
                        Secretary, the State agency, and enrollees.
                    ``(B) Causes for termination.--In accordance with 
                regulations establishing procedures for termination of 
                PACE program agreements, the Secretary or a State 
                administering agency may terminate a PACE program 
                agreement with a PACE provider for, among other 
                reasons, the fact that--
                            ``(i) the Secretary or State administering 
                        agency determines that--
                                    ``(I) there are significant 
                                deficiencies in the quality of care 
                                provided to enrolled participants; or
                                    ``(II) the provider has failed to 
                                comply substantially with conditions 
                                for a program or provider under this 
                                section or section 1894; and
                            ``(ii) the entity has failed to develop and 
                        successfully initiate, within 30 days of the 
                        date of the receipt of written notice of such a 
                        determination, and continue implementation of a 
                        plan to correct the deficiencies.
                    ``(C) Termination and transition procedures.--An 
                entity whose PACE provider agreement is terminated 
                under this paragraph shall implement the transition 
                procedures required under subsection (a)(2)(C).
            ``(6) Secretary's oversight; enforcement authority.--
                    ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with the State 
                administering agency) that a PACE provider is failing 
                substantially to comply with the requirements of this 
                section and regulations, the Secretary (and the State 
                administering agency) may take any or all of the 
                following actions:
                            ``(i) Condition the continuation of the 
                        PACE program agreement upon timely execution of 
                        a corrective action plan.
                            ``(ii) Withhold some or all further 
                        payments under the PACE program agreement under 
                        this section or section 1894 with respect to 
                        PACE program services furnished by such 
                        provider until the deficiencies have been 
                        corrected.
                            ``(iii) Terminate such agreement.
                    ``(B) Application of intermediate sanctions.--Under 
                regulations, the Secretary may provide for the 
                application against a PACE provider of remedies 
                described in section 1857(f)(2) (or, for periods before 
                January 1, 1999, section 1876(i)(6)(B)) or 
                1903(m)(6)(B) in the case of violations by the provider 
                of the type described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 1903(m)(6)(A), 
                respectively (in relation to agreements, enrollees, and 
                requirements under section 1894 or this section, 
                respectively).
            ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of section 
        1857(g) (or for periods before January 1, 1999, section 
        1876(i)(9)) shall apply to termination and sanctions respecting 
        a PACE program agreement and PACE provider under this 
        subsection in the same manner as they apply to a termination 
        and sanctions with respect to a contract and a MedicarePlus 
        organization under part C (or for such periods an eligible 
        organization under section 1876).
            ``(8) Timely consideration of applications for pace program 
        provider status.--In considering an application for PACE 
        provider program status, the application shall be deemed 
        approved unless the Secretary, within 90 days after the date of 
        the submission of the application to the Secretary, either 
        denies such request in writing or informs the applicant in 
        writing with respect to any additional information that is 
        needed in order to make a final determination with respect to 
        the application. After the date the Secretary receives such 
        additional information, the application shall be deemed 
        approved unless the Secretary, within 90 days of such date, 
        denies such request.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall issue interim final 
        or final regulations to carry out this section and section 
        1894.
            ``(2) Use of pace protocol.--
                    ``(A) In general.--In issuing such regulations, the 
                Secretary shall, to the extent consistent with the 
                provisions of this section, incorporate the 
                requirements applied to PACE demonstration waiver 
                programs under the PACE protocol.
                    ``(B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) may 
                modify or waive such provisions of the PACE protocol in 
                order to provide for reasonable flexibility in adapting 
                the PACE service delivery model to the needs of 
                particular organizations (such as those in rural areas 
                or those that may determine it appropriate to use non-
                staff physicians accordingly to State licensing law 
                requirements) under this section and section 1932 where 
                such flexibility is not inconsistent with and would not 
                impair the essential elements, objectives, and 
                requirements of the this section, including--
                            ``(i) the focus on frail elderly qualifying 
                        individuals who require the level of care 
                        provided in a nursing facility;
                            ``(ii) the delivery of comprehensive, 
                        integrated acute and long-term care services;
                            ``(iii) the interdisciplinary team approach 
                        to care management and service delivery;
                            ``(iv) capitated, integrated financing that 
                        allows the provider to pool payments received 
                        from public and private programs and 
                        individuals; and
                            ``(v) the assumption by the provider over 
                        time of full financial risk.
            ``(3) Application of certain additional beneficiary and 
        program protections.--
                    ``(A) In general.--In issuing such regulations and 
                subject to subparagraph (B), the Secretary may apply 
                with respect to PACE programs, providers, and 
                agreements such requirements of part C of title XVIII 
                (or, for periods before January 1, 1999, section 1876) 
                and section 1903(m) relating to protection of 
                beneficiaries and program integrity as would apply to 
                MedicarePlus organizations under such part C (or for 
                such periods eligible organizations under risk-sharing 
                contracts under section 1876) and to health maintenance 
                organizations under prepaid capitation agreements under 
                section 1903(m).
                    ``(B) Considerations.--In issuing such regulations, 
                the Secretary shall--
                            ``(i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under part C of 
                        title XVIII (or, for periods before January 1, 
                        1999, section 1876) and section 1903(m);
                            ``(ii) not include any requirement that 
                        conflicts with carrying out PACE programs under 
                        this section; and
                            ``(iii) not include any requirement 
                        restricting the proportion of enrollees who are 
                        eligible for benefits under this title or title 
                        XVIII.
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) shall not apply:
            ``(1) Section 1902(a)(1), relating to any requirement that 
        PACE programs or PACE program services be provided in all areas 
        of a State.
            ``(2) Section 1902(a)(10), insofar as such section relates 
        to comparability of services among different population groups.
            ``(3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
            ``(4) Section 1903(m)(2)(A), insofar as it restricts a PACE 
        provider from receiving prepaid capitation payments.
    ``(h) Demonstration Project for For-Profit Entities.--
            ``(1) In general.--In order to demonstrate the operation of 
        a PACE program by a private, for-profit entity, the Secretary 
        (in close consultation with State administering agencies) shall 
        grant waivers from the requirement under subsection (a)(3) that 
        a PACE provider may not be a for-profit, private entity.
            ``(2) Similar terms and conditions.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms and 
                conditions for operation of a PACE program by a 
                provider under this subsection shall be the same as 
                those for PACE providers that are nonprofit, private 
                organizations.
                    ``(B) Numerical limitation.--The number of programs 
                for which waivers are granted under this subsection 
                shall not exceed 10. Programs with waivers granted 
                under this subsection shall not be counted against the 
                numerical limitation specified in subsection (e)(1)(B).
    ``(i) Post-Eligibility Treatment of Income.--A State may provide 
for post-eligibility treatment of income for individuals enrolled in 
PACE programs under this section in the same manner as a State treats 
post-eligibility income for individuals receiving services under a 
waiver under section 1915(c).
    ``(j) Miscellaneous Provisions.--
            ``(1) Construction.--Nothing in this section or section 
        1894 shall be construed as preventing a PACE provider from 
        entering into contracts with other governmental or 
        nongovernmental payers for the care of PACE program eligible 
        individuals who are not eligible for benefits under part A, or 
        enrolled under part B, of title XVIII or eligible for medical 
        assistance under this title.''.
    (b) Conforming Amendments.--
            (1) Section 1902 (42 U.S.C. 1396a), as amended by section 
        3403(c), is amended--
                    (A) in subsection (a)(10)(C)(iv), by striking 
                ``(25)'' and inserting ``(26)'', and
                    (B) in subsection (j), by striking ``(26)'' and 
                inserting ``(27)''.
            (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
        amended--
                    (A) in the heading, by striking ``from 
                organizations receiving certain waivers'' and inserting 
                ``under pace programs'', and
                    (B) by striking ``from any organization'' and all 
                that follows and inserting ``under a PACE demonstration 
                waiver program (as defined in subsection (a)(7) of 
                section 1932) or under a PACE program under section 
                1894.''.
            (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) is 
        amended by inserting ``or who is a PACE program eligible 
        individual enrolled in a PACE program under section 1932,'' 
        after ``section 1902(a)(10)(A),''.

SEC. 3432. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting after 
section 1894 the following new section:

    ``payments to, and coverage of benefits under, programs of all-
                 inclusive care for the elderly (pace)

    ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
            ``(1) Benefits through enrollment in a pace program.--In 
        accordance with this section, in the case of an individual who 
        is entitled to benefits under part A or enrolled under part B 
        and who is a PACE program eligible individual with respect to a 
        PACE program offered by a PACE provider under a PACE program 
        agreement--
                    ``(A) the individual may enroll in the program 
                under this section; and
                    ``(B) so long as the individual is so enrolled and 
                in accordance with regulations--
                            ``(i) the individual shall receive benefits 
                        under this title solely through such program, 
                        and
                            ``(ii) the PACE provider is entitled to 
                        payment under and in accordance with this 
                        section and such agreement for provision of 
                        such benefits.
            ``(2) Application of definitions.--The definitions of terms 
        under section 1932(a) shall apply under this section in the 
        same manner as they apply under section 1932.
    ``(b) Application of Medicaid Terms and Conditions.--Except as 
provided in this section, the terms and conditions for the operation 
and participation of PACE program eligible individuals in PACE programs 
offered by PACE providers under PACE program agreements under section 
1932 shall apply for purposes of this section.
    ``(c) Payment.--
            ``(1) Adjustment in payment amounts.--In the case of 
        individuals enrolled in a PACE program under this section, the 
        amount of payment under this section shall not be the amount 
        calculated under section 1932(d)(2), but shall be an amount, 
        specified under the PACE agreement, based upon payment rates 
        established for purposes of payment under section 1854 (or, for 
        periods before January 1, 1999, for purposes of risk-sharing 
        contracts under section 1876) and shall be adjusted to take 
        into account the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be appropriate. 
        Such amount under such an agreement shall be computed in a 
        manner so that the total payment level for all PACE program 
        eligible individuals enrolled under a program is less than the 
        projected payment under this title for a comparable population 
        not enrolled under a PACE program.
            ``(2) Form.--The Secretary shall make prospective monthly 
        payments of a capitation amount for each PACE program eligible 
        individual enrolled under this section in the same manner and 
        from the same sources as payments are made to a MedicarePlus 
        organization under section 1854 (or, for periods beginning 
        before January 1, 1999, to an eligible organization under a 
        risk-sharing contract under section 1876). Such payments shall 
        be subject to adjustment in the manner described in section 
        1854(a)(2) or section 1876(a)(1)(E), as the case may be.
    ``(d) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) are waived and shall 
not apply:
            ``(1) Section 1812, insofar as it limits coverage of 
        institutional services.
            ``(2) Sections 1813, 1814, 1833, and 1886, insofar as such 
        sections relate to rules for payment for benefits.
            ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of extended care 
        services or home health services.
            ``(4) Section 1861(i), insofar as it imposes a 3-day prior 
        hospitalization requirement for coverage of extended care 
        services.
            ``(5) Sections 1862(a)(1) and 1862(a)(9), insofar as they 
        may prevent payment for PACE program services to individuals 
        enrolled under PACE programs.''.

SEC. 3433. EFFECTIVE DATE; TRANSITION.

    (a) Timely Issuance of Regulations; Effective Date.--The Secretary 
of Health and Human Services shall promulgate regulations to carry out 
this subchapter in a timely manner. Such regulations shall be designed 
so that entities may establish and operate PACE programs under sections 
1894 and 1932 for periods beginning not later than 1 year after the 
date of the enactment of this Act.
    (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
            (1) Expansion in current number and extension of 
        demonstration projects.--Section 9412(b) of the Omnibus Budget 
        Reconciliation Act of 1986, as amended by section 4118(g) of 
        the Omnibus Budget Reconciliation Act of 1987, is amended--
                    (A) in paragraph (1), by inserting before the 
                period at the end the following: ``, except that the 
                Secretary shall grant waivers of such requirements to 
                up to the applicable numerical limitation specified in 
                section 1932(e)(1)(B) of the Social Security Act''; and
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by striking ``, 
                        including permitting the organization to assume 
                        progressively (over the initial 3-year period 
                        of the waiver) the full financial risk''; and
                            (ii) in subparagraph (C), by adding at the 
                        end the following: ``In granting further 
                        extensions, an organization shall not be 
                        required to provide for reporting of 
                        information which is only required because of 
                        the demonstration nature of the project.''.
            (2) Elimination of replication requirement.--Subparagraph 
        (B) of paragraph (2) of such section shall not apply to waivers 
        granted under such section after the date of the enactment of 
        this Act.
            (3) Timely consideration of applications.--In considering 
        an application for waivers under such section before the 
        effective date of repeals under subsection (c), subject to the 
        numerical limitation under the amendment made by paragraph (1), 
        the application shall be deemed approved unless the Secretary 
        of Health and Human Services, within 90 days after the date of 
        its submission to the Secretary, either denies such request in 
        writing or informs the applicant in writing with respect to any 
        additional information which is needed in order to make a final 
        determination with respect to the application. After the date 
        the Secretary receives such additional information, the 
        application shall be deemed approved unless the Secretary, 
        within 90 days of such date, denies such request.
    (c) Priority and Special Consideration in Application.--During the 
3-year period beginning on the date of the enactment of this Act:
            (1) Provider status.--The Secretary of Health and Human 
        Services shall give priority, in processing applications of 
        entities to qualify as PACE programs under section 1894 or 1932 
        of the Social Security Act--
                    (A) first, to entities that are operating a PACE 
                demonstration waiver program (as defined in section 
                1932(a)(7) of such Act), and
                    (B) then entities that have applied to operate such 
                a program as of May 1, 1997.
            (2) New waivers.--The Secretary shall give priority, in the 
        awarding of additional waivers under section 9412(b) of the 
        Omnibus Budget Reconciliation Act of 1986--
                    (A) to any entities that have applied for such 
                waivers under such section as of May 1, 1997; and
                    (B) to any entity that, as of May 1, 1997, has 
                formally contracted with a State to provide services 
                for which payment is made on a capitated basis with an 
                understanding that the entity was seeking to become a 
                PACE provider.
            (3) Special consideration.--The Secretary shall give 
        special consideration, in the processing of applications 
        described in paragraph (1) and the awarding of waivers 
        described in paragraph (2), to an entity which as of May 1, 
        1997 through formal activities (such as entering into contracts 
        for feasibility studies) has indicated a specific intent to 
        become a PACE provider.
    (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
            (1) In general.--Subject to paragraphs (2) and (3), the 
        following provisions of law are repealed:
                    (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21).
                    (B) Section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    (C) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            (2) Delay in application.--
                    (A) In general.--Subject to subparagraph (B), the 
                repeals made by paragraph (1) shall not apply to 
                waivers granted before the initial effective date of 
                regulations described in subsection (a).
                    (B) Application to approved waivers.--Such repeals 
                shall apply to waivers granted before such date only 
                after allowing such organizations a transition period 
                (of up to 24 months) in order to permit sufficient time 
                for an orderly transition from demonstration project 
                authority to general authority provided under the 
                amendments made by this subchapter.
            (3) State option.--A State may elect to maintain the PACE 
        program which (as of the date of the enactment of this Act) 
        were operating under the authority described in paragraph (1) 
        without electing to use the authority under section 1932 of the 
        Public Health Service Act.

SEC. 3434. STUDY AND REPORTS.

    (a) Study.--
            (1) In general.--The Secretary of Health and Human Services 
        (in close consultation with State administering agencies, as 
        defined in section 1932(a)(8) of the Social Security Act) shall 
        conduct a study of the quality and cost of providing PACE 
        program services under the medicare and medicaid programs under 
        the amendments made by this subchapter.
            (2) Study of private, for-profit providers.--Such study 
        shall specifically compare the costs, quality, and access to 
        services by entities that are private, for-profit entities 
        operating under demonstration projects waivers granted under 
        section 1932(h) of the Social Security Act with the costs, 
        quality, and access to services of other PACE providers.
    (b) Report.--
            (1) In general.--Not later than 4 years after the date of 
        the enactment of this Act, the Secretary shall provide for a 
        report to Congress on the impact of such amendments on quality 
        and cost of services. The Secretary shall include in such 
        report such recommendations for changes in the operation of 
        such amendments as the Secretary deems appropriate.
            (2) Treatment of private, for-profit providers.--The report 
        shall include specific findings on whether any of the following 
        findings is true:
                    (A) The number of covered lives enrolled with 
                entities operating under demonstration project waivers 
                under section 1932(h) of the Social Security Act is 
                fewer than 800 (or such lesser number as the Secretary 
                may find statistically sufficient to make 
                determinations respecting findings described in the 
                succeeding subparagraphs).
                    (B) The population enrolled with such entities is 
                less frail than the population enrolled with other PACE 
                providers.
                    (C) Access to or quality of care for individuals 
                enrolled with such entities is lower than such access 
                or quality for individuals enrolled with other PACE 
                providers.
                    (D) The application of such section has resulted in 
                an increase in expenditures under the medicare or 
                medicaid programs above the expenditures that would 
                have been made if such section did not apply.
    (c) Information Included in Annual Recommendations.--The Medicare 
Payment Advisory Commission shall include in its annual report under 
section 1805(b)(1)(B) of the Social Security Act recommendations on the 
methodology and level of payments made to PACE providers under section 
1894(d) of such Act and on the treatment of private, for-profit 
entities as PACE providers.

                         Subchapter E--Benefits

SEC. 3441. ELIMINATION OF REQUIREMENT TO PAY FOR PRIVATE INSURANCE.

    (a) Repeal of State Plan Provision.--Section 1902(a)(25) (42 U.S.C. 
1396a(a)(25)) is amended--
            (1) by striking subparagraph (G); and
            (2) by redesignating subparagraphs (H) and (I) as 
        subparagraphs (G) and (H), respectively.
    (b) Making Provision Optional.--Section 1906 (42 U.S.C. 1396e) is 
amended--
            (1) in subsection (a)--
                    (A) by striking ``For purposes of section 
                1902(a)(25)(G) and subject to subsection (d), each'' 
                and inserting ``Each'',
                    (B) in paragraph (1), by striking ``shall'' and 
                inserting ``may'', and
                    (C) in paragraph (2), by striking ``shall'' and 
                inserting ``may''; and
            (2) by striking subsection (d).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 3442. PERMITTING SAME COPAYMENTS IN HEALTH MAINTENANCE 
              ORGANIZATIONS AS IN FEE-FOR-SERVICE.

    (a) In General.--Section 1916(a)(2)(D) (42 U.S.C. 1396o(a)(2)(D)) 
is amended by inserting ``(at the option of the State)'' after 
``section 1905(a)(4)(C), or''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to cost sharing with respect to deductions, cost sharing and 
similar charges imposed for items and services furnished on or after 
the date of the enactment of this Act.

SEC. 3443. PHYSICIAN QUALIFICATION REQUIREMENTS.

    (a) In General.--Section 1903(i) (42 U.S.C. 1396b(i)) is amended by 
striking paragraph (12)
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services furnished on or after the date of the enactment of 
this Act.

SEC. 3444. ELIMINATION OF REQUIREMENT OF PRIOR INSTITUTIONALIZATION 
              WITH RESPECT TO HABILITATION SERVICES FURNISHED UNDER A 
              WAIVER FOR HOME OR COMMUNITY-BASED SERVICES.

    (a) In General.--Section 1915(c)(5) (42 U.S.C. 1396n(c)(5)) is 
amended, in the matter preceding subparagraph (A), by striking ``, with 
respect to individuals who receive such services after discharge from a 
nursing facility or intermediate care facility for the mentally 
retarded''.
    (b) Effective Date.--The amendment made by subsection (a) apply to 
services furnished on or after October 1, 1997.

SEC. 3445. BENEFITS FOR SERVICES OF PHYSICIAN ASSISTANTS.

    (a) In General.--Section 1905(a) (42 U.S.C. 1396d(a)), as amended 
by sections 3403(a) and 3431(a), is amended--
            (1) by redesignating paragraphs (22) through (27) as 
        paragraphs (23) through (28), and
            (2) by inserting after paragraph (21) the following new 
        paragraph:
            ``(22) services furnished by an physician assistant (as 
        defined in section 1861(aa)(5)) which the assistant is legally 
        authorized to perform under State law and with the supervision 
        of a physician;''.
    (b) Conforming Amendments.--Section 1902 (42 U.S.C. 1396a), as 
amended by sections 3403(c) and 3431(b)(1), is amended--
            (1) in subsection (a)(10)(C)(iv), by striking ``(26)'' and 
        inserting ``(27)'', and
            (2) in subsection (j), by striking ``(27)'' and inserting 
        ``(28)''.

SEC. 3446. STUDY AND REPORT ON ACTUARIAL VALUE OF EPSDT BENEFIT.

    (a) Study.--The Secretary of Health and Human Services shall 
provide for a study on the actuarial value of the provision of early 
and periodic screening, diagnostic, and treatment services (as defined 
in section 1905(r) of the Social Security Act (42 U.S.C. 1396d(r))) 
under the medicaid program under title XIX of such Act. Such study 
shall include an examination of the portion of such value that is 
attributable to paragraph (5) of such section and to the second 
sentence of such section.
    (b) Report.--By not later than 18 months after the date of the 
enactment of this Act, the Secretary shall submit a report to Congress 
on the results of the study under subsection (a).

                      Subchapter F--Administration

SEC. 3451. ELIMINATION OF DUPLICATIVE INSPECTION OF CARE REQUIREMENTS 
              FOR ICFS/MR AND MENTAL HOSPITALS.

    (a) Mental Hospitals.--Section 1902(a)(26) (42 U.S.C. 1396a(a)(26)) 
is amended--
            (1) by striking ``provide--
                    ``(A) with respect to each patient'' and inserting 
                ``provide, with respect to each patient''; and
            (2) by striking subparagraphs (B) and (C).
    (b) ICFS/MR.--Section 1902(a)(31) (42 U.S.C. 1396a(a)(31)) is 
amended--
            (1) by striking ``provide--
                    ``(A) with respect to each patient'' and inserting 
                ``provide, with respect to each patient''; and
            (2) by striking subparagraphs (B) and (C).
    (c) Effective Date.--The amendments made by this section take 
effect on the date of the enactment of this Act.

SEC. 3452. ALTERNATIVE SANCTIONS FOR NONCOMPLIANT ICFS/MR.

    (a) In General.--Section 1902(i)(1)(B) (42 U.S.C. 1396a(i)(1)(B)) 
is amended by striking ``provide'' and inserting ``establish 
alternative remedies if the State demonstrates to the Secretary's 
satisfaction that the alternative remedies are effective in deterring 
noncompliance and correcting deficiencies, and may provide''.
    (b) Effective Date.--The amendments made by subsection (a) takes 
effect on the date of the enactment of this Act.

SEC. 3453. MODIFICATION OF MMIS REQUIREMENTS.

    (a) In General.--Section 1903(r) (42 U.S.C. 1396b(r)) is amended--
            (1) by striking all that precedes paragraph (5) and 
        inserting the following:
    ``(r)(1) In order to receive payments under subsection (a) for use 
of automated data systems in administration of the State plan under 
this title, a State must have in operation mechanized claims processing 
and information retrieval systems that meet the requirements of this 
subsection and that the Secretary has found--
            ``(A) is adequate to provide efficient, economical, and 
        effective administration of such State plan;
            ``(B) is compatible with the claims processing and 
        information retrieval systems used in the administration of 
        title XVIII, and for this purpose--
                            ``(i) has a uniform identification coding 
                        system for providers, other payees, and 
                        beneficiaries under this title or title XVIII;
                            ``(ii) provides liaison between States and 
                        carriers and intermediaries with agreements 
                        under title XVIII to facilitate timely exchange 
                        of appropriate data; and
                            ``(iii) provides for exchange of data 
                        between the States and the Secretary with 
                        respect to persons sanctioned under this title 
                        or title XVIII;
            ``(C) is capable of providing accurate and timely data;
            ``(D) is complying with the applicable provisions of part C 
        of title XI;
            ``(E) is designed to receive provider claims in standard 
        formats to the extent specified by the Secretary; and
            ``(F) effective for claims filed on or after January 1, 
        1999, provides for electronic transmission of claims data in 
        the format specified by the Secretary and consistent with the 
        Medicaid Statistical Information System (MSIS) (including 
        detailed individual enrollee encounter data and other 
        information that the Secretary may find necessary).''.
            (2) in paragraph (5)--
                    (A) by striking subparagraph (B);
                    (B) by striking all that precedes clause (i) and 
                inserting the following:
    ``(2) In order to meet the requirements of this paragraph, 
mechanized claims processing and information retrieval systems must 
meet the following requirements:'';
                    (C) in clause (iii), by striking ``under paragraph 
                (6)''; and
                    (D) by redesignating clauses (i) through (iii) as 
                paragraphs (A) through (C); and
            (3) by striking paragraphs (6), (7), and (8).
    (b) Conforming Amendments.--Section 1902(a)(25)(A)(ii) (42 U.S.C. 
1396a(a)(25)(A)(ii)) is amended by striking all that follows ``shall'' 
and inserting the following: ``be integrated with, and be monitored as 
a part of the Secretary's review of, the State's mechanized claims 
processing and information retrieval system under section 1903(r);''.
    (c) Effective Date.--Except as otherwise specifically provided, the 
amendments made by this section shall take effect on January 1, 1998.

SEC. 3454. FACILITATING IMPOSITION OF STATE ALTERNATIVE REMEDIES ON 
              NONCOMPLIANT NURSING FACILITIES.

    (a) In General.--Section 1919(h)(3)(D) (42 U.S.C. 1396r(h)(3)(D)) 
is amended--
            (1) by inserting ``and'' at the end of clause (i);
            (2) by striking ``, and'' at the end of clause (ii) and 
        inserting a period; and
            (3) by striking clause (iii).
    (b) Effective Date.--The amendments made by subsection (a) take 
effect on the date of the enactment of this Act.

SEC. 3455. MEDICALLY ACCEPTED INDICATION.

    Section 1927(g)(1)(B)(i) (42 U.S.C. 1396r-8(g)(1)(B)(i)) is 
amended--
            (1) by striking ``and'' at the end of subclause (II),
            (2) by redesignating subclause (III) as subclause (IV), and
            (3) by inserting after subclause (II) the following:
                                    ``(III) the DRUGDEX Information 
                                System; and''.

SEC. 3456. CONTINUATION OF STATE-WIDE SECTION 1115 MEDICAID WAIVERS.

    (a) In General.--Section 1115 (42 U.S.C. 1315) is amended by adding 
at the end the following new subsection:
    ``(e)(1) The provisions of this subsection shall apply to the 
extension of State-wide comprehensive demonstration project (in this 
subsection referred to as `waiver project') for which a waiver of 
compliance with requirements of title XIX is granted under subsection 
(a).
    ``(2) Not earlier than 1 year before the date the waiver under 
subsection (a) with respect to a waiver project would otherwise expire, 
the chief executive officer of the State which is operating the project 
may submit to the Secretary a written request for an extension, of up 
to 3 years, of the project.
    ``(3) If the Secretary fails to respond to the request within 6 
months after the date it is submitted, the request is deemed to have 
been granted.
    ``(4) If such a request is granted, the deadline for submittal of a 
final report under the waiver project is deemed to have been extended 
until the date that is 1 year after the date the waivers under 
subsection (a) with respect to the project would otherwise have 
expired.
    ``(5) The Secretary shall release an evaluation of each such 
project not later than 1 year after the date of receipt of the final 
report.
    ``(6) Subject to paragraphs (4) and (7), the extension of a waiver 
project under this subsection shall be on the same terms and conditions 
(including applicable terms and conditions relating to quality and 
access of services, budget neutrality, data and reporting requirements, 
and special population protections) that applied to the project before 
its extension under this subsection.
    ``(7) If an original condition of approval of a waiver project was 
that Federal expenditures under the project not exceed the Federal 
expenditures that would otherwise have been made, the Secretary shall 
take such steps as may be necessary to assure that, in the extension of 
the project under this subsection, such condition continues to be met. 
In applying the previous sentence, the Secretary shall take into 
account the Secretary's best estimate of rates of change in 
expenditures at the time of the extension.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to demonstration projects initially approved before, on, or after 
the date of the enactment of this Act.

SEC. 3457. AUTHORIZING ADMINISTRATIVE STREAMLINING AND PRIVATIZING 
              MODIFICATIONS UNDER THE MEDICAID PROGRAM.

    Section 1902 (42 U.S.C. 1396a) is amended by adding at the end the 
following:
    ``(aa)(1) Notwithstanding any other provision of law, no provision 
of law shall be construed as preventing any State from allowing 
determinations of eligibility to receive medical assistance under this 
title to be made by an entity that is not a State or local government, 
or by an individual who is not an employee of a State or local 
government, which meets such qualifications as the State determines. 
For purposes of any Federal law, such determinations shall be 
considered to be made by the State and by a State agency.
    ``(2) Nothing in this subsection shall be construed as affecting--
            ``(A) the conditions for eligibility for benefits 
        (including any conditions relating to income or resources); and
            ``(B) the rights to challenge determinations regarding 
        eligibility or rights to benefits; and
            ``(C) determinations regarding quality control or error 
        rates.''.

SEC. 3458. EXTENSION OF MORATORIUM.

    Section 6408(a)(3) of the Omnibus Budget Reconciliation Act of 
1989, as amended by section 13642 of the Omnibus Budget Reconciliation 
Act of 1993, is amended by striking ``December 31, 1995'' and inserting 
``December 31, 2002''.

                      CHAPTER 2--QUALITY ASSURANCE

SEC. 3461. REQUIREMENTS TO ENSURE QUALITY OF AND ACCESS TO CARE UNDER 
              MANAGED CARE PLANS.

    (a) State Plan Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) 
is amended--
            (1) in paragraph (62), by striking ``; and'' at the end and 
        inserting a semicolon;
            (2) by striking the period at the end of paragraph (63) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (63) the following new 
        paragraph:
            ``(64) provide, with respect to all contracts described in 
        section 1903(m)(2)(A) with an organization or provider, that--
                    ``(A) the State agency develops and implements a 
                quality assessment and improvement strategy, consistent 
                with standards that the Secretary shall establish, in 
                consultation with the States, and monitor and that do 
                not preempt the application of stricter State 
                standards, which includes--
                            ``(i) standards for access to care so that 
                        covered services are available within 
                        reasonable timeframes and in a manner that 
                        ensures continuity of care and adequate primary 
                        care and, where applicable, specialized 
                        services capacity, including pediatric 
                        specialized services for special needs children 
                        (as defined in section 1915(i)); and
                            ``(ii) procedures for monitoring and 
                        evaluating the quality and appropriateness of 
                        care and services to beneficiaries that reflect 
                        the full spectrum of populations enrolled under 
                        the contract and that include--
                                    ``(I) requirements for provision of 
                                quality assurance data to the State 
                                using the data and information set that 
                                the Secretary shall specify with 
                                respect to entities contracting under 
                                section 1876 or alternative data 
                                requirements approved by the Secretary;
                                    ``(II) regular and periodic 
                                examination of the scope and content of 
                                the quality improvement strategy; and
                                    ``(III) other aspects of care and 
                                service directly related to the 
                                improvement of quality of care 
                                (including grievance procedures and 
                                marketing and information standards); 
                                and
                    ``(B) that adequate provision is made, consistent 
                with standards that the Secretary shall specify and 
                monitor, with respect to financial reporting under the 
                contracts.''.
    (b) Deemed Compliance.--Section 1903(m) (42 U.S.C. 1396b(m)) is 
amended by adding at the end the following:
    ``(7) Deemed compliance.--
            ``(A) Medicare organizations.--At the option of a State, 
        the requirements of the previous provisions of this subsection 
        shall not apply with respect to a health maintenance 
        organization if the organization is an eligible organization 
        with a contract in effect under section 1876 or a MedicarePlus 
        organization with a contract in effect under C of title XVIII.
            ``(B) Private accreditation.--
                    ``(i) In general.--At the option of a State, such 
                requirements shall not apply with respect to a health 
                maintenance organization if--
                            ``(I) the organization is accredited by an 
                        organization meeting the requirements described 
                        in subparagraph (C); and
                            ``(II) the standards and process under 
                        which the organization is accredited meet such 
                        requirements as are established under clause 
                        (ii), without regard to whether or not the time 
                        requirement of such clause is satisfied.
                    ``(ii) Standards and process.--Not later than 180 
                days after the date of the enactment of this paragraph, 
                the Secretary shall specify requirements for the 
                standards and process under which a health maintenance 
                organization is accredited by an organization meeting 
                the requirements of subparagraph (C).
            ``(C) Accrediting organization.--An accrediting 
        organization meets the requirements of this subparagraph if the 
        organization--
                    ``(i) is a private, nonprofit organization;
                    ``(ii) exists for the primary purpose of 
                accrediting managed care organizations or health care 
                providers; and
                    ``(iii) is independent of health care providers or 
                associations of health care providers.''.
    (c) Application to Managed Care Entities.--Section 1903(m)(2)(A) 
(42 U.S.C. 1396b(m)(2)(A)) is amended--
            (1) by striking ``and'' at the end of clause (x),
            (2) by striking the period at the end of clause (xi) and 
        inserting ``; and'', and
            (3) by adding at the end the following new clause:
            ``(xii) such contract provides for--
                    ``(I) submitting to the State agency such 
                information as may be necessary to monitor the care 
                delivered to members,
                    ``(II) maintenance of an internal quality assurance 
                program consistent with section 1902(a)(64)(A), and 
                meeting standards that the Secretary shall establish in 
                regulations; and
                    ``(III) providing effective procedures for hearing 
                and resolving grievances between the entity and members 
                enrolled with the organization under this 
                subsection.''.
    (d) Application to Primary Care Case Management Contracts.--Section 
1905(t)(3), as added by section 3403(b), is amended--
            (1) by striking ``and'' at the end of subparagraph (D),
            (2) by striking the period at the end of subparagraph (E) 
        and inserting ``; and'', and
            (3) by adding at the end the following new subparagraph:
            ``(F) if payment is made to the organization on a prepaid 
        capitated or other risk basis, compliance with the requirements 
        of section 1903(m)(2)(A)(xii) in the same manner such 
        requirements apply to a health maintenance organization under 
        section 1903(m)(2)(A).''.
    (e) Effective Date.--The amendments made by this section apply to 
agreements between a State agency and an organization entered into or 
renewed on or after January 1, 1999.

SEC. 3462. SOLVENCY STANDARDS FOR CERTAIN HEALTH MAINTENANCE 
              ORGANIZATIONS.

    (a) In General.--Section 1903(m)(1) (42 U.S.C. 1396b(m)(1)) is 
amended--
            (1) in subparagraph (A)(ii), by inserting ``, meets the 
        requirements of subparagraph (C)(i) (if applicable),'' after 
        ``provision is satisfactory to the State'', and
            (2) by adding at the end the following:
    ``(C)(i) Subject to clause (ii), a provision meets the requirements 
of this subparagraph for an organization if the organization meets 
solvency standards established by the State for private health 
maintenance organizations or is licensed or certified by the State as a 
risk-bearing entity.
    ``(ii) Clause (i) shall not apply to an organization if--
            ``(I) the organization is not responsible for the provision 
        (directly or through arrangements with providers of services) 
        of inpatient hospital services and physicians' services;
            ``(II) the organization is a public entity;
            ``(III) the solvency of the organization is guaranteed by 
        the State; or
            ``(IV) the organization is (or is controlled by) one or 
        more federally-qualified health centers and meets solvency 
        standards established by the State for such an organization.
For purposes of subclause (IV), the term `control' means the 
possession, whether direct or indirect, of the power to direct or cause 
the direction of the management and policies of the organization 
through membership, board representation, or an ownership interest 
equal to or greater than 50.1 percent.''
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to contracts entered into or renewed on or after October 1, 1998.
    (c) Transition.--In the case of a health maintenance organization 
that as of the date of the enactment of this Act has entered into a 
contract with a State for the provision of medical assistance under 
title XIX under which the organization assumes full financial risk and 
is receiving capitation payments, the amendment made by subsection (a) 
shall not apply to such organization until 3 years after the date of 
the enactment of this Act.

SEC. 3463. APPLICATION OF PRUDENT LAYPERSON STANDARD FOR EMERGENCY 
              MEDICAL CONDITION AND PROHIBITION OF GAG RULE 
              RESTRICTIONS.

    Section 1903(m) (42 U.S.C. 1396b(m)) is amended by adding at the 
end the following:
    ``(8)(A)(i) Each contract with a health maintenance organization 
under this subsection shall require the organization--
            ``(I) to provide coverage for emergency services (as 
        defined in subparagraph (B)) without regard to prior 
        authorization or the emergency care provider's contractual 
        relationship with the organization, and
            ``(II) to comply with guidelines established under section 
        1852(d)(2) (respecting coordination of post-stabilization care) 
        in the same manner as such guidelines apply to MedicarePlus 
        plans offered under part C of title XVIII.
    ``(B) In subparagraph (A)(i)(I), the term `emergency services' 
means, with respect to an individual enrolled with an organization, 
covered inpatient and outpatient services that--
            ``(i) are furnished by a provider that is qualified to 
        furnish such services under this title, and
            ``(ii) are needed to evaluate or stabilize an emergency 
        medical condition (as defined in subparagraph (C)).
    ``(C) In subparagraph (B)(ii), the term `emergency medical 
condition' means a medical condition manifesting itself by acute 
symptoms of sufficient severity such that a prudent layperson, who 
possesses an average knowledge of health and medicine, could reasonably 
expect the absence of immediate medical attention to result in--
            ``(i) placing the health of the individual (or, with 
        respect to a pregnant woman, the health of the woman or her 
        unborn child) in serious jeopardy,
            ``(ii) serious impairment to bodily functions, or
            ``(iii) serious dysfunction of any bodily organ or part.
    ``(9)(A) Subject to subparagraphs (B) and (C), under a contract 
under this subsection a health maintenance organization (in relation to 
an individual enrolled under the contract) shall not prohibit or 
otherwise restrict a covered health care professional (as defined in 
subparagraph (D)) from advising such an individual who is a patient of 
the professional about the health status of the individual or medical 
care or treatment for the individual's condition or disease, regardless 
of whether benefits for such care or treatment are provided under the 
plan, if the professional is acting within the lawful scope of 
practice.
    ``(B) Subparagraph (A) shall not be construed as requiring a health 
maintenance organization to provide, reimburse for, or provide coverage 
of a counseling or referral service if the organization--
            ``(i) objects to the provision of such service on moral or 
        religious grounds; and
            ``(ii) in the manner and through the written 
        instrumentalities such organization deems appropriate, makes 
        available information on its policies regarding such service to 
        prospective enrollees before or during enrollment and to 
        enrollees within 90 days after the date that the organization 
        or plan adopts a change in policy regarding such a counseling 
        or referral service.
    ``(C) Nothing in subparagraph (B) shall be construed to affect 
disclosure requirements under State law or under the Employee 
Retirement Income Security Act of 1974.
    ``(D) For purposes of this paragraph, the term `health care 
professional' means a physician (as defined in section 1861(r)) or 
other health care professional if coverage for the professional's 
services is provided under the contract under this subsection for the 
services of the professional. Such term includes a podiatrist, 
optometrist, chiropractor, psychologist, dentist, physician assistant, 
physical or occupational therapist and therapy assistant, speech-
language pathologist, audiologist, registered or licensed practical 
nurse (including nurse practitioner, clinical nurse specialist, 
certified registered nurse anesthetist, and certified nurse-midwife), 
licensed certified social worker, registered respiratory therapist, and 
certified respiratory therapy technician.''.

SEC. 3464. ADDITIONAL FRAUD AND ABUSE PROTECTIONS IN MANAGED CARE.

    (a) Protection Against Marketing Abuses.--Section 1903(m) (42 
U.S.C. 1396b(m)), as amended by section 3463, is amended--
            (1) in paragraph (2)(A)(viii), by inserting ``and 
        compliance with the requirements of paragraphs (10) and (11)'' 
        after ``of this subsection'', and
            (2) by adding at the end the following:
    ``(10)(A)(i) A health maintenance organization with respect to 
activities under this subsection may not distribute directly or through 
any agent or independent contractor marketing materials within any 
State--
            ``(I) without the prior approval of the State; and
            ``(II) that contain false or materially misleading 
        information.
    ``(ii) In the process of reviewing and approving such materials, 
the State shall provide for consultation with a medical care advisory 
committee.
    ``(iii) The State may not enter into or renew a contract with a 
health maintenance organization for the provision of services to 
individuals enrolled under the State plan under this title if the State 
determines that the entity distributed directly or through any agent or 
independent contractor marketing materials in violation of clause 
(i)(II).
    ``(B) A health maintenance organization shall distribute marketing 
materials to the entire service area of such organization.
    ``(C) A health maintenance organization, or any agency of such 
organization, may not seek to influence an individual's enrollment with 
the organization in conjunction with the sale of any other insurance.
    ``(D) Each health maintenance organization shall comply with such 
procedures and conditions as the Secretary prescribes in order to 
ensure that, before an individual is enrolled with the organization 
under this title, the individual is provided accurate oral and written 
and sufficient information to make an informed decision whether or not 
to enroll.
    ``(E) Each health maintenance organization shall not, directly or 
indirectly, conduct door-to-door, telephonic, or other `cold call' 
marketing of enrollment under this title.''.
    (b) Prohibiting Affiliations With Individuals Debarred by Federal 
Agencies.--Section 1903(m) (42 U.S.C. 1396b(m)), as amended by section 
3463 and subsection (a), is further amended by adding at the end the 
following:
    ``(11)(A) A health maintenance organization may not knowingly--
            ``(i) have a person described in subparagraph (C) as a 
        director, officer, partner, or person with beneficial ownership 
        of more than 5 percent of the organization equity; or
            ``(ii) have an employment, consulting, or other agreement 
        with a person described in such subparagraph for the provision 
        of items and services that are significant and material to the 
        organization's obligations under its contract with the State.
    ``(B) If a State finds that a health maintenance organization is 
not in compliance with clause (i) or (ii) of subparagraph (A), the 
State--
            ``(i) shall notify the Secretary of such noncompliance;
            ``(ii) may continue an existing agreement with the 
        organization unless the Secretary (in consultation with the 
        Inspector General of the Department of Health and Human 
        Services) directs otherwise; and
            ``(iii) may not renew or otherwise extend the duration of 
        an existing agreement with the organization unless the 
        Secretary (in consultation with the Inspector General of the 
        Department of Health and Human Services) provides to the State 
        and to the Congress a written statement describing compelling 
        reasons that exist for renewing or extending the agreement.
    ``(C) A person is described in this subparagraph if such person--
            ``(i) is debarred, suspended, or otherwise excluded from 
        participating in procurement activities under the Federal 
        acquisition regulation or from participating in nonprocurement 
        activities under regulations issued pursuant to Executive Order 
        12549; or
            ``(ii) is an affiliate (within the meaning of the Federal 
        acquisition regulation) of a person described in clause (i).''.
    (c) Application of State Conflict-of-Interest Safeguards.--Section 
1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)), as amended by section 
3461(c), is amended--
            (1) by striking ``and'' at the end of clause (xi),
            (2) by striking the period at the end of clause (xii) and 
        inserting ``; and'', and
            (3) by inserting after clause (xi) the following:
            ``(xiii) the State has in effect conflict-of-interest 
        safeguards with respect to officers and employees of the State 
        with responsibilities relating to contracts with such 
        organizations and to any default enrollment process that are at 
        least as effective as the Federal safeguards provided under 
        section 27 of the Office of Federal Procurement Policy Act (41 
        U.S.C. 423), against conflicts of interest that apply with 
        respect to Federal procurement officials with comparable 
        responsibilities with respect to such contracts.''.
    (d) Limitation on Availability of FFP for Use of Enrollment 
Brokers.--Section 1903(b) (42 U.S.C. 1396b(b)), as amended by section 
3413(b), is amended by adding at the end the following:
    ``(5) Amounts expended by a State for the use an enrollment broker 
in marketing health maintenance organizations and other managed care 
entities to eligible individuals under this title shall be considered, 
for purposes of subsection (a)(7), to be necessary for the proper and 
efficient administration of the State plan but only if the following 
conditions are met with respect to the broker:
            ``(A) The broker is independent of any such entity and of 
        any health care providers (whether or not any such provider 
        participates in the State plan under this title) that provide 
        coverage of services in the same State in which the broker is 
        conducting enrollment activities.
            ``(B) No person who is an owner, employee, consultant, or 
        has a contract with the broker either has any direct or 
        indirect financial interest with such an entity or health care 
        provider or has been excluded from participation in the program 
        under this title or title XVIII or debarred by any Federal 
        agency, or subject to a civil money penalty under this Act.''.
    (e) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1998.

SEC. 3465. GRIEVANCES UNDER MANAGED CARE PLANS.

    Section 1903(m) (42 U.S.C. 1396b(m)) is amended--
            (1) in paragraph (2)(A), as amended by sections 3461(c) and 
        3464(c),--
                    (A) by striking ``and'' at the end of clause (xii),
                    (B) by striking the period at the end of clause 
                (xiii) and inserting ``; and'', and
                    (C) by inserting after clause (xiii) the following 
                new clause:
            ``(xiv) such contract provides for compliance of the 
        organization with the grievance and appeals requirements 
        described in paragraph (3).''; and
            (2) by inserting after paragraph (2) the following new 
        paragraph:
    ``(3)(A) An eligible organization must provide a meaningful and 
expedited procedure, which includes notice and hearing requirements, 
for 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 
subsection. Under the procedure any member enrolled with the 
organization may at any time file orally or in writing a complaint to 
resolve grievances between the member and the organization before a 
board of appeals established under subparagraph (C).
    ``(B)(i) The organization must provide, in a timely manner, such an 
enrollee a notice of any denial of services in-network or denial of 
payment for out-of-network care or notice of termination or reduction 
of services.
    ``(ii) Such notice shall include the following:
            ``(I) A clear statement of the reason for the denial.
            ``(II) An explanation of the complaint process under 
        subparagraph (C) which is available to the enrollee upon 
        request.
            ``(III) An explanation of all other appeal rights available 
        to all enrollees.
            ``(IV) A description of how to obtain supporting evidence 
        for this hearing, including the patient's medical records from 
        the organization, as well as supporting affidavits from the 
        attending health care providers.
    ``(C)(i) Each eligible organization shall establish a board of 
appeals to hear and make determinations on complaints by enrollees 
under this subsection concerning denials of coverage or payment for 
services (whether in-network or out-of-network) and the medical 
necessity and appropriateness of covered items and services.
    ``(ii) A board of appeals of an eligible organization shall consist 
of--
            ``(I) representatives of the organization, including 
        physicians, nonphysicians, administrators, and enrollees;
            ``(II) consumers who are not enrollees; and
            ``(III) providers with expertise in the field of medicine 
        which necessitates treatment.
    ``(iii) A board of appeals shall hear and resolve complaints within 
30 days after the date the complaint is filed with the board.
    ``(D) Nothing in this paragraph may be construed to replace or 
supersede any appeals mechanism otherwise provided for an individual 
entitled to benefits under this title.''.

SEC. 3466. STANDARDS RELATING TO ACCESS TO OBSTETRICAL AND 
              GYNECOLOGICAL SERVICES UNDER MANAGED CARE PLANS.

    (a) In General.--Section 1903(m)(2)(A) (42 U.S.C. 1396b(m)(2)(A)), 
as amended by sections 3461(c), 3464(c), and 3465(1), is amended--
            (1) by striking ``and'' at the end of clause (xiii),
            (2) by striking the period at the end of clause (xiv) and 
        inserting ``; and'', and
            (3) by inserting after clause (xiv) the following:
            ``(xv) the organization complies with the requirements of 
        paragraph (12).''.
    (b) Requirements.--Section 1903(m) (42 U.S.C. 1396b(m)), as amended 
by sections 3463, 3464(a), and 3464(b), is amended by adding at the end 
the following new paragraph:
    ``(12)(A) If a health maintenance organization, under a contract 
under this subsection, requires or provides for an enrollee to 
designate a participating primary care provider--
            ``(i) the organization shall permit a female enrollee to 
        designate an obstetrician-gynecologist who has agreed to be 
        designated as such, as the enrollee's primary care provider; 
        and
            ``(ii) if such an enrollee has not designated such a 
        provider as a primary care provider, the organization--
                    ``(I) may not require prior authorization by the 
                enrollee's primary care provider or otherwise for 
                coverage of obstetric and gynecologic care provided by 
                a participating obstetrician-gynecologist, or a 
                participating health care professional practicing in 
                collaboration with the obstetrician-gynecologist and in 
                accordance with State law, to the extent such care is 
                otherwise covered, and
                    ``(II) shall treat the ordering of other 
                gynecologic care by such a participating physician as 
                the prior authorization of the primary care provider 
                with respect to such care under the contract.
    ``(B) Nothing in subparagraph (A)(ii)(II) shall waive any 
requirements of coverage relating to medical necessity or 
appropriateness with respect to coverage of gynecologic care so 
ordered.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contracts entered into, renewed, or extended on or after 
January 1, 1998.

                      CHAPTER 3--FEDERAL PAYMENTS

SEC. 3471. REFORMING DISPROPORTIONATE SHARE PAYMENTS UNDER STATE 
              MEDICAID PROGRAMS.

    (a) Direct Payment by State.--Subsection (a)(1) of section 1923 (42 
U.S.C. 1396r-4) is amended--
            (1) by striking ``and'' at the end of subparagraph (A),
            (2) by striking the period at the end of subparagraph (B) 
        and inserting ``, and'', and
            (3) by adding at the end the following new subparagraph:
                    ``(C) provides that payment adjustments under the 
                plan under this section for services furnished by a 
                hospital on or after October 1, 1997, for individuals 
                entitled to benefits under the plan, and enrolled with 
                an entity described in section 1903(m), under a primary 
                care case management system (described in section 
                1905(t)), or other managed care plan--
                            ``(i) are made directly to the hospital by 
                        the State, and
                            ``(ii) are not used as part of, and are 
                        disregarded in determining the amount of, 
                        prepaid capitation paid under the State plan 
                        with respect to those services.''.
    (b) Adjustment to State DSH Allocations.--
            (1) In general.--Subsection (f) of such section is 
        amended--
                    (A) in paragraph (2)(A), by inserting ``and 
                paragraph (5)'' after ``subparagraph (B)'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(5) Adjustments in dsh allotments.--
                    ``(A) Allotment frozen for states with very low dsh 
                expenditures.--In the case of a State for which its 
                State 1995 DSH spending did not exceed 1 percent of the 
                total amount expenditures made under the State plan 
                under this title for medical assistance during fiscal 
                year 1995 (as reported by the State no later than 
                January 1, 1997, on HCFA Form 64), the DSH allotment 
                for each of fiscal years 1998 through 2002 is equal to 
                its State 1995 DSH spending.
                    ``(B) Full reduction for high dsh states.--In the 
                case of a State which was classified under this 
                subsection as a high DSH State for fiscal year 1997, 
                the DSH allotment for each of fiscal years 1998 through 
                2002 is equal to the State 1995 DSH spending reduced by 
                the full reduction percentage (described in 
                subparagraph (D)) for the fiscal year involved.
                    ``(C) Half-reduction for other states.--In the case 
                of a State not described in subparagraph (A) or (B), 
                the DSH allotment for each of fiscal years 1998 through 
                2002 is equal to the State 1995 DSH spending reduced by 
                \1/2\ of the full reduction percentage for the fiscal 
                year involved.
                    ``(D) Full reduction percentage.--For purposes of 
                this paragraph, the `full reduction percentage' for--
                            ``(i) fiscal year 1998 is 2 percent,
                            ``(ii) fiscal year 1999 is 5 percent,
                            ``(iii) fiscal year 2000 is 20 percent,
                            ``(iv) fiscal year 2001 is 30 percent, and
                            ``(v) fiscal year 2002 is 40 percent.
                    ``(E) Definitions.-- In this paragraph:
                            ``(i) State.--The term `State' means the 50 
                        States and the District of Columbia.
                            ``(ii) State 1995 dsh spending.--The term 
                        `State 1995 DSH spending' means, with respect 
                        to a State, the total amount of payment 
                        adjustments made under subsection (c) under the 
                        State plan during fiscal year 1995 as reported 
                        by the State no later than January 1, 1997, on 
                        HCFA Form 64.''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to fiscal years beginning with fiscal year 1998.
    (c) Transition Rule.--Effective October 1, 1997, section 
1923(g)(2)(A) of the Social Security Act (42 U.S.C. 1396r-4(g)(2)(A)) 
shall be applied to the State of California as though--
            (1) ``or that begins on or after October 1, 1997, and 
        before October 1, 1999'' were inserted in such section after 
        ``January 1, 1995''; and
            (2) ``(or 175 percent in the case of a State fiscal year 
        that begins on or after October 1, 1997, and before October 1, 
        1999)'' were inserted in such section after ``200 percent''.

SEC. 3472. ADDITIONAL FUNDING FOR STATE EMERGENCY HEALTH SERVICES 
              FURNISHED TO UNDOCUMENTED ALIENS.

    (a) Total Amount Available for Allotment.--There are available for 
allotments under this section for each of the 5 fiscal years (beginning 
with fiscal year 1998) $20,000,000 for payments to certain States under 
this section.
    (b) State Allotment Amount.--
            (1) In general.--The Secretary of Health and Human Services 
        shall compute an allotment for each fiscal year beginning with 
        fiscal year 1998 and ending with fiscal year 2002 for each of 
        the 12 States with the highest number of undocumented aliens. 
        The amount of such allotment for each such State for a fiscal 
        year shall bear the same ratio to the total amount available 
        for allotments under subsection (a) for the fiscal year as the 
        ratio of the number of undocumented aliens in the State in the 
        fiscal year bears to the total of such numbers for all such 
        States for such fiscal year. The amount of allotment to a State 
        provided under this paragraph for a fiscal year that is not 
        paid out under subsection (c) shall be available for payment 
        during the subsequent fiscal year.
            (2) Determination.--For purposes of paragraph (1), the 
        number of undocumented aliens in a State under this section 
        shall be determined based on estimates of the resident illegal 
        alien population residing in each State prepared by the 
        Statistics Division of the Immigration and Naturalization 
        Service as of October 1992 (or as of such later date if such 
        date is at least 1 year before the beginning of the fiscal year 
        involved),
    (c) Use of Funds.--From the allotments made under subsection (b), 
the Secretary shall pay to each State amounts the State demonstrates 
were paid by the State (or by a political subdivision of the State) for 
emergency health services furnished to undocumented aliens.
    (d) State Defined.--For purposes of this section, the term 
``State'' includes the District of Columbia.
    (e) State Entitlement.--This section constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided under subsection (c).

           Subtitle F--Child Health Assistance Program (CHAP)

SEC. 3501. SHORT TITLE OF SUBTITLE; TABLE OF CONTENTS OF SUBTITLE.

    (a) Short Title of Subtitle.--This subtitle may be cited as the 
``Child Health Assistance Program Act of 1997''.
    (b) Table of Contents of Subtitle.--The table of contents of this 
subtitle is as follows:

Sec. 3501. Short title of subtitle; table of contents.
Sec. 3502. Establishment of Child Health Assistance Program (CHAP).
              ``TITLE XXI--CHILD HEALTH ASSISTANCE PROGRAM

        ``Sec. 2101. Purpose; State child health plans.
        ``Sec. 2102. Contents of State child health plan.
        ``Sec. 2103. Allotments.
        ``Sec. 2104. Payments to States.
        ``Sec. 2105. Process for submission, approval, and amendment of 
                            State child health plans.
        ``Sec. 2106. Strategic objectives and performance goals; plan 
                            administration.
        ``Sec. 2107. Annual reports; evaluations.
        ``Sec. 2108. Definitions.
Sec. 3503. Optional use of State child health assistance funds for 
                            enhanced medicaid match for expanded 
                            medicaid eligibility.
Sec. 3504. Medicaid presumptive eligibility for low-income children.

SEC. 3502. ESTABLISHMENT OF CHILD HEALTH ASSISTANCE PROGRAM (CHAP).

    The Social Security Act is amended by adding at the end the 
following new title:

              ``TITLE XXI--CHILD HEALTH ASSISTANCE PROGRAM

``SEC. 2101. PURPOSE; STATE CHILD HEALTH PLANS.

    ``(a) Purpose.--The purpose of this title is to provide funds to 
States to enable them to implement plans to initiate and expand the 
provision of child health care assistance to uninsured, low-income 
children in an effective and efficient manner that is coordinated with 
other sources of coverage for children. Such assistance may be provided 
for obtaining creditable health coverage through methods specified in 
the plan, which may include any or all of the following:
            ``(1) Providing benefits under the State's medicaid plan 
        under title XIX.
            ``(2) Obtaining coverage under group health plans or group 
        or individual health insurance coverage.
            ``(3) Direct purchase of services from providers.
            ``(4) Other methods specified under the plan.
    ``(b) State Child Health Plan Required.--A State is not eligible 
for payment under section 2104 unless the State has submitted to the 
Secretary under section 2105 a plan that--
            ``(1) sets forth how the State intends to use the funds 
        provided under this title to provide child health assistance to 
        needy children consistent with the provisions of this title, 
        and
            ``(2) is approved under section 2105.
    ``(c) State Entitlement.--This title constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided under section 2104.
    ``(d) Effective Date.--No State is eligible for payments under 
section 2104 for any calendar quarter beginning before October 1, 1997.

``SEC. 2102. CONTENTS OF STATE CHILD HEALTH PLAN.

    ``(a) General Background and Description.--A State child health 
plan shall include a description, consistent with the requirements of 
this title, of--
            ``(1) the extent to which, and manner in which, children in 
        the State, including targeted low-income children and other 
        classes of children classified by income and other relevant 
        factors, currently have creditable health coverage (as defined 
        in section 2108(c)(2));
            ``(2) current State efforts to provide or obtain creditable 
        health coverage for uncovered children, including the steps the 
        State is taking to identify and enroll all uncovered children 
        who are eligible to participate in public health insurance 
        programs and health insurance programs that involve public-
        private partnerships;
            ``(3) how the plan is designed to be coordinated with such 
        efforts to increase coverage of children under creditable 
        health coverage; and
            ``(4) how the plan will comply with subsection (c)(5).
    ``(b) General Description of Eligibility Standards and 
Methodology.--
            ``(1) Eligibility standards.--
                    ``(A) In general.--The plan shall include a 
                description of the standards used to determine the 
                eligibility of targeted low-income children for child 
                health assistance under the plan. Such standards may 
                include (to the extent consistent with this title) 
                those relating to the geographic areas to be served by 
                the plan, age, income and resources (including any 
                standards relating to spenddowns and disposition of 
                resources), residency, disability status, immigration 
                status, access to or coverage under other health 
                coverage, and duration of eligibility. Such standards 
                may not discriminate on the basis of diagnosis.
                    ``(B) Limitations on eligibility standards.--Such 
                eligibility standards--
                            ``(i) shall, within any defined group of 
                        covered targeted low-income children, not cover 
                        such children with higher family income without 
                        covering children with a lower family income, 
                        and
                            ``(ii) may not deny eligibility based on a 
                        child having a preexisting medical condition.
            ``(2) Methodology.--The plan shall include a description of 
        methods of establishing and continuing eligibility and 
        enrollment, including a methodology for computing family income 
        that is consistent with the methodology used under section 
        1902(l)(3)(E).
            ``(3) Eligibility screening; coordination with other health 
        coverage programs.--The plan shall include a description of 
        procedures to be used to ensure--
                    ``(A) through both intake and followup screening, 
                that only targeted low-income children are furnished 
                child health assistance under the State child health 
                plan;
                    ``(B) that children found through the screening to 
                be eligible for medical assistance under the State 
                medicaid plan under title XIX are enrolled for such 
                assistance under such plan;
                    ``(C) that the insurance provided under the State 
                child health plan does not substitute for coverage 
                under group health plans; and
                    ``(D) coordination with other public and private 
                programs providing creditable coverage for low-income 
                children.
            ``(4) Nonentitlement.--Nothing in this title shall be 
        construed as providing an individual with an entitlement to 
        child health assistance under a State child health plan.
    ``(c) Description of Assistance.--
            ``(1) In general.--A State child health plan shall include 
        a description of the child health assistance provided under the 
        plan for targeted low-income children. The child health 
        assistance provided to a targeted low-income child under the 
        plan in the form described in paragraph (2) of section 2101(a) 
        shall include benefits (in an amount, duration, and scope 
        specified under the plan) for at least the following categories 
        of services:
                    ``(A) Inpatient and outpatient hospital services.
                    ``(B) Physicians' surgical and medical services.
                    ``(C) Laboratory and x-ray services.
                    ``(D) Well-baby and well-child care, including age-
                appropriate immunizations.
        The previous sentence shall not apply to coverage under a group 
        health plan if the benefits under such coverage for individuals 
        under this title are no less than the benefits for other 
        individuals similarly covered under the plan.
            ``(2) Items.--The description shall include the following:
                    ``(A) Cost sharing.--Subject to paragraph (3), the 
                amount (if any) of premiums, deductibles, coinsurance, 
                and other cost sharing imposed.
                    ``(B) Delivery method.--The State's approach to 
                delivery of child health assistance, including a 
                general description of--
                            ``(i) the use (or intended use) of 
                        different delivery methods, which may include 
                        the delivery methods used under the medicaid 
                        plan under title XIX, fee-for-service, managed 
                        care arrangements (such as capitated health 
                        care plans, case management, and case 
                        coordination), direct provision of health care 
                        services (such as through community health 
                        centers and disproportionate share hospitals), 
                        vouchers, and other delivery methods; and
                            ``(ii) utilization control systems.
            ``(3) Limitations on cost sharing.--
                    ``(A) No cost sharing on preventive benefits.--The 
                plan may not impose deductibles, coinsurance, or 
                similar cost sharing with respect to benefits for 
                preventive services.
                    ``(B) Sliding scale.--To the extent practicable, 
                any premiums imposed under the plan shall be imposed on 
                a sliding scale related to income and the plan may only 
                vary premiums, deductibles, coinsurance, and other cost 
                sharing based on the family income of targeted low-
                income children only in a manner that does not favor 
                children from families with higher income over children 
                from families with lower income.
            ``(4) Restriction on application of preexisting condition 
        exclusions.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                State child health plan shall not permit the imposition 
                of any preexisting condition exclusion for covered 
                benefits under the plan.
                    ``(B) Group health plans and group health insurance 
                coverage.--If the State child health plan provides for 
                benefits through payment for, or a contract with, a 
                group health plan or group health insurance coverage, 
                the plan may permit the imposition of a preexisting 
                condition exclusion but only insofar as it is permitted 
                under the applicable provisions of part 7 of subtitle B 
                of title I of the Employee Retirement Income Security 
                Act of 1974 and title XXVII of the Public Health 
                Service Act.
            ``(5) Special protection for children with chronic health 
        conditions and special health care needs.--In the case of a 
        child who has a chronic condition, life-threatening condition, 
        or combination of conditions that warrants medical specialty 
        care and who is eligible for benefits under the plan with 
        respect to such care, the State child health plan shall assure 
        access to such care, including the use of a medical specialist 
        as a primary care provider.
            ``(6) Secondary payment.--Nothing in this section shall be 
        construed as preventing a State from denying benefits to an 
        individual to the extent such benefits are available to the 
        individual under another public or private health care 
        insurance program.
            ``(7) Treatment of cash payments.--Payments in the form of 
        cash or vouchers provided as child health or other assistance 
        under the State child health plan to parents, guardians or 
        other caretakers of a targeted low-income child are not 
        considered income for purpose of eligibility for, or benefits 
        provided under, any means-tested Federal or Federally-assisted 
        program.
    ``(d) Outreach and Coordination.--A State child health plan shall 
include a description of the procedures to be used by the State to 
accomplish the following:
            ``(1) Outreach.--Outreach to families of children likely to 
        be eligible for child health assistance under the plan or under 
        other public or private health coverage programs to inform 
        these families of the availability of, and to assist them in 
        enrolling their children in, such a program.
            ``(2) Coordination with other health insurance programs.--
        Coordination of the administration of the State program under 
        this subtitle with other public and private health insurance 
        programs.

``SEC. 2103. ALLOTMENTS.

    ``(a) Total Allotment.--The total allotment that is available under 
this title for each fiscal year, beginning with fiscal year 1998, is 
$2,880,000,000.
    ``(b) Allotments to 50 States and District of Columbia.--
            ``(1) In general.--Subject to paragraphs (4) and (5), of 
        the total allotment available under subsection (a) for a fiscal 
        year, reduced by the amount of allotments made under subsection 
        (c) for the fiscal year, the Secretary shall allot to each 
        State (other than a State described in such subsection) with a 
        State child health plan approved under this title the same 
        proportion as the ratio of--
                    ``(A) the product of (i) the number of uncovered 
                low-income children for the fiscal year in the State 
                (as determined under paragraph (2)) and (ii) the State 
                cost factor for that State (established under paragraph 
                (3)); to
                    ``(B) the sum of the products computed under 
                subparagraph (A).
            ``(2) Number of uncovered low-income children.--For the 
        purposes of paragraph (1)(A)(i), the number of uncovered low-
        income children for a fiscal year in a State is equal to the 
        arithmetic average of the number of low-income children (as 
        defined in section 2108(c)(4)) with no health insurance 
        coverage, as reported and defined in the 3 most recent March 
        supplements to the Current Population Survey of the Bureau of 
        the Census before the beginning of the fiscal year.
            ``(3) Adjustment for geographic variations in health 
        costs.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A)(ii), the `State cost factor' for a State for a 
                fiscal year equal to the sum of--
                            ``(i) 0.15, and
                            ``(ii) 0.85 multiplied by the ratio of--
                                    ``(I) the annual average wages per 
                                employee for the State for such year 
                                (as determined under subparagraph (B)), 
                                to
                                    ``(II) the annual average wages per 
                                employee for the 50 States and the 
                                District of Columbia.
                    ``(B) Annual average wages per employee.--For 
                purposes of subparagraph (A), the `annual average wages 
                per employee' for a State, or for all the States. for a 
                fiscal year is equal to the average of the annual wages 
                per employee for the State or for the 50 States and the 
                District of Columbia for employees in the health 
                services industry (SIC code 8000), as reported by the 
                Bureau of Labor Statistics of the Department of Labor 
                for each of the for the most recent 3 years before the 
                beginning of the fiscal year involved.
            ``(4) Floor for states.--Subject to paragraph (5), in no 
        case shall the amount of the allotment under this subsection 
        for one of the 50 States or the District of Columbia for a year 
        be less than $2,000,000. To the extent that the application of 
        the previous sentence results in an increase in the allotment 
        to a State above the amount otherwise provided, the allotments 
        for the other States and the District of Columbia under this 
        subsection shall be decreased in a pro rata manner (but not 
        below $2,000,000) so that the total of such allotments in a 
        fiscal year does not exceed the amount otherwise provided for 
        allotment under paragraph (1) for that fiscal year.
            ``(5) Offset for expenditures under medicaid presumptive 
        eligibility.--The amount of the allotment otherwise provided to 
        a State under this subsection for a fiscal year shall be 
        reduced by the amount of the payments made to the State under 
        section 1903(a) for calendar quarters during such fiscal year 
        that are attributable to provision of medical assistance to a 
        child during a presumptive eligibility period under section 
        1920A.
    ``(c) Allotments to Territories.--
            ``(1) In general.--Subject to paragraph (3), of the total 
        allotment under subsection (a) for a fiscal year, the Secretary 
        shall allot 0.5 percent among each of the commonwealths and 
        territories described in paragraph (4) in the same proportion 
        as the percentage specified in paragraph (2) for such 
        commonwealth or territory bears to the sum of such percentages 
        for all such commonwealths or territories so described.
            ``(2) Percentage.--The percentage specified in this 
        paragraph for--
                    ``(A) Puerto Rico is 91.6 percent,
                    ``(B) Guam is 3.5 percent,
                    ``(C) Virgin Islands is 2.6 percent,
                    ``(D) American Samoa is 1.2 percent, and
                    ``(E) the Northern Mariana Islands is 1.1 percent.
            ``(3) Floor.--In no case shall the amount of the allotment 
        to a commonwealth or territory under paragraph (1) for a fiscal 
        year be less than $100,000. To the extent that the application 
        of the previous sentence results in an increase in the 
        allotment to a commonwealth or territory above the amount 
        otherwise provided, the allotments for the other commonwealths 
        and territories under this subsection for the fiscal year shall 
        be decreased (but not below $100,000) in a pro rata manner so 
        that the total of such allotments does not exceed the total 
        amount otherwise provided for allotment under paragraph (1).
            ``(4) Commonwealths and territories.--A commonwealth or 
        territory described in this paragraph is any of the following 
        if it has a State child health plan approved under this title:
                    ``(A) Puerto Rico.
                    ``(B) Guam.
                    ``(C) the Virgin Islands.
                    ``(D) American Samoa.
                    ``(E) the Northern Mariana Islands.
    ``(d) Adjustment for States Using Enhanced Medicaid Match.--In the 
case of a State that elects the increased medicaid matching option 
under section 1905(t), the amount of the State's allotment under this 
section shall be reduced by the amount of additional payment made under 
section 1903 that is attributable to the increase in the Federal 
medical assistance percentage effected under such option.
    ``(e) 3-Year Availability of Amounts Allotted.--Amounts allotted to 
a State pursuant to this section for a fiscal year shall remain 
available for expenditure by the State through the end of the second 
succeeding fiscal year.

``SEC. 2104. PAYMENTS TO STATES.

    ``(a) In General.--Subject to the succeeding provisions of this 
section, the Secretary shall pay to each State with a program approved 
under this title, from its allotment under section 2103 (as may be 
adjusted under section 2103(d)), an amount for each quarter up to 80 
percent of expenditures under that program in the quarter for--
            ``(1) child health assistance for targeted low-income 
        children;
            ``(2) health services initiatives for improving the health 
        of children (including targeted low-income children and other 
        low-income children);
            ``(3) expenditures for outreach activities as provided in 
        section 2102(d)(1); and
            ``(4) other reasonable costs incurred by the State to 
        administer the plan.
    ``(b) Limitation on Certain Payments for Certain Expenditures.--
            ``(1) In general.--Funds provided to a State under this 
        title shall only be used to carry out the purposes of this 
        title.
            ``(2) Limitation on expenditures not used for assistance.--
        Payment shall not be made under subsection (a) for expenditures 
        for items described in paragraphs (2), (3), or (4) of 
        subsection to the extent the total of such expenditures exceeds 
        15 percent of total expenditures under the plan for the period 
        involved (including any in such total additional Federal 
        medical assistance payments under section 1903(a)(1) that are 
        attributable to an enhanced State medicaid match under section 
        1905(t)).
            ``(3) Purchase of family coverage.--The Secretary shall 
        establish rules regarding the extent to which payment may be 
        made under subsection (a)(1) for the purchase of family 
        coverage under a group health plan or health insurance coverage 
        that includes coverage of targeted low-income children. Under 
        such rules such payment may be permitted, notwithstanding that 
        a portion may be considered attributable to purchase of 
        coverage for other family members, if the State demonstrates 
        that purchase of such coverage is cost effective relative to 
        the amounts that the State would have paid to obtain comparable 
        coverage only of the targeted low-income children involved. In 
        making such determination, there shall be taken into account 
        the costs of providing coverage for medical assistance for 
        children with similar actuarial characteristics under section 
        1902(l).
            ``(4) Denial of payment for reduction of medicaid 
        eligibility standards.--No payment may be made under subsection 
        (a) with respect to child health assistance provided under a 
        State child health plan to a targeted low-income child if the 
        child would be eligible for medical assistance under the State 
        plan under title XIX (as such plan was in effect as of June 1, 
        1997) but for a change in the income or assets standards or 
        methodology under such plan effected after such date.
            ``(5) Disallowances for excluded providers.--
                    ``(A) In general.--Payment shall not be made to a 
                State under subsection (a) for expenditures for items 
                and services furnished--
                            ``(i) by a provider who was excluded from 
                        participation under title V, XVIII, or XX or 
                        under this title pursuant to section 1128, 
                        1128A, 1156, or 1842(j)(2), or
                            ``(ii) under the medical direction or on 
                        the prescription of a physician who was so 
                        excluded, if the provider of the services knew 
                        or had reason to know of the exclusion.
                    ``(B) Exception for emergency services.--
                Subparagraph (A) shall not apply to emergency items or 
                services, not including hospital emergency room 
                services.
            ``(6) Use of non-federal funds for state matching 
        requirement.--Amounts provided by the Federal Government, or 
        services assisted or subsidized to any significant extent by 
        the Federal Government, may not be included in determining the 
        amount of non-Federal contributions required under subsection 
        (a).
            ``(7) Treatment of third party liability.--No payment shall 
        be made to a State under this section for expenditures for 
        child health assistance provided for a targeted low-income 
        child under its plan to the extent that a private insurer (as 
        defined by the Secretary by regulation and including a group 
        health plan (as defined in section 607(1) of the Employee 
        Retirement Income Security Act of 1974), a service benefit 
        plan, and a health maintenance organization) would have been 
        obligated to provide such assistance but for a provision of its 
        insurance contract which has the effect of limiting or 
        excluding such obligation because the individual is eligible 
        for or is provided child health assistance under the plan.
            ``(8) Secondary payer provisions.--Except as otherwise 
        provided by law, no payment shall be made to a State under this 
        section for expenditures for child health assistance provided 
        for a targeted low-income child under its plan to the extent 
        that payment has been made or can reasonably be expected to be 
        made promptly (as determined in accordance with regulations) 
        under any other federally operated or financed health care 
        insurance program, other than an insurance program operated or 
        financed by the Indian Health Service, as identified by the 
        Secretary. For purposes of this paragraph, rules similar to the 
        rules for overpayments under section 1903(d)(2) shall apply.
            ``(9) Limitation on payment for abortions.--
                    ``(A) In general.--Payment shall not be made to a 
                State under this section for any amount expended under 
                the State plan to pay for any abortion or to assist in 
                the purchase, in whole or in part, of health benefit 
                coverage that includes coverage of abortion.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to an abortion--
                            ``(i) if the pregnancy is the result of an 
                        act of rape or incest, or
                            ``(ii) in the case where a woman suffers 
                        from a physical disorder, illness, or injury 
                        that would, as certified by a physician, place 
                        the woman in danger of death unless an abortion 
                        is performed.
    ``(c) Advance Payment; Retrospective Adjustment.--The Secretary may 
make payments under this section for each quarter on the basis of 
advance estimates of expenditures submitted by the State and other 
investigation the Secretary may find necessary, and may reduce or 
increase the payments as necessary to adjust for any overpayment or 
underpayment for prior quarters.

``SEC. 2105. PROCESS FOR SUBMISSION, APPROVAL, AND AMENDMENT OF STATE 
              CHILD HEALTH PLANS.

    ``(a) Initial Plan.--
            ``(1) In general.--As a condition of receiving funding 
        under section 2104, a State shall submit to the Secretary a 
        State child health plan that meets the applicable requirements 
        of this title.
            ``(2) Approval.--Except as the Secretary may provide under 
        subsection (e), a State plan submitted under paragraph (1)--
                    ``(A) shall be approved for purposes of this title, 
                and
                    ``(B) shall be effective beginning with a calendar 
                quarter that is specified in the plan, but in no case 
                earlier than the first calendar quarter that begins at 
                least 60 days after the date the plan is submitted.
    ``(b) Plan Amendments.--
            ``(1) In general.--A State may amend, in whole or in part, 
        its State child health plan at any time through transmittal of 
        a plan amendment.
            ``(2) Approval.--except as the secretary may provide under 
        subsection (e), an amendment to a state plan submitted under 
        paragraph (1)--
                    ``(A) shall be approved for purposes of this title, 
                and
                    ``(B) shall be effective as provided in paragraph 
                (3).
            ``(3) Effective dates for amendments.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this paragraph, an amendment to a State 
                plan shall take effect on one or more effective dates 
                specified in the amendment.
                    ``(B) Amendments relating to eligibility or 
                benefits.--
                            ``(i) Notice requirement.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan may not 
                        take effect unless the State certifies that it 
                        has provided prior or contemporaneous public 
                        notice of the change, in a form and manner 
                        provided under applicable State law.
                            ``(ii) Timely transmittal.--Any plan 
                        amendment that eliminates or restricts 
                        eligibility or benefits under the plan shall 
                        not be effective for longer than a 60-day 
                        period unless the amendment has been 
                        transmitted to the Secretary before the end of 
                        such period.
                    ``(C) Other amendments.--Any plan amendment that is 
                not described in subparagraph (C) becomes effective in 
                a State fiscal year may not remain in effect after the 
                end of such fiscal year (or, if later, the end of the 
                90-day period on which it becomes effective) unless the 
                amendment has been transmitted to the Secretary.
    ``(c) Disapproval of Plans and Plan Amendments.--
            ``(1) Prompt review of plan submittals.--The Secretary 
        shall promptly review State plans and plan amendments submitted 
        under this section to determine if they substantially comply 
        with the requirements of this title.
            ``(2) 90-day approval deadlines.--A State plan or plan 
        amendment is considered approved unless the Secretary notifies 
        the State in writing, within 90 days after receipt of the plan 
        or amendment, that the plan or amendment is disapproved (and 
        the reasons for disapproval) or that specified additional 
        information is needed.
            ``(3) Correction.--In the case of a disapproval of a plan 
        or plan amendment, the Secretary shall provide a State with a 
        reasonable opportunity for correction before taking financial 
        sanctions against the State on the basis of such disapproval.
    ``(d) Program Operation.--
            ``(1) In general.--The State shall conduct the program in 
        accordance with the plan (and any amendments) approved under 
        subsection (c) and with the requirements of this title.
            ``(2) Violations.--The Secretary shall establish a process 
        for enforcing requirements under this title. Such process shall 
        provide for the withholding of funds in the case of substantial 
        noncompliance with such requirements. In the case of an 
        enforcement action against a State under this paragraph, the 
        Secretary shall provide a State with a reasonable opportunity 
        for correction before taking financial sanctions against the 
        State on the basis of such an action.
    ``(e) Continued Approval.--An approved State child health plan 
shall continue in effect unless and until the State amends the plan 
under subsection (b) or the Secretary finds substantial noncompliance 
of the plan with the requirements of this title under section 
subsection (d)(2).

``SEC. 2106. STRATEGIC OBJECTIVES AND PERFORMANCE GOALS; PLAN 
              ADMINISTRATION.

    ``(a) Strategic Objectives and Performance Goals.--
            ``(1) Description.--A State child health plan shall include 
        a description of--
                    ``(A) the strategic objectives,
                    ``(B) the performance goals, and
                    ``(C) the performance measures,
        the State has established for providing child health assistance 
        to targeted low-income children under the plan and otherwise 
        for maximizing health coverage for other low-income children 
        and children generally in the State.
            ``(2) Strategic objectives.--Such plan shall identify 
        specific strategic objectives relating to increasing the extent 
        of creditable health coverage among targeted low-income 
        children and other low-income children.
            ``(3) Performance goals.--Such plan shall specify one or 
        more performance goals for each such strategic objective so 
        identified.
            ``(4) Performance measures.--Such plan shall describe how 
        performance under the plan will be--
                    ``(A) measured through objective, independently 
                verifiable means, and
                    ``(B) compared against performance goals, in order 
                to determine the State's performance under this title.
    ``(b) Records, Reports, Audits, and Evaluation.--
            ``(1) Data collection, records, and reports.--A State child 
        health plan shall include an assurance that the State will 
        collect the data, maintain the records, and furnish the reports 
        to the Secretary, at the times and in the standardized format 
        the Secretary may require in order to enable the Secretary to 
        monitor State program administration and compliance and to 
        evaluate and compare the effectiveness of State plans under 
        this title.
            ``(2) State assessment and study.--A State child health 
        plan shall include a description of the State's plan for the 
        annual assessments and reports under section 2107(a) and the 
        evaluation required by section 2107(b).
            ``(3) Audits.--A State child health plan shall include an 
        assurance that the State will afford the Secretary access to 
        any records or information relating to the plan for the 
        purposes of review or audit.
    ``(c) Program Development Process.--A State child health plan shall 
include a description of the process used to involve the public in the 
design and implementation of the plan and the method for ensuring 
ongoing public involvement.
    ``(d) Program Budget.--A State child health plan shall include a 
description of the budget for the plan. The description shall be 
updated periodically as necessary and shall include details on the 
planned use of funds and the sources of the non-Federal share of plan 
expenditures, including any requirements for cost sharing by 
beneficiaries.
    ``(e) Application of Certain General Provisions.--The following 
sections in part A of title XI shall apply to States under this title 
in the same manner as they applied to a State under title XIX:
            ``(1) Section 1101(a)(1) (relating to definition of State).
            ``(2) Section 1116 (relating to administrative and judicial 
        review), but only insofar as consistent with the provisions of 
        part B.
            ``(3) Section 1124 (relating to disclosure of ownership and 
        related information).
            ``(4) Section 1126 (relating to disclosure of information 
        about certain convicted individuals).
            ``(5) Section 1128B(d) (relating to criminal penalties for 
        certain additional charges).
            ``(6) Section 1132 (relating to periods within which claims 
        must be filed).

``SEC. 2107. ANNUAL REPORTS; EVALUATIONS.

    ``(a) Annual Report.--The State shall--
            ``(1) assess the operation of the State plan under this 
        title in each fiscal year, including the progress made in 
        reducing the number of uncovered low-income children; and
            ``(2) report to the Secretary, by January 1 following the 
        end of the fiscal year, on the result of the assessment.
    ``(b) State Evaluations.--
            ``(1) In general.--By March 31, 2000, each State that has a 
        State child health plan shall submit to the Secretary an 
        evaluation that includes each of the following:
                    ``(A) An assessment of the effectiveness of the 
                State plan in increasing the number of children with 
                creditable health coverage.;
                    ``(B) A description and analysis of the 
                effectiveness of elements of the State plan, 
                including--
                            ``(i) the characteristics of the children 
                        and families assisted under the State plan 
                        including age of the children, family income, 
                        and the assisted child's access to or coverage 
                        by other health insurance prior to the State 
                        plan and after eligibility for the State plan 
                        ends,
                            ``(ii) the quality of health coverage 
                        provided including the types of benefits 
                        provided,
                            ``(iii) the amount and level (payment of 
                        part or all of the premium) of assistance 
                        provided by the State,
                            ``(iv) the service area of the State plan,
                            ``(v) the time limits for coverage of a 
                        child under the State plan,
                            ``(vi) the State's choice of health 
                        insurance plans and other methods used for 
                        providing child health assistance , and
                            ``(vii) the sources of non-Federal funding 
                        used in the State plan;
                    ``(C) an assessment of the effectiveness of other 
                public and private programs in the State in increasing 
                the availability of affordable quality individual and 
                family health insurance for children;
                    ``(D) a review and assessment of State activities 
                to coordinate the plan under this title with other 
                public and private programs providing health care and 
                health care financing, including Medicaid and maternal 
                and child health services;
                    ``(E) an analysis of changes and trends in the 
                State that affect the provision of accessible, 
                affordable, quality health insurance and health care to 
                children;
                    ``(F) a description of any plans the State has for 
                improving the availability of health insurance and 
                health care for children;
                    ``(G) recommendations for improving the program 
                under this title; and
                    ``(H) any other matters the State and the Secretary 
                consider appropriate.
            ``(2) Report of the secretary.--The Secretary shall submit 
        to the Congress and make available to the public by December 
        31, 2000, a report based on the evaluations submitted by States 
        under paragraph (1), containing any conclusions and 
        recommendations the Secretary considers appropriate.

``SEC. 2108. DEFINITIONS.

    ``(a) Child Health Assistance.--For purposes of this title, the 
term `child health assistance' means payment of part or all of the cost 
of any of the following, or assistance in the purchase, in whole or in 
part, of health benefit coverage that includes any of the following, 
for targeted low-income children (as defined in subsection (b)) as 
specified under the State plan:
            ``(1) Inpatient hospital services.
            ``(2) Outpatient hospital services.
            ``(3) Physician services.
            ``(4) Surgical services.
            ``(5) Clinic services (including health center services) 
        and other ambulatory health care services.
            ``(6) Prescription drugs and biologicals and the 
        administration of such drugs and biologicals, only if such 
        drugs and biologicals are not furnished for the purpose of 
        causing, or assisting in causing, the death, suicide, 
        euthanasia, or mercy killing of a person.
            ``(7) Over-the-counter medications.
            ``(8) Laboratory and radiological services.
            ``(9) Prenatal care and prepregnancy family planning 
        services and supplies.
            ``(10) Inpatient mental health services, including services 
        furnished in a State-operated mental hospital and including 
        residential or other 24-hour therapeutically planned structured 
        services.
            ``(11) Outpatient mental health services, including 
        services furnished in a State-operated mental hospital and 
        including community-based services.
            ``(12) Durable medical equipment and other medically-
        related or remedial devices (such as prosthetic devices, 
        implants, eyeglasses, hearing aids, dental devices, and 
        adaptive devices).
            ``(13) Disposable medical supplies.
            ``(14) Home and community-based health care services and 
        related supportive services (such as home health nursing 
        services, home health aide services, personal care, assistance 
        with activities of daily living, chore services, day care 
        services, respite care services, training for family members, 
        and minor modifications to the home).
            ``(15) Nursing care services (such as nurse practitioner 
        services, nurse midwife services, advanced practice nurse 
        services, private duty nursing care, pediatric nurse services, 
        and respiratory care services) in a home, school, or other 
        setting.
            ``(16) Abortion only if necessary to save the life of the 
        mother or if the pregnancy is the result of an act of rape or 
        incest.
            ``(17) Dental services.
            ``(18) Inpatient substance abuse treatment services and 
        residential substance abuse treatment services.
            ``(19) Outpatient substance abuse treatment services.
            ``(20) Case management services.
            ``(21) Care coordination services.
            ``(22) Physical therapy, occupational therapy, and services 
        for individuals with speech, hearing, and language disorders.
            ``(23) Hospice care.
            ``(24) Any other medical, diagnostic, screening, 
        preventive, restorative, remedial, therapeutic, or 
        rehabilitative services (whether in a facility, home, school, 
        or other setting) if recognized by State law and only if the 
        service is--
                    ``(A) prescribed by or furnished by a physician or 
                other licensed or registered practitioner within the 
                scope of practice as defined by State law,
                    ``(B) performed under the general supervision or at 
                the direction of a physician, or
                    ``(C) furnished by a health care facility that is 
                operated by a State or local government or is licensed 
                under State law and operating within the scope of the 
                license.
            ``(25) Premiums for private health care insurance coverage.
            ``(26) Medical transportation.
            ``(27) Enabling services (such as transportation, 
        translation, and outreach services) only if designed to 
        increase the accessibility of primary and preventive health 
        care services for eligible low-income individuals.
            ``(28) Any other health care services or items specified by 
        the Secretary and not excluded under this section.
    ``(b) Targeted Low-Income Child Defined.--For purposes of this 
title--
            ``(1) In general.--The term `targeted low-income child' 
        means a child--
                    ``(A) who has been determined eligible by the State 
                for child health assistance under the State plan;
                    ``(B) whose family income (as determined under the 
                State child health plan)--
                            ``(i) exceeds the medicaid applicable 
                        income level (as defined in paragraph (2) and 
                        expressed as a percentage of the poverty line), 
                        but
                            ``(ii) but does not exceed an income level 
                        that is 75 percentage points higher (as so 
                        expressed) than the medicaid applicable income 
                        level, or, if higher, 133 percent of the 
                        poverty line for a family of the size involved; 
                        and
                    ``(C) who is not found to be eligible for medical 
                assistance under title XIX or covered under a group 
                health plan or under health insurance coverage (as such 
                terms are defined in section 2791 of the Public Health 
                Service Act).
        Such term does not include a child who is an inmate of a public 
        institution.
            ``(2) Medicaid applicable income level.--The term `medicaid 
        applicable income level' means, with respect to a child, the 
        effective income level (expressed as a percent of the poverty 
        line) that has been specified under the State plan under title 
        XIX (including under a waiver authorized by the Secretary or 
        under section 1902(r)(2)), as of June 1, 1997, for the child to 
        be eligible for medical assistance under section 1902(l)(2) for 
        the age of such child. In applying the previous sentence in the 
        case of a child described in section 1902(l)(2)(D), such level 
        shall be applied taking into account the expanded coverage 
        effected among such children under such section with the 
        passage of time.
    ``(c) Additional Definitions.--For purposes of this title:
            ``(1) Child.--The term `child' means an individual under 19 
        years of age.
            ``(2) Creditable health coverage.--The term `creditable 
        health coverage' has the meaning given the term `creditable 
        coverage' under section 2701(c) of the Public Health Service 
        Act (42 U.S.C. 300gg(c)) and includes coverage (including the 
        direct provision of services) provided to a targeted low-income 
        child under this title.
            ``(3) Group health plan; health insurance coverage; etc.--
        The terms `group health plan', `group health insurance 
        coverage', and `health insurance coverage' have the meanings 
        given such terms in section 2191 of the Public Health Service 
        Act.
            ``(4) Low-income.--The term `low-income child' means a 
        child whose family income is below 200 percent of the poverty 
        line for a family of the size involved.
            ``(5) Poverty line defined.--The term `poverty line' has 
        the meaning given such term in section 673(2) of the Community 
        Services Block Grant Act (42 U.S.C. 9902(2)), including any 
        revision required by such section.
            ``(6) Preexisting condition exclusion.--The term 
        `preexisting condition exclusion' has the meaning given such 
        term in section 2701(b)(1)(A) of the Public Health Service Act 
        (42 U.S.C. 300gg(b)(1)(A)).
            ``(7) State child health plan; plan.--Unless the context 
        otherwise requires, the terms `State child health plan' and 
        `plan' mean a State child health plan approved under section 
        2105.
            ``(8) Uncovered child.--The term `uncovered child' means a 
        child that does not have creditable health coverage.''.
    (b) Conforming Amendments.--
            (1) Definition of state.--Section 1101(a)(1) is amended--
                    (A) by striking ``and XIX'' and inserting ``XIX, 
                and XXI'', and
                    (B) by striking ``title XIX'' and inserting 
                ``titles XIX and XXI''.

SEC. 3503. OPTIONAL USE OF STATE CHILD HEALTH ASSISTANCE FUNDS FOR 
              ENHANCED MEDICAID MATCH FOR EXPANDED MEDICAID 
              ELIGIBILITY.

    (a) Increased FMAP for Medical Assistance for Expanded Coverage of 
Targeted Low-Income Children.--Section 1905 of the Social Security Act 
(42 U.S.C. 1396d) is amended--
            (1) in subsection (b), by adding at the end the following 
        new sentence: ``Notwithstanding the first sentence of this 
        subsection, in the case of a State plan that meets the 
        condition described in subsection (t)(1), with respect to 
        expenditures for medical assistance for optional targeted low-
        income children described in subsection (t)(2), the Federal 
        medical assistance percentage is equal to the enhanced medical 
        assistance percentage described in subsection (t)(3).''; and
            (2) by adding at the end the following new subsection:
    ``(t)(1) The conditions described in this paragraph for a State 
plan are as follows:
            ``(A) The plan is not applying income and resource 
        standards and methodologies for the purpose of determining 
        eligibility of individuals under section 1902(l) that are more 
        restrictive than those applied as of June 1, 1997, for the 
        purpose of determining eligibility of individuals under such 
        section.
            ``(B) The plan provides for such reporting of information 
        about expenditures and payments attributable to the operation 
        of this subsection as the Secretary deems necessary in order to 
        carry out sections 2103(d) and 2104(b)(2).
            ``(C) The amount of the increased payments under section 
        1903(a) resulting from the application of this subsection does 
        not exceed the total amount of any allotment not otherwise 
        expended by the State under section 2103 for the period 
        involved.
    ``(2) For purposes of subsection (b), the term `optional targeted 
low-income child' means a targeted low-income child described in 
section 2108(b)(1) who would not qualify for medical assistance under 
the State plan under this title based on such plan as in effect on June 
1, 1997 (taking into account the process of individuals aging into 
eligibility under section 1902(l)(2)(D)).
    ``(3) The enhanced medical assistance percentage described in this 
paragraph for a State is equal to the Federal medical assistance 
percentage (as defined in the first sentence of subsection (b)) for the 
State increased by a number of percentage points equal to 30 percent of 
the number of percentage points by which (A) such Federal medical 
assistance percentage for the State, is less than (B) 100 percent.
    ``(4) Notwithstanding any other provision of this title, a State 
plan under this title may impose a limit on the number of optional 
targeted low-income children described in paragraph (2).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to medical assistance for items and services furnished on or 
after October 1, 1997.
    

SEC. 3504. MEDICAID PRESUMPTIVE ELIGIBILITY FOR LOW-INCOME CHILDREN.

    (a) In General.--Title XIX of the Social Security Act is amended by 
inserting after section 1920 the following new section:

                 ``presumptive eligibility for children

    ``Sec. 1920A. (a) A State plan approved under section 1902 may 
provide for making medical assistance with respect to health care items 
and services covered under the State plan available to a child during a 
presumptive eligibility period.
    ``(b) For purposes of this section:
            ``(1) The term `child' means an individual under 19 years 
        of age.
            ``(2) The term `presumptive eligibility period' means, with 
        respect to a child, the period that--
                    ``(A) begins with the date on which a qualified 
                entity determines, on the basis of preliminary 
                information, that the family income of the child does 
                not exceed the applicable income level of eligibility 
                under the State plan, and
                    ``(B) ends with (and includes) the earlier of--
                            ``(i) the day on which a determination is 
                        made with respect to the eligibility of the 
                        child for medical assistance under the State 
                        plan, or
                            ``(ii) in the case of a child on whose 
                        behalf an application is not filed by the last 
                        day of the month following the month during 
                        which the entity makes the determination 
                        referred to in subparagraph (A), such last day.
            ``(3)(A) Subject to subparagraph (B), the term `qualified 
        entity' means any entity that--
                    ``(i)(I) is eligible for payments under a State 
                plan approved under this title and provides items and 
                services described in subsection (a) or (II) is 
                authorized to determine eligibility of a child to 
                participate in a Head Start program under the Head 
                Start Act (42 U.S.C. 9821 et seq.), eligibility of a 
                child to receive child care services for which 
                financial assistance is provided under the Child Care 
                and Development Block Grant Act of 1990 (42 U.S.C. 9858 
                et seq.), eligibility of an infant or child to receive 
                assistance under the special supplemental nutrition 
                program for women, infants, and children (WIC) under 
                section 17 of the Child Nutrition Act of 1966 (42 
                U.S.C. 1786); and
                    ``(ii) is determined by the State agency to be 
                capable of making determinations of the type described 
                in paragraph (1)(A).
            ``(B) The Secretary may issue regulations further limiting 
        those entities that may become qualified entities in order to 
        prevent fraud and abuse and for other reasons.
            ``(C) Nothing in this section shall be construed as 
        preventing a State from limiting the classes of entities that 
        may become qualified entities, consistent with any limitations 
        imposed under subparagraph (B).
    ``(c)(1) The State agency shall provide qualified entities with--
            ``(A) such forms as are necessary for an application to be 
        made on behalf of a child for medical assistance under the 
        State plan, and
            ``(B) information on how to assist parents, guardians, and 
        other persons in completing and filing such forms.
    ``(2) A qualified entity that determines under subsection (b)(1)(A) 
that a child is presumptively eligible for medical assistance under a 
State plan shall--
            ``(A) notify the State agency of the determination within 5 
        working days after the date on which determination is made, and
            ``(B) inform the parent or custodian of the child at the 
        time the determination is made that an application for medical 
        assistance under the State plan is required to be made by not 
        later than the last day of the month following the month during 
        which the determination is made.
    ``(3) In the case of a child who is determined by a qualified 
entity to be presumptively eligible for medical assistance under a 
State plan, the parent, guardian, or other person shall make 
application on behalf of the child for medical assistance under such 
plan by not later than the last day of the month following the month 
during which the determination is made, which application may be the 
application used for the receipt of medical assistance by individuals 
described in section 1902(l)(1).
    ``(d) Notwithstanding any other provision of this title, medical 
assistance for items and services described in subsection (a) that--
            ``(1) are furnished to a child--
                    ``(A) during a presumptive eligibility period,
                    ``(B) by a entity that is eligible for payments 
                under the State plan; and
            ``(2) are included in the care and services covered by a 
        State plan;
shall be treated as medical assistance provided by such plan for 
purposes of section 1903.''.
    (b) Conforming Amendments.--(1) Section 1902(a)(47) of such Act (42 
U.S.C. 1396a(a)(47)) is amended by inserting before the semicolon at 
the end the following: ``and provide for making medical assistance for 
items and services described in subsection (a) of section 1920A 
available to children during a presumptive eligibility period in 
accordance with such section''.
    (2) Section 1903(u)(1)(D)(v) of such Act (42 U.S.C. 
1396b(u)(1)(D)(v)) of such Act is amended by inserting before the 
period at the end the following: ``or for items and services described 
in subsection (a) of section 1920A provided to a child during a 
presumptive eligibility period under such section''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

               TITLE IV--COMMITTEE ON COMMERCE--MEDICARE

SEC. 4000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
              TABLE OF CONTENTS OF TITLE.

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

Sec. 4000. Amendments to Social Security Act and references to OBRA; 
                            table of contents of title.
                    Subtitle A--MedicarePlus Program

                   subchapter a--medicareplus program
Sec. 4001. Establishment of MedicarePlus program.
                     ``Part C--MedicarePlus Program

        ``Sec. 1851. Eligibility, election, and enrollment.
        ``Sec. 1852. Benefits and beneficiary protections.
        ``Sec. 1853. Payments to MedicarePlus organizations.
        ``Sec. 1854. Premiums.
        ``Sec. 1855. Organizational and financial requirements for 
                            MedicarePlus organizations; provider-
                            sponsored organizations.
        ``Sec. 1856. Establishment of standards.
        ``Sec. 1857. Contracts with MedicarePlus organizations.
        ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 4002. Transitional rules for current medicare HMO program.
Ssubchapter b--special rules for medicareplus medical savings accounts
Sesubchapter c--gme, ime, and dsh payments for managed care enrollees
Sec. 4008. Graduate medical education and indirect medical education 
                            payments for managed care enrollees.
Sec. 4009. Disproportionate share hospital payments for managed care 
                            enrollees.
  subchapter a--programs of all-inclusive care for the elderly (pace)
Sec. 4011. Reference to coverage of PACE under the medicare program.
Sec. 4012. Reference to establishment of PACE program as medicaid State 
     subchapter b--social health maintenance organizations (shmos)
Sec. 4015. Social healsubchapter c--other programs (SHMOs).
Sec. 4018. Orderly transition of municipal health service demonstration 
                            projects.
Sec. 4019. Extension of certain medicare community nursing organization 
                            demonstration projects.
            Chapter 3--Medicare Payment Advisory Commission

Sec. 4021. Medicare Payment Advisory Commission.
                     Chapter 4--Medigap Protections

Sec. 4031. Medigap protections.
Sec. 4032. Medicare prepaid competitive pricing demonstration project.
                   Subtitle B--Prevention Initiatives

Sec. 4101. Screening mammography.
Sec. 4102. Screening pap smear and pelvic exams.
Sec. 4103. Prostate cancer screening tests.
Sec. 4104. Coverage of colorectal screening.
Sec. 4105. Diabetes screening tests.
Sec. 4106. Standardization of medicare coverage of bone mass 
                            measurements.
Sec. 4107. Vaccines outreach expansion.
Sec. 4108. Study on preventive benefits.
                     Subtitle C--Rural Initiatives

Sec. 4206. Informatics, telemedicine, and education demonstration 
                            project.
              Subtitle D--Anti-Fraud and Abuse Provisions

Sec. 4301. Permanent exclusion for those convicted of 3 health care 
                            related crimes.
Sec. 4302. Authority to refuse to enter into medicare agreements with 
                            individuals or entities convicted of 
                            felonies.
Sec. 4303. Inclusion of toll-free number to report medicare waste, 
                            fraud, and abuse in explanation of benefits 
                            forms.
Sec. 4304. Liability of medicare carriers and fiscal intermediaries for 
                            claims submitted by excluded providers.
Sec. 4305. Exclusion of entity controlled by family member of a 
                            sanctioned individual.
Sec. 4306. Imposition of civil money penalties.
Sec. 4307. Disclosure of information and surety bonds.
Sec. 4308. Provision of certain identification numbers.
Sec. 4309. Advisory opinions regarding certain physician self-referral 
                            provisions.
Sec. 4310. Nondiscrimination in post-hospital referral to home health 
                            agencies.
Sec. 4311. Other fraud and abuse related provisions.
                Subtitle E--Prospective Payment Systems

   subchapter a--payment for hospital outpatient department services
Sec. 4411. Elimination of formula-driven overpayments (FDO) for certain 
                            outpatient hospital services.
Sec. 4412. Extension of reductions in payments for costs of hospital 
                            outpatient services.
Sec. 4413. Prospective payment system for hospital outpatient 
                 subchapter b--rehabilitation services
Sec. 4421. Rehabilitation agencies and services.
Sec. 4422. Comprehensubchapter c--ambulance servicesacilities (corf).
Sec. 4431. Payments for ambulance services.
Sec. 4432. Demonstration of coverage of ambulance services under 
                            medicare through contracts with units of 
                            local government.
                 Chapter 3--Payment Under Parts A and B

Sec. 4441. Prospective payment for home health services.
             Subtitle G--Provisions Relating to Part B Only

                    Chapter 1--Physicians' Services

Sec. 4601. Establishment of single conversion factor for 1998.
Sec. 4602. Establishing update to conversion factor to match spending 
                            under sustainable growth rate.
Sec. 4603. Replacement of volume performance standard with sustainable 
                            growth rate.
Sec. 4604. Payment rules for anesthesia services.
Sec. 4605. Implementation of resource-based physician practice expense.
Sec. 4606. Dissemination of information on high per admission relative 
                            values for in-hospital physicians' 
                            services.
Sec. 4607. No X-ray required for chiropractic services.
Sec. 4608. Temporary coverage restoration for portable 
                            electrocardiogram transportation.
                  Chapter 2--Other Payment Provisions

Sec. 4611. Payments for durable medical equipment.
Sec. 4612. Oxygen and oxygen equipment.
Sec. 4613. Reduction in updates to payment amounts for clinical 
                            diagnostic laboratory tests.
Sec. 4614. Simplification in administration of laboratory services 
                            benefit.
Sec. 4615. Updates for ambulatory surgical services.
Sec. 4616. Reimbursement for drugs and biologicals.
Sec. 4617. Coverage of oral anti-nausea drugs under chemotherapeutic 
                            regimen.
Sec. 4618. Rural health clinic services.
Sec. 4619. Increased medicare reimbursement for nurse practitioners and 
                            clinical nurse specialists.
Sec. 4620. Increased medicare reimbursement for physician assistants.
Sec. 4621. Renal dialysis-related services.
Sec. 4622. Payment for cochlear implants as customized durable medical 
                            equipment.
                       Chapter 3--Part B Premium

Sec. 4631. Part B premium.
            Subtitle H--Provisions Relating to Parts A and B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Sec. 4701. Permanent extension and revision of certain secondary payer 
                            provisions.
Sec. 4702. Clarification of time and filing limitations.
Sec. 4703. Permitting recovery against third party administrators.
                    Chapter 2--Home Health Services

Sec. 4711. Recapturing savings resulting from temporary freeze on 
                            payment increases for home health services.
Sec. 4712. Interim payments for home health services.
Sec. 4713. Clarification of part-time or intermittent nursing care.
Sec. 4714. Study of definition of homebound.
Sec. 4715. Payment based on location where home health service is 
                            furnished.
Sec. 4716. Normative standards for home health claims denials,
Sec. 4717. No home health benefits based solely on drawing blood.
Sec. 4718. Making part B primary payor for certain home health 
                            services.
          Chapter 3--Baby Boom Generation Medicare Commission

Sec. 4721. Bipartisan Commission on the Effect of the Baby Boom 
                            Generation on the Medicare Program.
  Chapter 4--Provisions Relating to Direct Graduate Medical Education

Sec. 4731. Limitation on payment based on number of residents and 
                            implementation of rolling average FTE 
                            count.
Sec. 4732. Phased-in limitation on hospital overhead and supervisory 
                            physician component of direct medical 
                            education costs.
Sec. 4733. Permitting payment to non-hospital providers.
Sec. 4734. Incentive payments under plans for voluntary reduction in 
                            number of residents.
Sec. 4735. Demonstration project on use of consortia.
Sec. 4736. Recommendations on long-term payment policies regarding 
                            financing teaching hospitals and graduate 
                            medical education.
Sec. 4737. Medicare special reimbursement rule for certain combined 
                            residency programs.
                      Chapter 5--Other Provisions

Sec. 4741. Centers of excellence.
Sec. 4742. Medicare part B special enrollment period and waiver of part 
                            B late enrollment penalty and medigap 
                            special open enrollment period for certain 
                            military retirees and dependents.
Sec. 4743. Competitive bidding for certain items and services.
                  Subtitle I--Medical Liability Reform

                     Chapter 1--General Provisions

Sec. 4801. Federal reform of health care liability actions.
Sec. 4802. Definitions.
Sec. 4803. Effective date.
     Chapter 2--Uniform Standards for Health Care Liability Actions

Sec. 4811. Statute of limitations.
Sec. 4812. Calculation and payment of damages.
Sec. 4813. Alternative dispute resolution.

                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

                   Subchapter A--MedicarePlus Program

SEC. 4001. ESTABLISHMENT OF MEDICAREPLUS PROGRAM.

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

                     ``Part C--MedicarePlus Program

                ``eligibility, election, and enrollment

    ``Sec. 1851. (a) Choice of Medicare Benefits Through MedicarePlus 
Plans.--
            ``(1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as defined in 
        paragraph (3)) is entitled to elect to receive benefits under 
        this title--
                    ``(A) through the medicare fee-for-service program 
                under parts A and B, or
                    ``(B) through enrollment in a MedicarePlus plan 
                under this part.
            ``(2) Types of medicareplus plans that may be available.--A 
        MedicarePlus plan may be any of the following types of plans of 
        health insurance:
                    ``(A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, including 
                health maintenance organization plans and preferred 
                provider organization plans.
                    ``(B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in section 
                1855(e).
                    ``(C) Combination of msa plan and contributions to 
                medicareplus msa.--An MSA plan, as defined in section 
                1859(b)(2), and a contribution into a MedicarePlus 
                medical savings account (MSA).
            ``(3) MedicarePlus eligible individual.--
                    ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `MedicarePlus eligible 
                individual' means an individual who is entitled to 
                benefits under part A and enrolled under part B.
                    ``(B) Special rule for end-stage renal disease.--
                Such term shall not include an individual medically 
                determined to have end-stage renal disease, except that 
                an individual who develops end-stage renal disease 
                while enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to elect a 
                MedicarePlus plan offered by a MedicarePlus 
                organization only if the organization serves the 
                geographic area in which the individual resides.
                    ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, the 
                Secretary shall provide that an individual may continue 
                enrollment in a plan, notwithstanding that the 
                individual no longer resides in the service area of the 
                plan, so long as the plan provides benefits for 
                enrollees located in the area in which the individual 
                resides.
            ``(2) Special rule for certain individuals covered under 
        fehbp or eligible for veterans or military health benefits, 
        veterans .--
                    ``(A) FEHBP.--An individual who is enrolled in a 
                health benefit plan under chapter 89 of title 5, United 
                States Code, is not eligible to enroll in an MSA plan 
                until such time as the Director of the Office of 
                Management and Budget certifies to the Secretary that 
                the Office of Personnel Management has adopted policies 
                which will ensure that the enrollment of such 
                individuals in such plans will not result in increased 
                expenditures for the Federal Government for health 
                benefit plans under such chapter.
                    ``(B) VA and dod.--The Secretary may apply rules 
                similar to the rules described in subparagraph (A) in 
                the case of individuals who are eligible for health 
                care benefits under chapter 55 of title 10, United 
                States Code, or under chapter 17 of title 38 of such 
                Code.
            ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to enroll in an 
        MSA plan.--An individual who is a qualified medicare 
        beneficiary (as defined in section 1905(p)(1)), a qualified 
        disabled and working individual (described in section 1905(s)), 
        an individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a State plan 
        under title XIX is not eligible to enroll in an MSA plan.
            ``(4) Coverage under msa plans on a demonstration basis.--
                    ``(A) In general.--An individual is not eligible to 
                enroll in an MSA plan under this part--
                            ``(i) on or after January 1, 2003, unless 
                        the enrollment is the continuation of such an 
                        enrollment in effect as of such date; or
                            ``(ii) as of any date if the number of such 
                        individuals so enrolled as of such date has 
                        reached 500,000.
                Under rules established by the Secretary, an individual 
                is not eligible to enroll (or continue enrollment) in 
                an MSA plan for a year unless the individual provides 
                assurances satisfactory to the Secretary that the 
                individual will reside in the United States for at 
                least 183 days during the year.
                    ``(B) Evaluation.--The Secretary shall regularly 
                evaluate the impact of permitting enrollment in MSA 
                plans under this part on selection (including adverse 
                selection), use of preventive care, access to care, and 
                the financial status of the Trust Funds under this 
                title.
                    ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of individuals 
                enrolled in such plans and on the evaluation being 
                conducted under subparagraph (B). The Secretary shall 
                submit such a report, by not later than March 1, 2002, 
                on whether the time limitation under subparagraph 
                (A)(i) should be extended or removed and whether to 
                change the numerical limitation under subparagraph 
                (A)(ii).
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
            ``(2) Coordination through medicareplus organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus plan 
                offered by a MedicarePlus organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicarePlus plan offered 
                by a MedicarePlus organization and who wishes to 
                terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
            ``(3) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to clause (ii), 
                        an individual who fails to make an election 
                        during an initial election period under 
                        subsection (e)(1) is deemed to have chosen the 
                        medicare fee-for-service program option.
                            ``(ii) Seamless continuation of coverage.--
                        The Secretary may establish procedures under 
                        which an individual who is enrolled in a health 
                        plan (other than MedicarePlus plan) offered by 
                        a MedicarePlus organization at the time of the 
                        initial election period and who fails to elect 
                        to receive coverage other than through the 
                        organization is deemed to have elected the 
                        MedicarePlus plan offered by the organization 
                        (or, if the organization offers more than one 
                        such plan, such plan or plans as the Secretary 
                        identifies under such procedures).
                    ``(B) Continuing periods.--An individual who has 
                made (or is deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                            ``(i) the individual changes the election 
                        under this section, or
                            ``(ii) a MedicarePlus plan is discontinued, 
                        if the individual had elected such plan at the 
                        time of the discontinuation.
    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 30 days 
                before the beginning of each annual, coordinated 
                election period (as defined in subsection (e)(3)(B)), 
                the Secretary shall mail to each MedicarePlus eligible 
                individual residing in an area the following:
                            ``(i) General information.--The general 
                        information described in paragraph (3).
                            ``(ii) List of plans and comparison of plan 
                        options.--A list identifying the MedicarePlus 
                        plans that are (or will be) available to 
                        residents of the area and information described 
                        in paragraph (4) concerning such plans. Such 
                        information shall be presented in a comparative 
                        form.
                            ``(iii) MedicarePlus monthly capitation 
                        rate.--The amount of the monthly MedicarePlus 
                        capitation rate for the area.
                            ``(iv) Additional information.--Any other 
                        information that the Secretary determines will 
                        assist the individual in making the election 
                        under this section.
                The mailing of such information shall be coordinated 
                with the mailing of any annual notice under section 
                1804.
                    ``(B) Notification to newly medicareplus eligible 
                individuals.--To the extent practicable, the Secretary 
                shall, not later than 2 months before the beginning of 
                the initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1), mail to the 
                individual the information described in subparagraph 
                (A).
                    ``(C) Form.--The information disseminated under 
                this paragraph shall be written and formatted using 
                language that is easily understandable by medicare 
                beneficiaries.
                    ``(D) Periodic updating.--The information described 
                in subparagraph (A) shall be updated on at least an 
                annual basis to reflect changes in the availability of 
                MedicarePlus plans and the benefits and monthly 
                premiums (and net monthly premiums) for such plans.
            ``(3) General information.--General information under this 
        paragraph, with respect to coverage under this part during a 
        year, shall include the following:
                    ``(A) Benefits under fee-for-service program 
                option.--A general description of the benefits covered 
                (and not covered) under the medicare fee-for-service 
                program under parts A and B, including--
                            ``(i) covered items and services,
                            ``(ii) beneficiary cost sharing, such as 
                        deductibles, coinsurance, and copayment 
                        amounts, and
                            ``(iii) any beneficiary liability for 
                        balance billing.
                    ``(B) Part b premium.--The part B premium rates 
                that will be charged for part B coverage.
                    ``(C) Election procedures.--Information and 
                instructions on how to exercise election options under 
                this section.
                    ``(D) Rights.--The general description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the medicare fee-
                for-service program and the MedicarePlus program and 
                right to be protected against discrimination based on 
                health status-related factors under section 1852(b).
                    ``(E) Information on medigap and medicare select.--
                A general description of the benefits, enrollment 
                rights, and other requirements applicable to medicare 
                supplemental policies under section 1882 and provisions 
                relating to medicare select policies described in 
                section 1882(t).
                    ``(F) Potential for contract termination.--The fact 
                that a MedicarePlus organization may terminate or 
                refuse to renew its contract under this part and the 
                effect the termination or nonrenewal of its contract 
                may have on individuals enrolled with the MedicarePlus 
                plan under this part.
            ``(4) Information comparing plan options.--Information 
        under this paragraph, with respect to a MedicarePlus plan for a 
        year, shall include the following:
                    ``(A) Benefits.--The benefits covered (and not 
                covered) under the plan, including--
                            ``(i) covered items and services beyond 
                        those provided under the medicare fee-for-
                        service program,
                            ``(ii) any beneficiary cost sharing,
                            ``(iii) any maximum limitations on out-of-
                        pocket expenses,
                            ``(iv) in the case of an MSA plan, 
                        differences in cost sharing under such a plan 
                        compared to under other MedicarePlus plans,
                            ``(v) the use of provider networks and the 
                        restriction on payments for services furnished 
                        other than by other through the organization,
                            ``(vi) the organization's coverage of 
                        emergency and urgently needed care,
                            ``(vii) the appeal and grievance rights of 
                        enrollees,
                            ``(viii) number of grievances and appeals, 
                        and information on their disposition in the 
                        aggregate,
                            ``(ix) procedures used by the organization 
                        to control utilization of services and 
                        expenditures, and
                            ``(x) any exclusions in the types of 
                        providers participating in the plan's network.
                    ``(B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                    ``(C) Service area.--The service area of the plan.
                    ``(D) Quality and performance.--To the extent 
                available, plan quality and performance indicators for 
                the benefits under the plan (and how they compare to 
                such indicators under the medicare fee-for-service 
                program under parts A and B in the area involved), 
                including--
                            ``(i) disenrollment rates for medicare 
                        enrollees electing to receive benefits through 
                        the plan for the previous 2 years (excluding 
                        disenrollment due to death or moving outside 
                        the plan's service area),
                            ``(ii) information on medicare enrollee 
                        satisfaction,
                            ``(iii) information on health outcomes, and
                            ``(iv) the recent record regarding 
                        compliance of the plan with requirements of 
                        this part (as determined by the Secretary).
                    ``(E) Supplemental benefits options.--Whether the 
                organization offering the plan offers optional 
                supplemental benefits and the terms and conditions 
                (including premiums) for such coverage.
            ``(5) Maintaining a toll-free number and internet site.--
        The Secretary shall maintain a toll-free number for inquiries 
        regarding MedicarePlus options and the operation of this part 
        in all areas in which MedicarePlus plans are offered and an 
        Internet site through which individuals may electronically 
        obtain information on such options and MedicarePlus plans.
            ``(6) Use of nonfederal entities.--The Secretary may enter 
        into contracts with non-Federal entities to carry out 
        activities under this subsection.
            ``(7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such information 
        on the organization and each MedicarePlus plan it offers as may 
        be required for the preparation of the information referred to 
        in paragraph (2)(A).
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election if 
        medicareplus plans available to individual.--If, at the time an 
        individual first becomes entitled to benefits under part A and 
        enrolled under part B, there is one or more MedicarePlus plans 
        offered in the area in which the individual resides, the 
        individual shall make the election under this section during a 
        period (of a duration and beginning at a time specified by the 
        Secretary) at such time. Such period shall be specified in a 
        manner so that, in the case of an individual who elects a 
        MedicarePlus plan during the period, coverage under the plan 
        becomes effective as of the first date on which the individual 
        may receive such coverage.
            ``(2) Open enrollment and disenrollment opportunities.--
        Subject to paragraph (5)--
                    ``(A) Continuous open enrollment and disenrollment 
                through 2000.--At any time during 1998, 1999, and 2000, 
                a MedicarePlus eligible individual may change the 
                election under subsection (a)(1).
                    ``(B) Continuous open enrollment and disenrollment 
                for first 6 months during 2001.--
                            ``(i) In general.--Subject to clause (ii), 
                        at any time during the first 6 months of 2001, 
                        or, if the individual first becomes a 
                        MedicarePlus eligible individual during 2001, 
                        during the first 6 months during 2001 in which 
                        the individual is a MedicarePlus eligible 
                        individual, a MedicarePlus eligible individual 
                        may change the election under subsection 
                        (a)(1).
                            ``(ii) Limitation of one change per year.--
                        An individual may exercise the right under 
                        clause (i) only once during 2001. The 
                        limitation under this clause shall not apply to 
                        changes in elections effected during an annual, 
                        coordinated election period under paragraph (3) 
                        or during a special enrollment period under 
                        paragraph (4).
                    ``(C) Continuous open enrollment and disenrollment 
                for first 3 months in subsequent years.--
                            ``(i) In general.--Subject to clause (ii), 
                        at any time during the first 3 months of a year 
                        after 2001, or, if the individual first becomes 
                        a MedicarePlus eligible individual during a 
                        year after 2001, during the first 3 months of 
                        such year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may change the 
                        election under subsection (a)(1).
                            ``(ii) Limitation of one change per year.--
                        An individual may exercise the right under 
                        clause (i) only once a year. The limitation 
                        under this clause shall not apply to changes in 
                        elections effected during an annual, 
                        coordinated election period under paragraph (3) 
                        or during a special enrollment period under 
                        paragraph (4).
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during an annual, 
                coordinated election period.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 2001), the month of October before such 
                year.
                    ``(C) MedicarePlus health fairs.--In the month of 
                October of each year (beginning with 1998), the 
                Secretary shall provide for a nationally coordinated 
                educational and publicity campaign to inform 
                MedicarePlus eligible individuals about MedicarePlus 
                plans and the election process provided under this 
                section.
            ``(4) Special election periods.--Effective as of January 1, 
        2001, an individual may discontinue an election of a 
        MedicarePlus plan offered by a MedicarePlus organization other 
        than during an annual, coordinated election period and make a 
        new election under this section if--
                    ``(A) the organization's or plan's certification 
                under this part has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                plan;
                    ``(B) the individual is no longer eligible to elect 
                the plan because of a change in the individual's place 
                of residence or other change in circumstances 
                (specified by the Secretary, but not including 
                termination of the individual's enrollment on the basis 
                described in clause (i) or (ii) of subsection 
                (g)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--
                            ``(i) the organization offering the plan 
                        substantially violated a material provision of 
                        the organization's contract under this part in 
                        relation to the individual (including the 
                        failure to provide an enrollee on a timely 
                        basis medically necessary care for which 
                        benefits are available under the plan or the 
                        failure to provide such covered care in 
                        accordance with applicable quality standards); 
                        or
                            ``(ii) the organization (or an agent or 
                        other entity acting on the organization's 
                        behalf) materially misrepresented the plan's 
                        provisions in marketing the plan to the 
                        individual; or
                    ``(D) the individual meets such other exceptional 
                conditions as the Secretary may provide.
            ``(5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an individual--
                    ``(A) may elect an MSA plan only during--
                            ``(i) an initial open enrollment period 
                        described in paragraph (1),
                            ``(ii) an annual, coordinated election 
                        period described in paragraph (3)(B), or
                            ``(iii) the months of October 1998 and 
                        October 1999; and
                    ``(B) may not discontinue an election of an MSA 
                plan except during the periods described in clause (ii) 
                or (iii) of subparagraph (A) and under paragraph (4).
    ``(f) Effectiveness of Elections and Changes of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
            ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection (e)(2) 
        shall take effect with the first day of the first calendar 
        month following the date on which the election is made.
            ``(3) Annual, coordinated election period.--An election or 
        change of coverage made during an annual, coordinated election 
        period (as defined in subsection (e)(3)(B)) in a year shall 
        take effect as of the first day of the following year.
            ``(4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) shall take 
        effect in such manner as the Secretary provides in a manner 
        consistent (to the extent practicable) with protecting 
        continuity of health benefit coverage.
    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        MedicarePlus organization shall provide that at any time during 
        which elections are accepted under this section with respect to 
        a MedicarePlus plan offered by the organization, the 
        organization will accept without restrictions individuals who 
        are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a MedicarePlus plan 
        it offers, has a capacity limit and the number of MedicarePlus 
        eligible individuals who elect the plan under this section 
        exceeds the capacity limit, the organization may limit the 
        election of individuals of the plan under this section but only 
        if priority in election is provided--
                    ``(A) first to such individuals as have elected the 
                plan at the time of the determination, and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate, on a basis described 
                in section 1852(b), among the individuals (who seek to 
                elect the plan).
        The preceding sentence shall not apply if it would result in 
        the enrollment of enrollees substantially nonrepresentative, as 
        determined in accordance with regulations of the Secretary, of 
        the medicare population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                MedicarePlus organization may not for any reason 
                terminate the election of any individual under this 
                section for a MedicarePlus plan it offers.
                    ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an individual's 
                election under this section with respect to a 
                MedicarePlus plan it offers if--
                            ``(i) any net monthly premiums required 
                        with respect to such plan are not paid on a 
                        timely basis (consistent with standards under 
                        section 1856 that provide for a grace period 
                        for late payment of net monthly premiums),
                            ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                            ``(iii) the plan is terminated with respect 
                        to all individuals under this part in the area 
                        in which the individual resides.
                    ``(C) Consequence of termination.--
                            ``(i) Terminations for cause.--Any 
                        individual whose election is terminated under 
                        clause (i) or (ii) of subparagraph (B) is 
                        deemed to have elected the medicare fee-for-
                        service program option described in subsection 
                        (a)(1)(A).
                            ``(ii) Termination based on plan 
                        termination or service area reduction.--Any 
                        individual whose election is terminated under 
                        subparagraph (B)(iii) shall have a special 
                        election period under subsection (e)(4)(A) in 
                        which to change coverage to coverage under 
                        another MedicarePlus plan. Such an individual 
                        who fails to make an election during such 
                        period is deemed to have chosen to change 
                        coverage to the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                    ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1857, each MedicarePlus organization receiving an 
                election form under subsection (c)(2) shall transmit to 
                the Secretary (at such time and in such manner as the 
                Secretary may specify) a copy of such form or such 
                other information respecting the election as the 
                Secretary may specify.
    ``(h) Approval of Marketing Material and Application Forms.--
            ``(1) Submission.--No marketing material or application 
        form may be distributed by a MedicarePlus organization to (or 
        for the use of) MedicarePlus eligible individuals unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of all such material or 
        form submitted and under such guidelines the Secretary shall 
        disapprove (or later require the correction of) such material 
        or form if the material or form is materially inaccurate or 
        misleading or otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material or form that is submitted under paragraph (1)(A) to 
        the Secretary or a regional office of the Department of Health 
        and Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing material or form 
        under paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the plan and 
        organization except to the extent that such material or form is 
        specific only to an area involved.
            ``(4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair marketing 
        standards, in relation to MedicarePlus plans offered under this 
        part, included in the standards established under section 1856. 
        Such standards shall include a prohibition against a 
        MedicarePlus organization (or agent of such an organization) 
        completing any portion of any election form used to carry out 
        elections under this section on behalf of any individual.
    ``(i) Effect of Election of MedicarePlus Plan Option.--Subject to 
sections 1852(a)(5), 1857(f)(2), and 1857(g)--
            ``(1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in the 
        absence of the contract) would otherwise be payable under parts 
        A and B for items and services furnished to the individual, and
            ``(2) subject to subsections (e) and (f) of section 1853, 
        only the MedicarePlus organization shall be entitled to receive 
        payments from the Secretary under this title for services 
        furnished to the individual.

                 ``benefits and beneficiary protections

    ``Sec. 1852. (a) Basic Benefits.--
            ``(1) In general.--Except as provided in section 1859(b)(2) 
        for MSA plans, each MedicarePlus plan shall provide to members 
        enrolled under this part, through providers and other persons 
        that meet the applicable requirements of this title and part A 
        of title XI--
                    ``(A) those items and services for which benefits 
                are available under parts A and B to individuals 
                residing in the area served by the plan, and
                    ``(B) additional benefits required under section 
                1854(f)(1)(A).
            ``(2) Satisfaction of requirement.--A MedicarePlus plan 
        (other than an MSA plan) offered by a MedicarePlus organization 
        satisfies paragraph (1)(A), with respect to benefits for items 
        and services furnished other than through a provider that has a 
        contract with the organization offering the plan, if the plan 
        provides (in addition to any cost sharing provided for under 
        the plan) for at least the total dollar amount of payment for 
        such items and services as would otherwise be authorized under 
        parts A and B (including any balance billing permitted under 
        such parts).
            ``(3) Supplemental benefits.--
                    ``(A) Benefits included subject to secretary's 
                approval.--Each MedicarePlus organization may provide 
                to individuals enrolled under this part (without 
                affording those individuals an option to decline the 
                coverage) supplemental health care benefits that the 
                Secretary may approve. The Secretary shall approve any 
                such supplemental benefits unless the Secretary 
                determines that including such supplemental benefits 
                would substantially discourage enrollment by 
                MedicarePlus eligible individuals with the 
                organization.
                    ``(B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals enrolled under 
                this part (other than under an MSA plan) supplemental 
                health care benefits that the individuals may elect, at 
                their option, to have covered.
            ``(4) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicarePlus organization may (in the 
        case of the provision of items and services to an individual 
        under a MedicarePlus plan under circumstances in which payment 
        under this title is made secondary pursuant to section 
        1862(b)(2)) charge or authorize the provider of such services 
        to charge, in accordance with the charges allowed under such a 
        law, plan, or policy--
                    ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                    ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
            ``(5) National coverage determinations.--If there is a 
        national coverage determination made in the period beginning on 
        the date of an announcement under section 1853(b) and ending on 
        the date of the next announcement under such section and the 
        Secretary projects that the determination will result in a 
        significant change in the costs to a MedicarePlus organization 
        of providing the benefits that are the subject of such national 
        coverage determination and that such change in costs was not 
        incorporated in the determination of the annual MedicarePlus 
        capitation rate under section 1853 included in the announcement 
        made at the beginning of such period--
                    ``(A) such determination shall not apply to 
                contracts under this part until the first contract year 
                that begins after the end of such period, and
                    ``(B) if such coverage determination provides for 
                coverage of additional benefits or coverage under 
                additional circumstances, section 1851(i) shall not 
                apply to payment for such additional benefits or 
                benefits provided under such additional circumstances 
                until the first contract year that begins after the end 
                of such period,
        unless otherwise required by law.
    ``(b) Antidiscrimination.--
            ``(1) In general.--A MedicarePlus organization may not 
        deny, limit, or condition the coverage or provision of benefits 
        under this part, for individuals permitted to be enrolled with 
        the organization under this part, based on any health status-
        related factor described in section 2702(a)(1) of the Public 
        Health Service Act.
            ``(2) Construction.--Paragraph (1) shall not be construed 
        as requiring a MedicarePlus organization to enroll individuals 
        who are determined to have end-stage renal disease, except as 
        provided under section 1851(a)(3)(B).
    ``(c) Detailed Description of Plan Provisions.--A MedicarePlus 
organization shall disclose, in clear, accurate, and standardized form 
to each enrollee with a MedicarePlus plan offered by the organization 
under this part at the time of enrollment and at least annually 
thereafter, the following information regarding such plan:
            ``(1) Service area.--The plan's service area.
            ``(2) Benefits.--Benefits offered (and not offered) under 
        the plan offered, including information described in section 
        1851(d)(3)(A) and exclusions from coverage and, if it is an MSA 
        plan, a comparison of benefits under such a plan with benefits 
        under other MedicarePlus plans.
            ``(3) Access.--The number, mix, and distribution of plan 
        providers and any point-of-service option (including the 
        supplemental premium for such option).
            ``(4) Out-of-area coverage.--Out-of-area coverage provided 
        by the plan.
            ``(5) Emergency coverage.--Coverage of emergency services 
        and urgently needed care, including--
                    ``(A) the appropriate use of emergency services, 
                including use of the 911 telephone system or its local 
                equivalent in emergency situations and an explanation 
                of what constitutes an emergency situation;
                    ``(B) the process and procedures of the plan for 
                obtaining emergency services; and
                    ``(C) the locations of (i) emergency departments, 
                and (ii) other settings, in which plan physicians and 
                hospitals provide emergency services and post-
                stabilization care..
            ``(6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, including--
                    ``(A) whether the supplemental benefits are 
                optional,
                    ``(B) the supplemental benefits covered, and
                    ``(C) the premium price for the supplemental 
                benefits.
            ``(7) Prior authorization rules.--Rules regarding prior 
        authorization or other review requirements that could result in 
        nonpayment.
            ``(8) Plan grievance and appeals procedures.--Any appeal or 
        grievance rights and procedures.
            ``(9) Quality assurance program.--A description of the 
        organization's quality assurance program under subsection (e).
    ``(d) Access to Services.--
            ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus plan may select the providers from whom the 
        benefits under the plan are provided so long as--
                    ``(A) the organization makes such benefits 
                available and accessible to each individual electing 
                the plan within the plan service area with reasonable 
                promptness and in a manner which assures continuity in 
                the provision of benefits;
                    ``(B) when medically necessary in the opinion of 
                the treating health care provider the organization 
                makes such benefits available and accessible 24 hours a 
                day and 7 days a week;
                    ``(C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                            ``(i) the services were medically necessary 
                        in the opinion of the treating health care 
                        provider and immediately required because of an 
                        unforeseen illness, injury, or condition, and 
                        it was not reasonable given the circumstances 
                        to obtain the services through the 
                        organization,
                            ``(ii) the services were renal dialysis 
                        services and were provided other than through 
                        the organization because the individual was 
                        temporarily out of the plan's service area, or
                            ``(iii) the services are maintenance care 
                        or post-stabilization care covered under the 
                        guidelines established under paragraph (2);
                    ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for treatment and services when such 
                treatment and services are determined to be medically 
                necessary in the professional opinion of the treating 
                health care provider, in consultation with the 
                individual; and
                    ``(E) coverage is provided for emergency services 
                (as defined in paragraph (3)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
            ``(2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply with such 
        guidelines as the Secretary may prescribe relating to promoting 
        efficient and timely coordination of appropriate maintenance 
        and post-stabilization care of an enrollee after the enrollee 
        has been determined to be stable under section 1867.
            ``(3) Definition of emergency services.--In this 
        subsection--
                    ``(A) In general.--The term `emergency services' 
                means, with respect to an individual enrolled with an 
                organization, covered inpatient and outpatient services 
                that--
                            ``(i) are furnished by a provider that is 
                        qualified to furnish such services under this 
                        title, and
                            ``(ii) are needed to evaluate or stabilize 
                        an emergency medical condition (as defined in 
                        subparagraph (B)).
                    ``(B) Emergency medical condition based on prudent 
                layperson.--The term `emergency medical condition' 
                means a medical condition manifesting itself by acute 
                symptoms of sufficient severity such that a prudent 
                layperson, who possesses an average knowledge of health 
                and medicine, could reasonably expect the absence of 
                immediate medical attention to result in--
                            ``(i) placing the health of the individual 
                        (or, with respect to a pregnant woman, the 
                        health of the woman or her unborn child) in 
                        serious jeopardy,
                            ``(ii) serious impairment to bodily 
                        functions, or
                            ``(iii) serious dysfunction of any bodily 
                        organ or part.
            ``(4) Determination of hospital length of stay.--
                    ``(A) In general.--A MedicarePlus organization 
                shall cover the length of an inpatient hospital stay 
                under this part as determined by the attending 
                physician (or other attending health care provider to 
                the extent permitted under State law) in consultation 
                with the patient to be medically appropriate.
                    ``(B) Construction.--Nothing in this paragraph 
                shall be construed--
                            ``(i) as requiring the provision of 
                        inpatient coverage if the attending physician 
                        (or other attending health care provider to the 
                        extent permitted under State law) and patient 
                        determine that a shorter period of hospital 
                        stay is medically appropriate, or
                            ``(ii) as affecting the application of 
                        deductibles and coinsurance.
    ``(e) Quality Assurance Program.--
            ``(1) In general.--Each MedicarePlus organization must have 
        arrangements, consistent with any regulation, for an ongoing 
        quality assurance program for health care services it provides 
        to individuals enrolled with MedicarePlus plans of the 
        organization.
            ``(2) Elements of program.--The quality assurance program 
        shall--
                    ``(A) stress health outcomes and provide for the 
                collection, analysis, and reporting of data (in 
                accordance with a quality measurement system that the 
                Secretary recognizes) that will permit measurement of 
                outcomes and other indices of the quality of 
                MedicarePlus plans and organizations;
                    ``(B) provide for the establishment of written 
                protocols for utilization review, based on current 
                standards of medical practice;
                    ``(C) provide review by physicians and other health 
                care professionals of the process followed in the 
                provision of such health care services;
                    ``(D) monitor and evaluate high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                    ``(E) evaluate the continuity and coordination of 
                care that enrollees receive;
                    ``(F) have mechanisms to detect both 
                underutilization and overutilization of services;
                    ``(G) after identifying areas for improvement, 
                establish or alter practice parameters;
                    ``(H) take action to improve quality and assesses 
                the effectiveness of such action through systematic 
                followup;
                    ``(I) make available information on quality and 
                outcomes measures to facilitate beneficiary comparison 
                and choice of health coverage options (in such form and 
                on such quality and outcomes measures as the Secretary 
                determines to be appropriate);
                    ``(J) be evaluated on an ongoing basis as to its 
                effectiveness;
                    ``(K) include measures of consumer satisfaction; 
                and
                    ``(L) provide the Secretary with such access to 
                information collected as may be appropriate to monitor 
                and ensure the quality of care provided under this 
                part.
            ``(3) External review.--Each MedicarePlus organization 
        shall, for each MedicarePlus plan it operates, have an 
        agreement with an independent quality review and improvement 
        organization approved by the Secretary to perform functions of 
        the type described in sections 1154(a)(4)(B) and 1154(a)(14) 
        with respect to services furnished by MedicarePlus plans for 
        which payment is made under this title.
            ``(4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to meet 
        requirements of paragraphs (1) through (3) of this subsection 
        and subsection (h) (relating to confidentiality and accuracy of 
        enrollee records) if the organization is accredited (and 
        periodically reaccredited) by a private organization under a 
        process that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies and 
        enforces standards with respect to the requirements involved 
        that are no less stringent than the standards established under 
        section 1856 to carry out the respective requirements.
    ``(f) Coverage Determinations.--
            ``(1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding authorization 
        requests for nonemergency care on a timely basis, depending on 
        the urgency of the situation. The organization shall provide 
        notice of any coverage denial, which notice shall include a 
        statement of the reasons for the denial and a description of 
        the grievance and appeals processes available.
            ``(2) Reconsiderations.--
                    ``(A) In general.--Subject to subsection (g)(4), a 
                reconsideration of a determination of an organization 
                denying coverage shall be made within 30 days of the 
                date of receipt of medical information, but not later 
                than 60 days after the date of the determination.
                    ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating to a 
                determination to deny coverage based on a lack of 
                medical necessity shall be made only by a physician 
                with appropriate expertise in the field of medicine 
                which necessitates treatment who is other than a 
                physician involved in the initial determination.
    ``(g) Grievances and Appeals.--
            ``(1) Grievance mechanism.--Each MedicarePlus organization 
        must provide meaningful procedures for hearing and resolving 
        grievances between the organization (including any entity or 
        individual through which the organization provides health care 
        services) and enrollees with MedicarePlus plans of the 
        organization under this part.
            ``(2) Appeals.--An enrollee with a MedicarePlus plan of a 
        MedicarePlus organization under this part who is dissatisfied 
        by reason of the enrollee's failure to receive any health 
        service to which the enrollee believes the enrollee is entitled 
        and at no greater charge than the enrollee believes the 
        enrollee is required to pay is entitled, if the amount in 
        controversy is $100 or more, to a hearing before the Secretary 
        to the same extent as is provided in section 205(b), and in any 
        such hearing the Secretary shall make the organization a party. 
        If the amount in controversy is $1,000 or more, the individual 
        or organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final decision 
        as provided in section 205(g), and both the individual and the 
        organization shall be entitled to be parties to that judicial 
        review. In applying sections 205(b) and 205(g) as provided in 
        this paragraph, 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.
            ``(3) Independent review of coverage denials.--The 
        Secretary shall contract with an independent, outside entity to 
        review and resolve in a timely manner reconsiderations that 
        affirm denial of coverage.
            ``(4) Expedited determinations and reconsiderations.--
                    ``(A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in writing or 
                orally, an expedited determination or reconsideration 
                by the MedicarePlus organization regarding a matter 
                described in paragraph (2). The organization shall also 
                permit the acceptance of such requests by physicians.
                    ``(B) Organization procedures.--
                            ``(i) In general.--The MedicarePlus 
                        organization shall maintain procedures for 
                        expediting organization determinations and 
                        reconsiderations when, upon request of an 
                        enrollee, the organization determines that the 
                        application of normal time frames for making a 
                        determination (or a reconsideration involving a 
                        determination) could seriously jeopardize the 
                        life or health of the enrollee or the 
                        enrollee's ability to regain maximum function.
                            ``(ii) Timely response.--In an urgent case 
                        described in clause (i), the organization shall 
                        notify the enrollee (and the physician 
                        involved, as appropriate) of the determination 
                        (or determination on the reconsideration) as 
                        expeditiously as the enrollee's health 
                        condition requires, but not later than 72 hours 
                        (or 24 hours in the case of a reconsideration) 
                        of the time of receipt of the request for the 
                        determination or reconsideration (or receipt of 
                        the information necessary to make the 
                        determination or reconsideration), or such 
                        longer period as the Secretary may permit in 
                        specified cases.
                            ``(iii) Secretarial report.--The Secretary 
                        shall annually report publicly on the number 
                        and disposition of denials and appeals within 
                        each MedicarePlus organization, and those 
                        reviewed and resolved by the independent 
                        entities under this subsection.
    ``(h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
            ``(1) to safeguard the privacy of individually identifiable 
        enrollee information,
            ``(2) to maintain accurate and timely medical records and 
        other health information for enrollees, and
            ``(3) to assure timely access of enrollees to their medical 
        information.
    ``(i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(j) Rules Regarding Physician Participation.--
            ``(1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under MedicarePlus plans offered by the 
        organization under this part. Such procedures shall include--
                    ``(A) providing notice of the rules regarding 
                participation,
                    ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                    ``(C) providing a process within the organization 
                for appealing such adverse decisions, including the 
                presentation of information and views of the physician 
                regarding such decision.
            ``(2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have entered 
        into participation agreements with the organization regarding 
        the organization's medical policy, quality, and medical 
        management procedures.
            ``(3) Prohibiting interference with provider advice to 
        enrollees.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), a MedicarePlus organization (in relation to an 
                individual enrolled under a MedicarePlus plan offered 
                by the organization under this part) shall not prohibit 
                or otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) from 
                advising such an individual who is a patient of the 
                professional about the health status of the individual 
                or medical care or treatment for the individual's 
                condition or disease, regardless of whether benefits 
                for such care or treatment are provided under the plan, 
                if the professional is acting within the lawful scope 
                of practice.
                    ``(B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a MedicarePlus plan 
                to provide, reimburse for, or provide coverage of a 
                counseling or referral service if the MedicarePlus 
                organization offering the plan--
                            ``(i) objects to the provision of such 
                        service on moral or religious grounds; and
                            ``(ii) in the manner and through the 
                        written instrumentalities such MedicarePlus 
                        organization deems appropriate, makes available 
                        information on its policies regarding such 
                        service to prospective enrollees before or 
                        during enrollment and to enrollees within 90 
                        days after the date that the organization or 
                        plan adopts a change in policy regarding such a 
                        counseling or referral service.
                    ``(C) Construction.--Nothing in subparagraph (B) 
                shall be construed to affect disclosure requirements 
                under State law or under the Employee Retirement Income 
                Security Act of 1974.
                    ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health care 
                professional' means a physician (as defined in section 
                1861(r)) or other health care professional if coverage 
                for the professional's services is provided under the 
                MedicarePlus plan for the services of the professional. 
                Such term includes a podiatrist, optometrist, 
                chiropractor, psychologist, dentist, physician 
                assistant, physical or occupational therapist and 
                therapy assistant, speech-language pathologist, 
                audiologist, registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse anesthetist, and 
                certified nurse-midwife), licensed certified social 
                worker, registered respiratory therapist, and certified 
                respiratory therapy technician.
            ``(4) Limitations on health care provider incentive 
        plans.--
                    ``(A) In general.--No MedicarePlus organization may 
                operate any health care provider incentive plan (as 
                defined in subparagraph (B)) unless the following 
                requirements are met:
                            ``(i) No specific payment is made directly 
                        or indirectly under the plan to a health care 
                        provider or health care provider group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with respect to a 
                        specific individual enrolled with the 
                        organization.
                            ``(ii) If the plan places a health care 
                        provider or health care provider group at 
                        substantial financial risk (as determined by 
                        the Secretary) for services not provided by the 
                        health care provider or health care provider 
                        group, the organization--
                                    ``(I) provides stop-loss protection 
                                for the health care provider or group 
                                that is adequate and appropriate, based 
                                on standards developed by the Secretary 
                                that take into account the number of 
                                health care providers 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 health care provider or group, and
                                    ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                            ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                    ``(B) Health care provider incentive plan 
                defined.--In this paragraph, the term `health care 
                provider incentive plan' means any compensation 
                arrangement between a MedicarePlus organization and a 
                health care provider or health care provider group that 
                may directly or indirectly have the effect of reducing 
                or limiting services provided with respect to 
                individuals enrolled with the organization under this 
                part.
                    ``(C) Health care provider defined.--For the 
                purposes of this paragraph, the term `health care 
                provider' has the meaning given the term `health care 
                professional' in paragraph (3)(D).
            ``(5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to indemnify 
        the organization against any liability resulting from a civil 
        action brought for any damage caused to an enrollee with a 
        MedicarePlus plan of the organization under this part by the 
        organization's denial of medically necessary care.
            ``(6) Limitation on non-compete clause.--A MedicarePlus 
        organization may not (directly or indirectly) seek to enforce 
        any contractual provision which prevents a provider whose 
        contractual obligations to the organization for the provision 
        of services through the organization have ended from joining or 
        forming any competing MedicarePlus organization that is a 
        provider-sponsored organization in the same area.
    ``(k) Treatment of Services Furnished by Certain Providers.--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 a MedicarePlus 
organization shall accept as payment in full for covered services under 
this title 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 
a payment with respect to an individual entitled to benefits under this 
title (but not enrolled with a MedicarePlus organization under this 
part) also applies with respect to an individual so enrolled.
    ``(l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with information 
on--
            ``(1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this part--
                    ``(A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH hospitals), 
                or
                    ``(B) through the use of teaching hospitals that 
                receive payments under section 1886(h); and
            ``(2) the extent to which differences between payment rates 
        to different hospitals reflect the disproportionate share 
        percentage of low-income patients and the presence of medical 
        residency training programs in those hospitals.
    ``(m) Out-of-Network Access.--If an organization offers to members 
enrolled under this section one plan which provides for coverage of 
services covered under parts A and B primarily through providers and 
other persons who are members of a network of providers and other 
persons who have entered into a contract with the organization to 
provide such services, nothing in this section shall be construed as 
preventing the organization from offering such members (at the time of 
enrollment) another plan which provides for coverage of such items 
which are not furnished through such network providers.
    ``(n) Non-Preemption of State Law.--A State may establish or 
enforce requirements with respect to beneficiary protections in this 
section, but only if such requirements are more stringent than the 
requirements established under this section.
    ``(o) Nondiscrimination in Selection of Network Health 
Professionals.--
            ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus plan offering network coverage shall not 
        discriminate in selecting the members of its health 
        professional network (or in establishing the terms and 
        conditions for membership in such network) on the basis of the 
        race, national origin, gender, age, or disability (other than a 
        disability that impairs the ability of an individual to provide 
        health care services or that may threaten the health of 
        enrollees) of the health professional.
            ``(2) Appropriate range of services.--A MedicarePlus 
        organization shall not deny any health care professionals, 
        based solely on the license or certification as applicable 
        under State law, the ability to participate in providing 
        covered health care services, or be reimbursed or indemnified 
        by a network plan for providing such services under this part.
            ``(2) Definitions.--For purposes of this subsection:
                    ``(A) Network.--The term `network' means, with 
                respect to a MedicarePlus organization offering a 
                MedicarePlus plan, the participating health 
                professionals and providers through whom the 
                organization provides health care items and services to 
                enrollees.
                    ``(B) Network coverage.--The term `network 
                coverage' means a MedicarePlus plan offered by a 
                MedicarePlus organization that provides or arranges for 
                the provision of health care items and services to 
                enrollees through participating health professionals 
                and providers.
                    ``(C) Participating.--The term `participating' 
                means, with respect to a health professional or 
                provider, a health professional or provider that 
                provides health care items and services to enrollees 
                under network coverage under an agreement with the 
                MedicarePlus organization offering the coverage.
    ``(p) Special Rule for Unrestricted Fee-for-Service MSA Plans.--
Subsections (j)(1) and (k) shall not apply to a MedicarePlus 
organization with respect to an MSA plan it offers if the plan does not 
limit the providers through whom benefits may be obtained under the 
plan.

                ``payments to medicareplus organizations

    ``Sec. 1853. (a) Payments to Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under section 
                1857 and subject to subsections (e) and (f), the 
                Secretary shall make monthly payments under this 
                section in advance to each MedicarePlus organization, 
                with respect to coverage of an individual under this 
                part in a MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual MedicarePlus 
                capitation rate (as calculated under subsection (c)) 
                with respect to that individual for that area, adjusted 
                for such risk factors as age, disability status, 
                gender, institutional status, and such other factors as 
                the Secretary determines to be appropriate, so as to 
                ensure actuarial equivalence. The Secretary may add to, 
                modify, or substitute for such factors, if such changes 
                will improve the determination of actuarial 
                equivalence.
                    ``(B) Special rule for end-stage renal disease.--
                The Secretary shall establish separate rates of payment 
                to a MedicarePlus organization with respect to classes 
                of individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan of the 
                organization. Such rates of payment shall be 
                actuarially equivalent to rates paid to other enrollees 
                in the MedicarePlus payment area (or such other area as 
                specified by the Secretary). In accordance with 
                regulations, the Secretary shall provide for the 
                application of the seventh sentence of section 
                1881(b)(7) to payments under this section covering the 
                provision of renal dialysis treatment in the same 
                manner as such sentence applies to composite rate 
                payments described in such sentence.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicarePlus organization under 
                        a 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, except that for 
                        purposes of making such retroactive adjustments 
                        under this subparagraph, such period may not 
                        exceed 90 days.
                            ``(ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to any 
                        individual who does not certify that the 
                        organization provided the individual with the 
                        information required to be disclosed under 
                        section 1852(c) at the time the individual 
                        enrolled with the organization.
            ``(3) Establishment of risk adjustment factors.--
                    ``(A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than October 1, 1999, a 
                report on a method of risk adjustment of payment rates 
                under this section that accounts for variations in per 
                capita costs based on health status. Such report shall 
                include an evaluation of such method by an outside, 
                independent actuary of the actuarial soundness of the 
                proposal.
                    ``(B) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require MedicarePlus 
                organizations (and eligible organizations with risk-
                sharing contracts under section 1876) to submit, for 
                periods beginning on or after January 1, 1998, data 
                regarding inpatient hospital services and other 
                services and other information the Secretary deems 
                necessary.
                    ``(C) Initial implementation.--The Secretary shall 
                first provide for implementation of a risk adjustment 
                methodology that accounts for variations in per capita 
                costs based on health status and other demographic 
                factors for payments by no later than January 1, 2000.
    ``(b) Annual Announcement of Payment Rates.--
            ``(1) 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--
                    ``(A) the annual MedicarePlus capitation rate for 
                each MedicarePlus payment area for the year, and
                    ``(B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) for 
                payments for months in that year.
            ``(2) Advance notice of methodological changes.--At least 
        45 days before making the announcement under paragraph (1) for 
        a year, the Secretary shall provide for notice to MedicarePlus 
        organizations of proposed changes to be made in the methodology 
        from the methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
            ``(3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include an 
        explanation of the assumptions and changes in methodology used 
        in the announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for individuals in each MedicarePlus payment 
        area which is in whole or in part within the service area of 
        such an organization.
    ``(c) Calculation of Annual MedicarePlus Capitation Rates.--
            ``(1) In General.--For purposes of this part, each annual 
        MedicarePlus capitation rate, for a MedicarePlus payment area 
        for a contract year consisting of a calendar year, is equal to 
        the largest of the amounts specified in the following 
        subparagraphs (A), (B), or (C):
                    ``(A) Blended capitation rate.--The sum of--
                            ``(i) area-specific percentage for the year 
                        (as specified under paragraph (2) for the year) 
                        of the annual area-specific MedicarePlus 
                        capitation rate for the year for the 
                        MedicarePlus payment area, as determined under 
                        paragraph (3), and
                            ``(ii) national percentage (as specified 
                        under paragraph (2) for the year) of the input-
                        price-adjusted annual national MedicarePlus 
                        capitation rate for the year, as determined 
                        under paragraph (4),
                multiplied by the payment adjustment factors described 
                in subparagraphs (A) and (B) of paragraph (5).
                    ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                            ``(i) For 1998, $350 (but not to exceed, in 
                        the case of an area outside the 50 States and 
                        the District of Columbia, 150 percent of the 
                        annual per capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) for the 
                        area).
                            ``(ii) For a succeeding year, the minimum 
                        amount specified in this clause (or clause (i)) 
                        for the preceding year increased by the 
                        national per capita MedicarePlus growth 
                        percentage, specified under paragraph (6) for 
                        that succeeding year.
                    ``(C) Minimum percentage increase.--
                            ``(i) For 1998, the annual per capita rate 
                        of payment for 1997 determined under section 
                        1876(a)(1)(C) for the MedicarePlus payment 
                        area.
                            ``(ii) For 1999 and 2000, 101 percent of 
                        the annual MedicarePlus capitation rate under 
                        this paragraph for the area for the previous 
                        year.
                            ``(iii) For a subsequent year, 102 percent 
                        of the annual MedicarePlus capitation rate 
                        under this paragraph for the area for the 
                        previous year.
            ``(2) Area-specific and national percentages.--For purposes 
        of paragraph (1)(A)--
                    ``(A) for 1998, the `area-specific percentage' is 
                90 percent and the `national percentage' is 10 percent,
                    ``(B) for 1999, the `area-specific percentage' is 
                85 percent and the `national percentage' is 15 percent,
                    ``(C) for 2000, the `area-specific percentage' is 
                80 percent and the `national percentage' is 20 percent,
                    ``(D) for 2001, the `area-specific percentage' is 
                75 percent and the `national percentage' is 25 percent, 
                and
                    ``(E) for a year after 2001, the `area-specific 
                percentage' is 70 percent and the `national percentage' 
                is 30 percent.
            ``(3) Annual area-specific medicareplus capitation rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), subject to subparagraph (B), the annual area-
                specific MedicarePlus capitation rate for a 
                MedicarePlus payment area--
                            ``(i) for 1998 is the annual per capita 
                        rate of payment for 1997 determined under 
                        section 1876(a)(1)(C) for the area, increased 
                        by the national per capita MedicarePlus growth 
                        percentage for 1998 (as defined in paragraph 
                        (6)); or
                            ``(ii) for a subsequent year is the annual 
                        area-specific MedicarePlus capitation rate for 
                        the previous year determined under this 
                        paragraph for the area, increased by the 
                        national per capita MedicarePlus growth 
                        percentage for such subsequent year.
                    ``(B) Removal of medical education and 
                disproportionate share hospital payments from 
                calculation of adjusted average per capita cost.--
                            ``(i) In general.--In determining the area-
                        specific MedicarePlus capitation rate under 
                        subparagraph (A), for a year (beginning with 
                        1998), the annual per capita rate of payment 
                        for 1997 determined under section 1876(a)(1)(C) 
                        shall be adjusted to exclude from the rate the 
                        applicable percent (specified in clause (ii)) 
                        of the payment adjustments described in 
                        subparagraph (C).
                            ``(ii) Applicable percent.--For purposes of 
                        clause (i), the applicable percent for--
                                    ``(I) 1998 is 20 percent,
                                    ``(II) 1999 is 40 percent,
                                    ``(III) 2000 is 60 percent,
                                    ``(IV) 2001 is 80 percent, and
                                    ``(V) a succeeding year is 100 
                                percent.
                    ``(C) Payment adjustment.--The payment adjustments 
                described in this subparagraph are payment adjustments 
                which the Secretary estimates were payable during 
                1997--
                            ``(i) under section 1886(d)(5)(F) for 
                        hospitals serving a disproportionate share of 
                        low-income patients,
                            ``(ii) for the indirect costs of medical 
                        education under section 1886(d)(5)(B), and
                            ``(iii) for direct graduate medical 
                        education costs under section 1886(h),
                multiplied by a ratio (estimated by the Secretary) of 
                total payments under subsection (h) and section 1858 in 
                1998 to payments under such subsection and payments 
                under such section in such year for hospitals not 
                reimbursed under section 1814(b)(3).
            ``(4) Input-price-adjusted annual national medicareplus 
        capitation rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual national 
                MedicarePlus capitation rate for a MedicarePlus payment 
                area for a year is equal to the sum, for all the types 
                of medicare services (as classified by the Secretary), 
                of the product (for each such type of service) of--
                            ``(i) the national standardized annual 
                        MedicarePlus capitation rate (determined under 
                        subparagraph (B)) for the year,
                            ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services, and
                            ``(iii) an index that reflects (for that 
                        year and that type of services) the relative 
                        input price of such services in the area 
                        compared to the national average input price of 
                        such services.
                In applying clause (iii), the Secretary shall, subject 
                to subparagraph (C), apply those indices under this 
                title that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                    ``(B) National standardized annual medicareplus 
                capitation rate.--In subparagraph (A)(i), the `national 
                standardized annual MedicarePlus capitation rate' for a 
                year is equal to--
                            ``(i) the sum (for all MedicarePlus payment 
                        areas) of the product of--
                                    ``(I) the annual area-specific 
                                MedicarePlus capitation rate for that 
                                year for the area under paragraph (3), 
                                and
                                    ``(II) the average number of 
                                medicare beneficiaries residing in that 
                                area in the year, multiplied by the 
                                average of the risk factor weights used 
                                to adjust payments under subsection 
                                (a)(1)(A) for such beneficiaries in 
                                such area; divided by
                            ``(ii) the sum of the products described in 
                        clause (i)(II) for all areas for that year.
                    ``(C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                            ``(i) medicare services shall be divided 
                        into 2 types of services: part A services and 
                        part B services;
                            ``(ii) the proportions described in 
                        subparagraph (A)(ii)--
                                    ``(I) for part A services shall be 
                                the ratio (expressed as a percentage) 
                                of the national average annual per 
                                capita rate of payment for part A for 
                                1997 to the total national average 
                                annual per capita rate of payment for 
                                parts A and B for 1997, and
                                    ``(II) for part B services shall be 
                                100 percent minus the ratio described 
                                in subclause (I);
                            ``(iii) for part A services, 70 percent of 
                        payments attributable to such services shall be 
                        adjusted by the index used under section 
                        1886(d)(3)(E) to adjust payment rates for 
                        relative hospital wage levels for hospitals 
                        located in the payment area involved;
                            ``(iv) for part B services--
                                    ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                    ``(II) of the remaining 34 percent 
                                of the amount of such payments, 40 
                                percent shall be adjusted by the index 
                                described in clause (iii); and
                            ``(v) the index values shall be computed 
                        based only on the beneficiary population who 
                        are 65 years of age or older and who are not 
                        determined to have end stage renal disease.
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1999.
            ``(5) Payment adjustment budget neutrality factors.--For 
        purposes of paragraph (1)(A)--
                    ``(A) Blended rate payment adjustment factor.--For 
                each year, the Secretary shall compute a blended rate 
                payment adjustment factor such that, not taking into 
                account subparagraphs (B) and (C) of paragraph (1) and 
                the application of the payment adjustment factor 
                described in subparagraph (B) but taking into account 
                paragraph (7), the aggregate of the payments that would 
                be made under this part is equal to the aggregate 
                payments that would have been made under this part (not 
                taking into account such subparagraphs and such other 
                adjustment factor) if the area-specific percentage 
                under paragraph (1) for the year had been 100 percent 
                and the national percentage had been 0 percent.
                    ``(B) Floor-and-minimum-update payment adjustment 
                factor.--For each year, the Secretary shall compute a 
                floor-and-minimum-update payment adjustment factor so 
                that, taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) of 
                paragraph (1) and the application of the adjustment 
                factor under this subparagraph, the aggregate of the 
                payments under this part shall not exceed the aggregate 
                payments that would have been made under this part if 
                subparagraphs (B) and (C) of paragraph (1) did not 
                apply and if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 1.
            ``(6) National per capita medicareplus growth percentage 
        defined.--
                    ``(A) In general.--In this part, the `national per 
                capita MedicarePlus growth percentage' for a year is 
                the percentage determined by the Secretary, by April 
                30th before the beginning of the year involved, to 
                reflect the Secretary's estimate of the projected per 
                capita rate of growth in expenditures under this title 
                for an individual entitled to benefits under part A and 
                enrolled under part B, reduced by the number of 
                percentage points specified in subparagraph (B) for the 
                year. Separate determinations may be made for aged 
                enrollees, disabled enrollees, and enrollees with end-
                stage renal disease. Such percentage shall include an 
                adjustment for over or under projection in the growth 
                percentage for previous years.
                    ``(B) Adjustment.--The number of percentage points 
                specified in this subparagraph is--
                            ``(i) for 1998, 0.5 percentage points,
                            ``(ii) for 1999, 0.5 percentage points,
                            ``(iii) for 2000, 0.5 percentage points,
                            ``(iv) for 2001, 0.5 percentage points,
                            ``(v) for 2002, 0.5 percentage points, and
                            ``(vi) for a year after 2002, 0 percentage 
                        points.
            ``(7) treatment of areas with highly variable payment 
        rates.--In the case of a MedicarePlus payment area for which 
        the annual per capita rate of payment determined under section 
        1876(a)(1)(C) for 1997 varies by more than 20 percent from such 
        rate for 1996, for purposes of this subsection the Secretary 
        may substitute for such rate for 1997 a rate that is more 
        representative of the costs of the enrollees in the area.
    ``(d) MedicarePlus Payment Area Defined.--
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `MedicarePlus payment area' means a 
        county, or equivalent area specified by the Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal disease, 
        the MedicarePlus payment area shall be a State or such other 
        payment area as the Secretary specifies.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon written request of the 
                chief executive officer of a State for a contract year 
                (beginning after 1998) made at least 7 months before 
                the beginning of the year, the Secretary shall make a 
                geographic adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph (1)--
                            ``(i) to a single statewide MedicarePlus 
                        payment area,
                            ``(ii) to the metropolitan based system 
                        described in subparagraph (C), or
                            ``(iii) to consolidating into a single 
                        MedicarePlus payment area noncontiguous 
                        counties (or equivalent areas described in 
                        paragraph (1)) within a State.
                Such adjustment shall be effective for payments for 
                months beginning with January of the year following the 
                year in which the request is received.
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Secretary shall adjust the payment rates otherwise 
                established under this section for MedicarePlus payment 
                areas in the State in a manner so that the aggregate of 
                the payments under this section in the State shall not 
                exceed the aggregate payments that would have been made 
                under this section for MedicarePlus payment areas in 
                the State in the absence of the adjustment under this 
                paragraph.
                    ``(C) Metropolitan based system.--The metropolitan 
                based system described in this subparagraph is one in 
                which--
                            ``(i) all the portions of each metropolitan 
                        statistical area in the State or in the case of 
                        a consolidated metropolitan statistical area, 
                        all of the portions of each primary 
                        metropolitan statistical area within the 
                        consolidated area within the State, are treated 
                        as a single MedicarePlus payment area, and
                            ``(ii) all areas in the State that do not 
                        fall within a metropolitan statistical area are 
                        treated as a single MedicarePlus payment area.
                    ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area designated 
                as such by the Secretary of Commerce.
    ``(e) Special Rules for Individuals Electing MSA Plans.--
            ``(1) In general.--If the amount of the monthly premium for 
        an MSA plan for a MedicarePlus payment area for a year is less 
        than \1/12\ of the annual MedicarePlus capitation rate applied 
        under this section for the area and year involved, the 
        Secretary shall deposit an amount equal to 100 percent of such 
        difference in a MedicarePlus MSA established (and, if 
        applicable, designated) by the individual under paragraph (2).
            ``(2) Establishment and designation of medicareplus medical 
        savings account as requirement for payment of contribution.--In 
        the case of an individual who has elected coverage under an MSA 
        plan, no payment shall be made under paragraph (1) on behalf of 
        an individual for a month unless the individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicarePlus MSA (as defined in section 
                138(b)(2) of the Internal Revenue Code of 1986), and
                    ``(B) if the individual has established more than 
                one such MedicarePlus MSA, has designated one of such 
                accounts as the individual's MedicarePlus MSA for 
                purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing an MSA 
        plan effective beginning with a month in a year, the amount of 
        the contribution to the MedicarePlus MSA on behalf of the 
        individual for that month and all successive months in the year 
        shall be deposited during that first month. In the case of a 
        termination of such an election as of a month before the end of 
        a year, the Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining months in 
        the year.
    ``(f) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under this 
part with the organization and payments to a MedicarePlus MSA under 
subsection (e)(1) shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. Monthly 
payments otherwise payable under this section for October 2001 shall be 
paid on the last business day of September 2001.
    ``(g) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a MedicarePlus plan 
        offered by a MedicarePlus organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the MedicarePlus plan or the medicare 
                fee-for-service program option described in section 
                1851(a)(1)(A) (as the case may be) elected before the 
                election with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part; or
            ``(2) termination of election with respect to a 
        MedicarePlus organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by any 
                succeeding MedicarePlus organization, and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.

                               ``premiums

    ``Sec. 1854. (a) Submission and Charging of Premiums.--
            ``(1) In general.--Subject to paragraph (3), each 
        MedicarePlus organization shall file with the Secretary each 
        year, in a form and manner and at a time specified by the 
        Secretary--
                    ``(A) the amount of the monthly premium for 
                coverage for services under section 1852(a) under each 
                MedicarePlus plan it offers under this part in each 
                MedicarePlus payment area (as defined in section 
                1853(d)) in which the plan is being offered; and
                    ``(B) the enrollment capacity in relation to the 
                plan in each such area.
            ``(2) Terminology.--In this part--
                    ``(A) the term `monthly premium' means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium filed 
                under paragraph (1), not taking into account the amount 
                of any payment made toward the premium under section 
                1853; and
                    ``(B) the term `net monthly premium' means, with 
                respect to such a plan and an individual enrolled with 
                the plan, the premium (as defined in subparagraph (A)) 
                for the plan reduced by the amount of payment made 
                toward such premium under section 1853.
    ``(b) Monthly Premium Charged.--The monthly amount of the premium 
charged by a MedicarePlus organization for a MedicarePlus plan offered 
in a MedicarePlus payment area to an individual under this part shall 
be equal to the net monthly premium plus any monthly premium charged in 
accordance with subsection (e)(2) for supplemental benefits.
    ``(c) Uniform Premium.--The monthly premium and monthly amount 
charged under subsection (b) of a MedicarePlus organization under this 
part may not vary among individuals who reside in the same MedicarePlus 
payment area.
    ``(d) Terms and Conditions of Imposing Premiums.--Each MedicarePlus 
organization shall permit the payment of net monthly premiums on a 
monthly basis and may terminate election of individuals for a 
MedicarePlus plan for failure to make premium payments only in 
accordance with section 1851(g)(3)(B)(i). A MedicarePlus organization 
is not authorized to provide for cash or other monetary rebates as an 
inducement for enrollment or otherwise.
    ``(e) Limitation on Enrollee Cost-Sharing.--
            ``(1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                    ``(A) the net monthly premium (multiplied by 12) 
                and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with a 
                MedicarePlus plan of an organization with respect to 
                required benefits described in section 1852(a)(1) and 
                additional benefits (if any) required under subsection 
                (f)(1) for a year, exceed
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals entitled to benefits under part 
                A and enrolled under part B if they were not members of 
                a MedicarePlus organization for the year.
            ``(2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under this part 
        supplemental benefits described in section 1852(a)(3), the sum 
        of the monthly premium rate (multiplied by 12) charged for such 
        supplemental benefits and the actuarial value of its 
        deductibles, coinsurance, and copayments charged with respect 
        to such benefits may not exceed the adjusted community rate for 
        such benefits (as defined in subsection (f)(4)).
            ``(3) Exception for msa plans.--Paragraphs (1) and (2) do 
        not apply to an MSA plan.
            ``(4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to determine 
        the actuarial value under paragraph (1)(A) or (2), the 
        Secretary may determine such amount with respect to all 
        individuals in the MedicarePlus payment area, the State, or in 
        the United States, eligible to enroll in the MedicarePlus plan 
        involved under this part or on the basis of other appropriate 
        data.
    ``(f) Requirement for Additional Benefits.--
            ``(1) Requirement.--
                    ``(A) In general.--Each MedicarePlus organization 
                (in relation to a MedicarePlus plan it offers) shall 
                provide that if there is an excess amount (as defined 
                in subparagraph (B)) for the plan for a contract year, 
                subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is at least 
                equal to the adjusted excess amount (as defined in 
                subparagraph (C)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an organization for 
                a plan, is the amount (if any) by which--
                            ``(i) the average of the capitation 
                        payments made to the organization under section 
                        1853 for the plan at the beginning of contract 
                        year, exceeds
                            ``(ii) the actuarial value of the required 
                        benefits described in section 1852(a)(1) under 
                        the plan for individuals under this part, as 
                        determined based upon an adjusted community 
                        rate described in paragraph (4) (as reduced for 
                        the actuarial value of the coinsurance and 
                        deductibles under parts A and B).
                    ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a plan, is the excess amount reduced 
                to reflect any amount withheld and reserved for the 
                organization for the year under paragraph (2).
                    ``(D) No application to msa plans.--Subparagraph 
                (A) shall not apply to an MSA plan.
                    ``(E) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a plan in a 
                MedicarePlus payment area.
                    ``(F) Construction.--Nothing in this subsection 
                shall be construed as preventing a MedicarePlus 
                organization from providing health care benefits that 
                are in addition to the benefits otherwise required to 
                be provided under this paragraph and from imposing a 
                premium for such additional benefits.
            ``(2) Stabilization fund.--A MedicarePlus organization may 
        provide that a part of the value of an excess amount described 
        in paragraph (1) be withheld and reserved in the Federal 
        Hospital Insurance Trust Fund and in the Federal Supplementary 
        Medical Insurance Trust Fund (in such proportions as the 
        Secretary determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent required to 
        stabilize and prevent undue fluctuations in the additional 
        benefits offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of the amount reserved which is not provided as 
        additional benefits described in paragraph (1)(A) to 
        individuals electing the MedicarePlus plan of the organization 
        in accordance with such paragraph prior to the end of such 
        periods, shall revert for the use of such trust funds.
            ``(3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds that there 
        is insufficient enrollment experience (including no enrollment 
        experience in the case of a provider-sponsored organization) to 
        determine an average of the capitation payments to be made 
        under this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the enrollment 
        experience of other contracts entered into under this part.
            ``(4) Adjusted community rate.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the term `adjusted 
                community rate' for a service or services means, at the 
                election of a MedicarePlus organization, either--
                            ``(i) the rate of payment for that service 
                        or services which the Secretary annually 
                        determines would apply to an individual 
                        electing a MedicarePlus plan under this part if 
                        the rate of payment were determined under a 
                        `community rating system' (as defined in 
                        section 1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                            ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary annually 
                        estimates would apply to such an individual, as 
                        the Secretary annually estimates is 
                        attributable to that service or services,
                but adjusted for differences between the utilization 
                characteristics of the individuals electing coverage 
                under this part and the utilization characteristics of 
                the other enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to adjust 
                for those differences, the differences between the 
                utilization characteristics of individuals selecting 
                other MedicarePlus coverage, or MedicarePlus eligible 
                individuals in the area, in the State, or in the United 
                States, eligible to elect MedicarePlus coverage under 
                this part and the utilization characteristics of the 
                rest of the population in the area, in the State, or in 
                the United States, respectively).
                    ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored organization, 
                the adjusted community rate under subparagraph (A) for 
                a MedicarePlus plan of the organization may be computed 
                (in a manner specified by the Secretary) using data in 
                the general commercial marketplace or (during a 
                transition period) based on the costs incurred by the 
                organization in providing such a plan.
    ``(g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data relating to 
medicare utilization, costs, and computation of the adjusted community 
rate) of at least one-third of the MedicarePlus organizations offering 
MedicarePlus plans under this part. The Comptroller General shall 
monitoring auditing activities conducted under this subsection.
    ``(h) Prohibition of State Imposition of Premium Taxes.--No State 
may impose a premium tax or similar tax with respect to premiums on 
MedicarePlus plans or the offering of such plans.

     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations

    ``Sec. 1855. (a) Organized and Licensed Under State Law.--
            ``(1) In general.--Subject to paragraphs (2) and (3), a 
        MedicarePlus organization shall be organized and licensed under 
        State law as a risk-bearing entity eligible to offer health 
        insurance or health benefits coverage in each State in which it 
        offers a MedicarePlus plan.
            ``(2) Special exception for provider-sponsored 
        organizations.--
                    ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary shall waive 
                the requirement of paragraph (1) that the organization 
                be licensed in that State if--
                            ``(i) the organization files an application 
                        for such waiver with the Secretary, and
                            ``(ii) the Secretary determines, based on 
                        the application and other evidence presented to 
                        the Secretary, that any of the grounds for 
                        approval of the application described in 
                        subparagraph (B), (C), or (D) has been met.
                    ``(B) Failure to act on licensure application on a 
                timely basis.--A ground for approval of such a waiver 
                application is that the State has failed to complete 
                action on a licensing application of the organization 
                within 90 days of the date of the State's receipt of 
                the application. No period before the date of the 
                enactment of this section shall be included in 
                determining such 90-day period.
                    ``(C) Denial of application based on discriminatory 
                treatment.--A ground for approval of such a waiver 
                application is that the State has denied such a 
                licensing application and--
                            ``(i) the State has imposed documentation 
                        or information requirements not related to 
                        solvency requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                            ``(ii) the standards or review process 
                        imposed by the State as a condition of approval 
                        of the license imposes any material 
                        requirements, procedures, or standards (other 
                        than requirements and standards relating to 
                        solvency) to such organizations that are not 
                        generally applicable to other entities engaged 
                        in substantially similar business.
                    ``(D) Denial of application based on application of 
                solvency requirements.--A ground for approval of such a 
                waiver application is that the State has denied such a 
                licensing application based (in whole or in part) on 
                the organization's failure to meet applicable solvency 
                requirements and--
                            ``(i) such requirements are not the same as 
                        the solvency standards established under 
                        section 1856(a); or
                            ``(ii) the State has imposed as a condition 
                        of approval of the license any documentation or 
                        information requirements relating to solvency 
                        or other material requirements, procedures, or 
                        standards relating to solvency that are 
                        different from the requirements, procedures, 
                        and standards applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term `solvency 
                requirements' means requirements relating to solvency 
                and other matters covered under the standards 
                established under section 1856(a).
                    ``(E) Treatment of waiver.--Subject to section 
                1852(m), in the case of a waiver granted under this 
                paragraph for a provider-sponsored organization--
                            ``(i) the waiver shall be effective for a 
                        36-month period, except it may be renewed based 
                        on a subsequent application filed during the 
                        last 6 months of such period,
                            ``(ii) the waiver is conditioned upon the 
                        pendency of the licensure application during 
                        the period the waiver is in effect, and
                            ``(iii) any provisions of State law which 
                        relate to the licensing of the organization and 
                        which prohibit the organization from providing 
                        coverage pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed as 
                limiting the number of times such a waiver may be 
                renewed. Nothing in clause (iii) shall be construed as 
                waiving any provision of State law which relates to 
                quality of care or consumer protection (and does not 
                relate to solvency standards) and which is imposed on a 
                uniform basis and is generally applicable to other 
                entities engaged in substantially similar business.
                    ``(F) Prompt action on application.--The Secretary 
                shall grant or deny such a waiver application within 60 
                days after the date the Secretary determines that a 
                substantially complete application has been filed. 
                Nothing in this section shall be construed as 
                preventing an organization which has had such a waiver 
                application denied from submitting a subsequent waiver 
                application.
            ``(3) Exception if required to offer more than medicareplus 
        plans.--Paragraph (1) shall not apply to a MedicarePlus 
        organization in a State if the State requires the organization, 
        as a condition of licensure, to offer any product or plan other 
        than a MedicarePlus plan.
            ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is licensed in 
        accordance with paragraph (1) does not deem the organization to 
        meet other requirements imposed under this part.
    ``(b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to enrolled 
members under the contract under this part 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.
    ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (except, at the election 
of the organization, hospice care) for which benefits are required to 
be provided under section 1852(a)(1), except that the organization--
            ``(1) may obtain insurance or make other arrangements for 
        the cost of providing to any enrolled member such services the 
        aggregate value of which exceeds $5,000 in any year,
            ``(2) may obtain insurance or make other arrangements for 
        the cost of such services provided to its enrolled members 
        other than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
            ``(3) may obtain insurance or make other arrangements for 
        not more than 90 percent of the amount by which its costs for 
        any of its fiscal years exceed 115 percent of its income for 
        such fiscal year, and
            ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
    ``(d) Certification of Provision Against Risk of Insolvency for 
Unlicensed PSOs.--
            ``(1) In general.--Each MedicarePlus organization that is a 
        provider-sponsored organization, that is not licensed by a 
        State under subsection (a), and for which a waiver application 
        has been approved under subsection (a)(2), shall meet standards 
        established under section 1856(a) relating to the financial 
        solvency and capital adequacy of the organization.
            ``(2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the receipt 
        and approval of applications of a provider-sponsored 
        organization described in paragraph (1) for certification (and 
        periodic recertification) of the organization as meeting such 
        solvency standards. Under such process, the Secretary shall act 
        upon such an application not later than 60 days after the date 
        the application has been received.
    ``(e) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private entity--
                    ``(A) that is established or organized by a health 
                care provider, or group of affiliated health care 
                providers,
                    ``(B) that provides a substantial proportion (as 
                defined by the Secretary in accordance with paragraph 
                (2)) of the health care items and services under the 
                contract under this part directly through the provider 
                or affiliated group of providers, and
                    ``(C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at least a 
                majority financial interest in the entity.
            ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1)(B), the 
        Secretary--
                    ``(A) shall take into account (i) the need for such 
                an organization to assume responsibility for a 
                substantial proportion of services in order to assure 
                financial stability and (ii) the practical difficulties 
                in such an organization integrating a very wide range 
                of service providers; and
                    ``(B) may vary such proportion based upon relevant 
                differences among organizations, such as their location 
                in an urban or rural area.
            ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common control 
                with the other,
                    ``(B) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986, or
                    ``(C) both providers are part of an affiliated 
                service group under section 414 of such Code.
            ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
            ``(5) Health care provider defined.--In this subsection, 
        the term `health care provider' means--
                    ``(A) any individual who is engaged in the delivery 
                of health care services in a State and who is required 
                by State law or regulation to be licensed or certified 
                by the State to engage in the delivery of such services 
                in the State, and
                    ``(B) any entity that is engaged in the delivery of 
                health care services in a State and that, if it is 
                required by State law or regulation to be licensed or 
                certified by the State to engage in the delivery of 
                such services in the State, is so licensed.
            ``(6) Regulations.--The Secretary shall issue regulations 
        to carry out this subsection.

                      ``establishment of standards

    ``Sec. 1856. (a) Establishment of Solvency Standards for Provider-
Sponsored Organizations.--
            ``(1) Establishment.--
                    ``(A) In general.--The Secretary shall establish, 
                on an expedited basis and using a negotiated rulemaking 
                process under subchapter III of chapter 5 of title 5, 
                United States Code, standards described in section 
                1855(d)(1) (relating to the financial solvency and 
                capital adequacy of the organization) that entities 
                must meet to qualify as provider-sponsored 
                organizations under this part.
                    ``(B) Factors to consider for solvency standards.--
                In establishing solvency standards under subparagraph 
                (A) for provider-sponsored organizations, the Secretary 
                shall consult with interested parties and shall take 
                into account--
                            ``(i) the delivery system assets of such an 
                        organization and ability of such an 
                        organization to provide services directly to 
                        enrollees through affiliated providers, and
                            ``(ii) alternative means of protecting 
                        against insolvency, including reinsurance, 
                        unrestricted surplus, letters of credit, 
                        guarantees, organizational insurance coverage, 
                        partnerships with other licensed entities, and 
                        valuation attributable to the ability of such 
                        an organization to meet its service obligations 
                        through direct delivery of care.
                    ``(C) Enrollee protection against insolvency.--Such 
                standards shall include provisions to prevent enrollees 
                from being held liable to any person or entity for the 
                MedicarePlus organization's debts in the event of the 
                organization's insolvency.
            ``(2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the Secretary, after 
        consultation with the National Association of Insurance 
        Commissioners, the American Academy of Actuaries, organizations 
        representative of medicare beneficiaries, and other interested 
        parties, shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later than 45 
        days after the date of the enactment of this section.
            ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this 
        subsection, the `target date for publication' (referred to in 
        section 564(a)(5) of such title) shall be April 1, 1998.
            ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        `15 days' shall be substituted for `30 days'.
            ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                    ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                    ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after 
                the date of appointment of the committee.
            ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than January 1, 1998, regarding 
        the committee's progress on achieving a consensus with regard 
        to the rulemaking proceeding and whether such consensus is 
        likely to occur before one month before the target date for 
        publication of the rule. If the committee reports that the 
        committee has failed to make significant progress towards such 
        consensus or is unlikely to reach such consensus by the target 
        date, the Secretary may terminate such process and provide for 
        the publication of a rule under this subsection through such 
        other methods as the Secretary may provide.
            ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 
        one month before the target date of publication.
            ``(8) Interim, final effect.--The Secretary shall publish a 
        rule under this subsection in the Federal Register by not later 
        than the target date of publication. Such rule shall be 
        effective and final immediately on an interim basis, but is 
        subject to change and revision after public notice and 
        opportunity for a period (of not less than 60 days) for public 
        comment. In connection with such rule, the Secretary shall 
        specify the process for the timely review and approval of 
        applications of entities to be certified as provider-sponsored 
        organizations pursuant to such rules and consistent with this 
        subsection.
            ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target date of publication.
    ``(b) Establishment of Other Standards.--
            ``(1) In general.--The Secretary shall establish by 
        regulation other standards (not described in subsection (a)) 
        for MedicarePlus organizations and plans consistent with, and 
        to carry out, this part.
            ``(2) Use of current standards.--Consistent with the 
        requirements of this part, standards established under this 
        subsection shall be based on standards established under 
        section 1876 to carry out analogous provisions of such section. 
        The Secretary shall also consider State model and other 
        standards relating to consumer protection and assuring quality 
        of care.
            ``(3) Use of interim standards.--For the period in which 
        this part is in effect and standards are being developed and 
        established under the preceding provisions of this subsection, 
        the Secretary shall provide by not later than June 1, 1998, for 
        the application of such interim standards (without regard to 
        any requirements for notice and public comment) as may be 
        appropriate to provide for the expedited implementation of this 
        part. Such interim standards shall not apply after the date 
        standards are established under the preceding provisions of 
        this subsection.
            ``(4) Application of new standards to entities with a 
        contract.--In the case of a MedicarePlus organization with a 
        contract in effect under this part at the time standards 
        applicable to the organization under this section are changed, 
        the organization may elect not to have such changes apply to 
        the organization until the end of the current contract year 
        (or, if there is less than 6 months remaining in the contract 
        year, until 1 year after the end of the current contract year).
            ``(5) Relation to state laws.--Subject to section 1852(m), 
        the standards established under this subsection shall supersede 
        any State law or regulation with respect to MedicarePlus plans 
        which are offered by MedicarePlus organizations under this part 
        to the extent such law or regulation is inconsistent with such 
        standards. The previous sentence shall not be construed as 
        superseding a State law or regulation that is not related to 
        solvency, that is applied on a uniform basis and is generally 
        applicable to other entities engaged in substantially similar 
        business, and that provides consumer protections in addition 
        to, or more stringent than, those provided under the standards 
        under this subsection.

              ``contracts with medicareplus organizations

    ``Sec. 1857. (a) In General.--The Secretary shall not permit the 
election under section 1851 of a MedicarePlus plan offered by a 
MedicarePlus organization under this part, and no payment shall be made 
under section 1853 to an organization, unless the Secretary has entered 
into a contract under this section with the organization with respect 
to the offering of such plan. Such a contract with an organization may 
cover more than one MedicarePlus plan. Such contract shall provide that 
the organization agrees to comply with the applicable requirements and 
standards of this part and the terms and conditions of payment as 
provided for in this part.
    ``(b) Minimum Enrollment Requirements.--
            ``(1) In general.--Subject to paragraphs (2) and (3), the 
        Secretary may not enter into a contract under this section with 
        a MedicarePlus organization unless the organization has at 
        least 5,000 individuals (or 1,500 individuals in the case of an 
        organization that is a provider-sponsored organization) who are 
        receiving health benefits through the organization, except that 
        the standards under section 1856 may permit the organization to 
        have a lesser number of beneficiaries (but not less than 500 in 
        the case of an organization that is a provider-sponsored 
        organization) if the organization primarily serves individuals 
        residing outside of urbanized areas.
            ``(2) Exception for msa plan.--Paragraph (1) shall not 
        apply with respect to a contract that relates only to an MSA 
        plan.
            ``(3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 contract years 
        with respect to an organization.
    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section shall be 
        for a term of at least one year, as determined by the 
        Secretary, and may be made automatically renewable from term to 
        term in the absence of notice by either party of intention to 
        terminate at the end of the current term.
            ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract or may impose the intermediate 
        sanctions described in an applicable paragraph of subsection 
        (g)(3) on the MedicarePlus organization if the Secretary 
        determines that the organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part; or
                    ``(C) no longer substantially meets the applicable 
                conditions of this part.
            ``(3) Effective date of contracts.--The effective date of 
        any contract executed pursuant to this section shall be 
        specified in the contract, except that in no case shall a 
        contract under this section which provides for coverage under 
        an MSA plan be effective before January 1998 with respect to 
        such coverage.
            ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a MedicarePlus organization if a previous 
        contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding five-year period, except in circumstances which 
        warrant special consideration, as determined by the Secretary.
            ``(5) Contracting authority.--The authority vested in the 
        Secretary by this part may be performed without regard to such 
        provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
    ``(d) Protections Against Fraud and Beneficiary Protections.--
            ``(1) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person or 
        organization designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the MedicarePlus organization that 
                pertain (i) to the ability of the organization to bear 
                the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
            ``(2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the organization to 
        provide (and pay for) written notice in advance of the 
        contract's termination, as well as a description of 
        alternatives for obtaining benefits under this title, to each 
        individual enrolled with the organization under this part.
            ``(3) Disclosure.--
                    ``(A) In general.--Each MedicarePlus organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                            ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                            ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                            ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                    ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                    ``(III) any lending of money or 
                                other extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                    ``(B) Party in interest defined.--For the purposes 
                of this paragraph, the term `party in interest' means--
                            ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a MedicarePlus organization, 
                        any person who is directly or indirectly the 
                        beneficial owner of more than 5 percent of the 
                        equity of the organization, any person who is 
                        the beneficial owner of a mortgage, deed of 
                        trust, note, or other interest secured by, and 
                        valuing more than 5 percent of the 
                        organization, and, in the case of a 
                        MedicarePlus organization organized as a 
                        nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                            ``(ii) any entity in which a person 
                        described in clause (i)--
                                    ``(I) is an officer or director;
                                    ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                    ``(III) has directly or indirectly 
                                a beneficial interest of more than 5 
                                percent of the equity; or
                                    ``(IV) has a mortgage, deed of 
                                trust, note, or other interest valuing 
                                more than 5 percent of the assets of 
                                such entity;
                            ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                            ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                    ``(C) Access to information.--Each MedicarePlus 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
            ``(4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
    ``(e) Additional Contract Terms.--
            ``(1) In general.--The contract shall contain such other 
        terms and conditions not inconsistent with this part (including 
        requiring the organization to provide the Secretary with such 
        information) as the Secretary may find necessary and 
        appropriate.
            ``(2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require the 
        payment to the Secretary for the organization's pro rata share 
        (as determined by the Secretary) of the estimated costs to be 
        incurred by the Secretary in carrying out section 1851 
        (relating to enrollment and dissemination of information) and 
        section 4360 of the Omnibus Budget Reconciliation Act of 1990 
        (relating to the health insurance counseling and assistance 
        program). Such payments are appropriated to defray the costs 
        described in the preceding sentence, to remain available until 
        expended.
            ``(3) Notice to enrollees in case of decertification.--If a 
        contract with a MedicarePlus organization is terminated under 
        this section, the organization shall notify each enrollee with 
        the organization under this part of such termination.
    ``(f) Prompt Payment by MedicarePlus Organization.--
            ``(1) Requirement.--A contract under this part shall 
        require a MedicarePlus 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 the 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 a MedicarePlus 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 covered services and supplies furnished to 
        individuals enrolled under this part under the contract. If the 
        Secretary provides for the 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 the Secretary's 
        costs in making the payments).
    ``(g) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this section--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                    ``(B) imposes net monthly premiums on individuals 
                enrolled under this part in excess of the net monthly 
                premiums permitted;
                    ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                    ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                    ``(E) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary under this part, or
                            ``(ii) to an individual or to any other 
                        entity under this part;
                    ``(F) fails to comply with the requirements of 
                section 1852(j)(3); or
                    ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
            ``(2) Remedies.--The remedies described in this paragraph 
        are--
                    ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph (1) or, 
                with respect to a determination under subparagraph (D) 
                or (E)(i) of such paragraph, of not more than $100,000 
                for each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                    ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for 
                such determination has been corrected and is not likely 
                to recur, or
                    ``(C) suspension of payment to the organization 
                under this part for individuals enrolled after the date 
                the Secretary notifies the organization of a 
                determination under paragraph (1) and until the 
                Secretary is satisfied that the basis for such 
                determination has been corrected and is not likely to 
                recur.
            ``(3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                    ``(A) Civil money penalties of not more than 
                $25,000 for each determination under subsection (c)(2) 
                if the deficiency that is the basis of the 
                determination has directly adversely affected (or has 
                the substantial likelihood of adversely affecting) an 
                individual covered under the organization's contract
                    ``(B) Civil money penalties of not more than 
                $10,000 for each week beginning after the initiation of 
                procedures by the Secretary under subsection (g) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists.
                    ``(C) Suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                and until the Secretary is satisfied that the 
                deficiency that is the basis for the determination has 
                been corrected and is not likely to recur.
    ``(h) Procedures for Termination.--
            ``(1) In general.--The Secretary may terminate a contract 
        with a MedicarePlus organization under this section in 
        accordance with formal investigation and compliance procedures 
        established by the Secretary under which--
                    ``(A) the Secretary provides the organization with 
                the reasonable opportunity to develop and implement a 
                corrective action plan to correct the deficiencies that 
                were the basis of the Secretary's determination under 
                subsection (c)(2);
                    ``(B) the Secretary shall impose more severe 
                sanctions on an organization that has a history of 
                deficiencies or that has not taken steps to correct 
                deficiencies the Secretary has brought to the 
                organization's attention;
                    ``(C) there are no unreasonable or unnecessary 
                delays between the finding of a deficiency and the 
                imposition of sanctions; and
                    ``(D) the Secretary provides the organization with 
                reasonable notice and opportunity for hearing 
                (including the right to appeal an initial decision) 
                before terminating the contract.
            ``(2) Civil money penalties.--The provisions of section 
        1128A (other than subsections (a) and (b)) shall apply to a 
        civil money penalty under subsection (f) or under paragraph (2) 
        or (3) of subsection (g) in the same manner as they apply to a 
        civil money penalty or proceeding under section 1128A(a).
            ``(3) Exception for imminent and serious risk to health.--
        Paragraph (1) shall not apply if the Secretary determines that 
        a delay in termination, resulting from compliance with the 
        procedures specified in such paragraph prior to termination, 
        would pose an imminent and serious risk to the health of 
        individuals enrolled under this part with the organization.

                ``definitions; miscellaneous provisions

    ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
            ``(1) MedicarePlus organization.--The term `MedicarePlus 
        organization' means a public or private entity that is 
        certified under section 1856 as meeting the requirements and 
        standards of this part for such an organization.
            ``(2) Provider-sponsored organization.--The term `provider-
        sponsored organization' is defined in section 1855(e)(1).
    ``(b) Definitions Relating to MedicarePlus Plans.--
            ``(1) MedicarePlus plan.--The term `MedicarePlus plan' 
        means health benefits coverage offered under a policy, 
        contract, or plan by a MedicarePlus organization pursuant to 
        and in accordance with a contract under section 1857.
            ``(2) MSA plan.--
                    ``(A) In general.--The term `MSA plan' means a 
                MedicarePlus plan that--
                            ``(i) provides reimbursement for at least 
                        the items and services described in section 
                        1852(a)(1) in a year but only after the 
                        enrollee incurs countable expenses (as 
                        specified under the plan) equal to the amount 
                        of an annual deductible (described in 
                        subparagraph (B));
                            ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least all 
                        amounts that would have been payable under 
                        parts A and B, and that would have been payable 
                        by the enrollee as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected to 
                        receive benefits through the provisions of such 
                        parts; and
                            ``(iii) provides, after such deductible is 
                        met for a year and for all subsequent expenses 
                        for items and services referred to in clause 
                        (i) in the year, for a level of reimbursement 
                        that is not less than--
                                    ``(I) 100 percent of such expenses, 
                                or
                                    ``(II) 100 percent of the amounts 
                                that would have been paid (without 
                                regard to any deductibles or 
                                coinsurance) under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                    ``(B) Deductible.--The amount of annual deductible 
                under an MSA plan--
                            ``(i) for contract year 1999 shall be not 
                        more than $6,000; and
                            ``(ii) for a subsequent contract year shall 
                        be not more than the maximum amount of such 
                        deductible for the previous contract year under 
                        this subparagraph increased by the national per 
                        capita MedicarePlus growth percentage under 
                        section 1853(c)(6) for the year.
                If the amount of the deductible under clause (ii) is 
                not a multiple of $50, the amount shall be rounded to 
                the nearest multiple of $50.
    ``(c) Other References to Other Terms.--
            ``(1) MedicarePlus eligible individual.--The term 
        `MedicarePlus eligible individual' is defined in section 
        1851(a)(3).
            ``(2) MedicarePlus payment area.--The term `MedicarePlus 
        payment area' is defined in section 1853(d).
            ``(3) National per capita medicareplus growth percentage.--
        The `national per capita MedicarePlus growth percentage' is 
        defined in section 1853(c)(6).
            ``(4) Monthly premium; net monthly premium.--The terms 
        `monthly premium' and `net monthly premium' are defined in 
        section 1854(a)(2).
    ``(d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid plan 
under title XIX with those provided under a MedicarePlus plan in a 
manner that assures continuity of a full-range of acute care and long-
term care services to poor elderly or disabled individuals eligible for 
benefits under this title and under such plan.
    ``(e) Restriction on Enrollment for Certain MedicarePlus Plans.--
            ``(1) In general.--In the case of a MedicarePlus religious 
        fraternal benefit society plan described in paragraph (2), 
        notwithstanding any other provision of this part to the 
        contrary and in accordance with regulations of the Secretary, 
        the society offering the plan may restrict the enrollment of 
        individuals under this part to individuals who are members of 
        the church, convention, or group described in paragraph (3)(B) 
        with which the society is affiliated.
            ``(2) Medicareplus religious fraternal benefit society plan 
        described.--For purposes of this subsection, a MedicarePlus 
        religious fraternal benefit society plan described in this 
        paragraph is a MedicarePlus plan described in section 
        1851(a)(2)(A) that--
                    ``(A) is offered by a religious fraternal benefit 
                society described in paragraph (3) only to members of 
                the church, convention, or group described in paragraph 
                (3)(B); and
                    ``(B) permits all such members to enroll under the 
                plan without regard to health status-related factors.
        Nothing in this subsection shall be construed as waiving any 
        plan requirements relating to financial solvency. In developing 
        solvency standards under section 1856, the Secretary shall take 
        into account open contract and assessment features 
        characteristic of fraternal insurance certificates.
            ``(3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a `religious fraternal benefit 
        society' described in this section is an organization that--
                    ``(A) is exempt from Federal income taxation under 
                section 501(c)(8) of the Internal Revenue Code of 1986;
                    ``(B) is affiliated with, carries out the tenets 
                of, and shares a religious bond with, a church or 
                convention or association of churches or an affiliated 
                group of churches;
                    ``(C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, health 
                coverage to individuals not entitled to benefits under 
                this title who are members of such church, convention, 
                or group; and
                    ``(D) does not impose any limitation on membership 
                in the society based on any health status-related 
                factor.
            ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under this part 
        under a MedicarePlus religious fraternal benefit society plan 
        described in paragraph (2), the Secretary shall provide for 
        such adjustment to the payment amounts otherwise established 
        under section 1854 as may be appropriate to assure an 
        appropriate payment level, taking into account the actuarial 
        characteristics and experience of such individuals.''.
    (b) Report on Coverage of Beneficiaries with End-Stage Renal 
Disease.--The Secretary of Health and Human Services shall provide for 
a study on the feasibility and impact of removing the limitation under 
section 1851(b)(3)(B) of the Social Security Act (as inserted by 
subsection (a)) on eligibility of most individuals medically determined 
to have end-stage renal disease to enroll in MedicarePlus plans. By not 
later than October 1, 1998, the Secretary shall submit to Congress a 
report on such study and shall include in the report such 
recommendations regarding removing or restricting the limitation as may 
be appropriate.
    (c) Report on MedicarePlus Teaching Programs and Use of DSH and 
Teaching Hospitals.--Based on the information provided to the Secretary 
of Health and Human Services under section 1852(k) of the Social 
Security Act and such information as the Secretary may obtain, by not 
later than October 1, 1999, the Secretary shall submit to Congress a 
report on graduate medical education programs operated by MedicarePlus 
organizations and the extent to which MedicarePlus organizations are 
providing for payments to hospitals described in such section.

SEC. 4002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 1876(f) 
(42 U.S.C. 1395mm(f)) is amended--
            (1) in paragraph (2), by striking ``The Secretary'' and 
        inserting ``Subject to paragraph (4), the Secretary'', and
            (2) by adding at the end the following new paragraph:
    ``(4) Effective for contract periods beginning after December 31, 
1996, the Secretary may waive or modify the requirement imposed by 
paragraph (1) to the extent the Secretary finds that it is in the 
public interest.''.
    (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended by 
adding at the end the following new subsection:
    ``(k)(1) Except as provided in paragraph (3), the Secretary shall 
not enter into, renew, or continue any risk-sharing contract under this 
section with an eligible organization for any contract year beginning 
on or after--
            ``(A) the date standards for MedicarePlus organizations and 
        plans are first established under section 1856 with respect to 
        MedicarePlus organizations that are insurers or health 
        maintenance organizations, or
            ``(B) in the case of such an organization with such a 
        contract in effect as of the date such standards were first 
        established, 1 year after such date.
    ``(2) The Secretary shall not enter into, renew, or continue any 
risk-sharing contract under this section with an eligible organization 
for any contract year beginning on or after January 1, 2000.
    ``(3) An individual who is enrolled in part B only and is enrolled 
in an eligible organization with a risk-sharing contract under this 
section on December 31, 1998, may continue enrollment in such 
organization in accordance with regulations issued by not later then 
July 1, 1998.
    ``(4) Notwithstanding subsection (a), the Secretary shall provide 
that payment amounts under risk-sharing contracts under this section 
for months in a year (beginning with January 1998) shall be computed--
            ``(A) with respect to individuals entitled to benefits 
        under both parts A and B, by substituting payment rates under 
        section 1853(a) for the payment rates otherwise established 
        under subsection 1876(a), and
            ``(B) with respect to individuals only entitled to benefits 
        under part B, by substituting an appropriate proportion of such 
        rates (reflecting the relative proportion of payments under 
        this title attributable to such part) for the payment rates 
        otherwise established under subsection (a).
For purposes of carrying out this paragraph for payments for months in 
1998, the Secretary shall compute, announce, and apply the payment 
rates under section 1853(a) (notwithstanding any deadlines specified in 
such section) in as timely a manner as possible and may (to the extent 
necessary) provide for retroactive adjustment in payments made under 
this section not in accordance with such rates.''.
    (c) Enrollment Transition Rule.--An individual who is enrolled on 
December 31, 1998, 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, 1999, under part C of 
title XVIII of such Act if that organization has a contract under that 
part for providing services on January 1, 1999 (unless the individual 
has disenrolled effective on that date).
    (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395c(f)) is 
amended--
            (1) in paragraph (1)--
                    (A) by inserting ``1855(i),'' after ``1833(s),'', 
                and
                    (B) by inserting ``, MedicarePlus organization,'' 
                after ``provider of services''; and
            (2) in paragraph (2)(E), by inserting ``or a MedicarePlus 
        organization'' after ``section 1833(a)(1)(A)''.
    (e) Extension of Provider Requirement.--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'';
            (3) by inserting ``with a MedicarePlus organization under 
        part C or'' after ``any individual enrolled'';
            (4) by striking ``(in the case of hospitals) or limits (in 
        the case of skilled nursing facilities)''; and
            (5) by inserting ``(less any payments under section 1858)'' 
        after ``under this title''.
    (f) Additional Conforming Changes.--
            (1) Conforming references to previous part C.--Any 
        reference in law (in effect before the date of the enactment of 
        this Act) to part C of title XVIII of the Social Security Act 
        is deemed a reference to part D of such title (as in effect 
        after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 90 days after the date of the enactment of this Act, 
        the Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this chapter.
    (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the enrollment 
process comparative materials) applies to demonstrations with respect 
to which enrollment is effected or coordinated under section 1851 of 
such Act.
    (h) Use of Interim, Final Regulations.--In order to carry out the 
amendments made by this chapter in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
    (i) Transition Rule for PSO Enrollment.--In applying subsection 
(g)(1) of section 1876 of the Social Security Act (42 U.S.C. 1395mm) to 
a risk-sharing contract entered into with an eligible organization that 
is a provider-sponsored organization (as defined in section 1855(e)(1) 
of such Act, as inserted by section 4001) for a contract year beginning 
on or after January 1, 1998, there shall be substituted for the minimum 
number of enrollees provided under such section the minimum number of 
enrollees permitted under section 1857(b)(1) of such Act (as so 
inserted).

SEC. 4003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

    (a) Conforming Amendments to MedicarePlus Changes.--
            (1) In general.--Section 1882(d)(3)(A)(i) (42 U.S.C. 
        1395ss(d)(3)(A)(i)) is amended--
                    (A) in the matter before subclause (I), by 
                inserting ``(including an individual electing a 
                MedicarePlus plan under section 1851)'' after ``of this 
                title''; and
                    (B) in subclause (II)--
                            (i) by inserting ``in the case of an 
                        individual not electing a MedicarePlus plan'' 
                        after ``(II)'', and
                            (ii) by inserting before the comma at the 
                        end the following: ``or in the case of an 
                        individual electing a MedicarePlus plan, a 
                        medicare supplemental policy with knowledge 
                        that the policy duplicates health benefits to 
                        which the individual is otherwise entitled 
                        under the MedicarePlus plan or under another 
                        medicare supplemental policy''.
            (2) Conforming amendments.--Section 1882(d)(3)(B)(i)(I) (42 
        U.S.C. 1395ss(d)(3)(B)(i)(I)) is amended by inserting 
        ``(including any MedicarePlus plan)'' after ``health insurance 
        policies''.
            (3) MedicarePlus plans not treated as medicare 
        supplementary policies.--Section 1882(g)(1) (42 U.S.C. 
        1395ss(g)(1)) is amended by inserting ``or a MedicarePlus plan 
        or'' after ``does not include''
    (b) Additional Rules Relating to Individuals Enrolled in MSA 
Plans.--Section 1882 (42 U.S.C. 1395ss) is further amended by adding at 
the end the following new subsection:
    ``(u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that the 
individual has in effect under section 1851 an election of an MSA plan.
    ``(2) A policy described in this subparagraph is a health insurance 
policy that provides for coverage of expenses that are otherwise 
required to be counted toward meeting the annual deductible amount 
provided under the MSA plan.''.

 Subchapter B--Special Rules for MedicarePlus Medical Savings Accounts

SEC. 4006. MEDICAREPLUS MSA.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 138 as 
section 139 and by inserting after section 137 the following new 
section:

``SEC. 138. MEDICAREPLUS MSA.

    ``(a) Exclusion.--Gross income shall not include any payment to the 
MedicarePlus MSA of an individual by the Secretary of Health and Human 
Services under part C of title XVIII of the Social Security Act.
    ``(b) MedicarePlus MSA.--For purposes of this section, the term 
`MedicarePlus MSA' means a medical savings account (as defined in 
section 220(d))--
            ``(1) which is designated as a MedicarePlus MSA,
            ``(2) with respect to which no contribution may be made 
        other than--
                    ``(A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of title 
                XVIII of the Social Security Act, or
                    ``(B) a trustee-to-trustee transfer described in 
                subsection (c)(4),
            ``(3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection (c)(4) may 
        be made to and from such account, and
            ``(4) which is established in connection with an MSA plan 
        described in section 1859(b)(2) of the Social Security Act.
    ``(c) Special Rules for Distributions.--
            ``(1) Distributions for qualified medical expenses.--In 
        applying section 220 to a MedicarePlus MSA--
                    ``(A) qualified medical expenses shall not include 
                amounts paid for medical care for any individual other 
                than the account holder, and
                    ``(B) section 220(d)(2)(C) shall not apply.
            ``(2) Penalty for distributions from medicareplus msa not 
        used for qualified medical expenses if minimum balance not 
        maintained.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder shall be increased by 50 percent of 
                the excess (if any) of--
                            ``(i) the amount of such payment or 
                        distribution, over
                            ``(ii) the excess (if any) of--
                                    ``(I) the fair market value of the 
                                assets in such MSA as of the close of 
                                the calendar year preceding the 
                                calendar year in which the taxable year 
                                begins, over
                                    ``(II) an amount equal to 60 
                                percent of the deductible under the 
                                MedicarePlus MSA plan covering the 
                                account holder as of January 1 of the 
                                calendar year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any payment or 
                distribution from a MedicarePlus MSA.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                            ``(i) becomes disabled within the meaning 
                        of section 72(m)(7), or
                            ``(ii) dies.
                    ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all MedicarePlus MSAs of the account 
                        holder shall be treated as 1 account,
                            ``(ii) all payments and distributions not 
                        used exclusively to pay the qualified medical 
                        expenses of the account holder during any 
                        taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall not apply 
        to any payment or distribution from a MedicarePlus MSA to the 
        Secretary of Health and Human Services of an erroneous 
        contribution to such MSA and of the net income attributable to 
        such contribution.
            ``(4) Trustee-to-trustee transfers.--Section 220(f)(2) and 
        paragraph (2) of this subsection shall not apply to any 
        trustee-to-trustee transfer from a MedicarePlus MSA of an 
        account holder to another MedicarePlus MSA of such account 
        holder.
    ``(d) Special Rules for Treatment of Account After Death of Account 
Holder.--In applying section 220(f)(8)(A) to an account which was a 
MedicarePlus MSA of a decedent, the rules of section 220(f) shall apply 
in lieu of the rules of subsection (c) of this section with respect to 
the spouse as the account holder of such MedicarePlus MSA.
    ``(e) Reports.--In the case of a MedicarePlus MSA, the report under 
section 220(h)--
            ``(1) shall include the fair market value of the assets in 
        such MedicarePlus MSA as of the close of each calendar year, 
        and
            ``(2) shall be furnished to the account holder--
                    ``(A) not later than January 31 of the calendar 
                year following the calendar year to which such reports 
                relate, and
                    ``(B) in such manner as the Secretary prescribes in 
                such regulations.
    ``(f) Coordination With Limitation on Number of Taxpayers Having 
Medical Savings Accounts.--Subsection (i) of section 220 shall not 
apply to an individual with respect to a MedicarePlus MSA, and 
MedicarePlus MSA's shall not be taken into account in determining 
whether the numerical limitations under section 220(j) are exceeded.''
    (b) Technical Amendments.--
            (1) The last sentence of section 4973(d) of such Code is 
        amended by inserting ``or section 138(c)(3)'' after ``section 
        220(f)(3)''.
            (2) Subsection (b) of section 220 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(7) Medicare eligible individuals.--The limitation under 
        this subsection for any month with respect to an individual 
        shall be zero for the first month such individual is entitled 
        to benefits under title XVIII of the Social Security Act and 
        for each month thereafter.''
            (3) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 138. MedicarePlus MSA.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

  Subchapter C--GME, IME, and DSH Payments for Managed Care Enrollees

SEC. 4008. GRADUATE MEDICAL EDUCATION AND INDIRECT MEDICAL EDUCATION 
              PAYMENTS FOR MANAGED CARE ENROLLEES.

    (a) Payments to Managed Care Organizations Operating Graduate 
Medical Education Programs.--Section 1853 (as inserted by section 4001) 
is amended by adding at the end the following:
    ``(h) Payments for Direct Costs of Graduate Medical Education 
Programs.--
            ``(1) Additional payment to be made.--Effective January 1, 
        1998, each contract with a MedicarePlus organization under this 
        section (and each risk-sharing contract with an eligible 
        organization under section 1876) shall provide for an 
        additional payment for Medicare's share of allowable direct 
        graduate medical education costs incurred by such an 
        organization for an approved medical residency program.
            ``(2) Allowable costs.--If the organization has an approved 
        medical residency program that incurs all or substantially all 
        of the costs of the program, subject to section 1858(a)(3), the 
        allowable costs for such a program shall equal the national 
        average per resident amount times the number of full-time-
        equivalent residents in the program in non-hospital settings.
            ``(3) 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, with 
                respect to a MedicarePlus or eligible organization, the 
                ratio of the number of individuals enrolled with the 
                organization under this part (or enrolled under a risk-
                sharing contract under section 1876, respectively) to 
                the total number of individuals enrolled with the 
                organization.
                    ``(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) Payments to Hospitals for Direct and Indirect Costs of Graduate 
Medical Education Programs Attributable to Managed Care Enrollees.--
Part C of title XVIII, as amended by section 4001, is amended by 
inserting after section 1857 the following new section:

``payments to hospitals for certain costs attributable to managed care 
                               enrollees

    ``Sec. 1858. (a) Costs of Graduate Medical Education.--
            ``(1) In general.--For portions of cost reporting periods 
        occurring on or after January 1, 1998, the Secretary shall 
        provide for an additional payment amount for each subsection 
        (d) hospital (as defined in section 1886(d)(1)(B)), each PPS-
        exempt hospital described in clause (i) through (v) of such 
        section, and for each hospital reimbursed under a reimbursement 
        system authorized section 1814(b)(3) that--
                    ``(A) furnishes services to individuals who are 
                enrolled under a risk-sharing contract with an eligible 
                organization under section 1876 and who are entitled to 
                part A and to individuals who are enrolled with a 
                MedicarePlus organization under part C, and
                    ``(B) has an approved medical residency training 
                program.
            ``(2) Payment amount.--
                    ``(A) In general.--Subject to paragraph (3)(B), the 
                amount of the payment under this subsection shall be 
                the sum of--
                            ``(i) the amount determined under 
                        subparagraph (B), and
                            ``(ii) the amount determined under 
                        subparagraph (C).
                Clause (ii) shall not apply in the case of a hospital 
                that is not a PPS-exempt hospital described in clause 
                (i) through (v) of section 1886(d)(1)(B),
                    ``(B) Direct amount.--The amount determined under 
                this subparagraph for a period is equal to the product 
                of--
                            ``(i) the aggregate approved amount (as 
                        defined in section 1886(h)(3)(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 described in 
                        paragraph (1).
                    ``(C) Indirect amount.--The amount determined under 
                this subparagraph is equal to the product of--
                            ``(i) the amount of the indirect teaching 
                        adjustment factor applicable to the hospital 
                        under section 1886(d)(5)(B); and
                            ``(ii) the product of--
                                    ``(I) the number of discharges 
                                attributable to individuals described 
                                in paragraph (1), 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 as described in such 
                                paragraph.
                    ``(D) Special rule.--The Secretary shall establish 
                rules for the application of subparagraph (B) and for 
                the computation of the amounts described in 
                subparagraph (C)(i)) and subparagraph (C)(ii)(I) to a 
                hospital reimbursed under a reimbursement system 
                authorized under section 1814(b)(3) in a manner similar 
                to the manner of applying such subparagraph and 
                computing such amounts as if the hospital were not 
                reimbursed under such section.
            ``(3) Limitation.--
                    ``(A) Determinations.--At the beginning of each 
                year, the Secretary shall--
                            ``(i) estimate the sum of the amount of the 
                        payments under this subsection and the payments 
                        under section 1853(h), for services or 
                        discharges occurring in the year, and
                            ``(ii) determine the amount of the annual 
                        payment limit under subparagraph (C) for such 
                        year.
                    ``(B) Imposition of limit.--If the amount estimated 
                under subparagraph (A)(i) for a year exceeds the amount 
                determined under subparagraph (A)(ii) for the year, 
                then the Secretary shall adjust the amounts of the 
                payments described in subparagraph (A)(i) for the year 
                in a pro rata manner so that the total of such payments 
                in the year do not exceed the annual payment limit 
                determined under subparagraph (A)(ii) for that year.
                    ``(C) Annual payment limit.--
                            ``(i) In general.--The annual payment limit 
                        under this subparagraph for a year is the sum, 
                        over all counties or MedicarePlus payment 
                        areas, of the product of--
                                    ``(I) the annual GME per capita 
                                payment rate (described in clause (ii)) 
                                for the county or area, and
                                    ``(II) the Secretary's projection 
                                of average enrollment of individuals 
                                described in paragraph (1) who are 
                                residents of that county or area, 
                                adjusted to reflect the relative 
                                demographic or risk characteristics of 
                                such enrollees.
                            ``(ii) GME per capita payment rate.--The 
                        GME per capita payment rate described in this 
                        clause for a particular county or MedicarePlus 
                        payment area for a year is the GME proportion 
                        (as specified in clause (iii)) of the annual 
                        MedicarePlus capitation rate (as calculated 
                        under section 1853(c)) for the county or area 
                        and year involved.
                            ``(iii) GME proportion.--For purposes of 
                        clause (ii), the GME proportion for a county or 
                        area and a year is equal to the phase-in 
                        percentage (specified in clause (vi)) of the 
                        ratio of (I) the projected GME payment amount 
                        for the county or area (as determined under 
                        clause (v)), to (II) the average per capita 
                        cost for the county or area for the year 
                        (determined under clause (vi)).
                            ``(iv) Phase-in percentage.--The phase-in 
                        percentage specified in this clause for--
                                    ``(I) 1998 is 20 percent,
                                    ``(II) 1999 is 40 percent,
                                    ``(III) 2000 is 60 percent,
                                    ``(IV) 2001 is 80 percent, or
                                    ``(V) any subsequent year is 100 
                                percent.
                            ``(v) Projected GME payment amount.--he 
                        projected GME payment amount for a county or 
                        area--
                                    ``(I) for 1998, is the amount 
                                included in the per capita rate of 
                                payment for 1997 determined under 
                                section 1876(a)(1)(C) for the payment 
                                adjustments described in section 
                                1886(d)(5)(B) and section 1886(h) for 
                                that county or area, adjusted by the 
                                general GME update factor (as defined 
                                in clause (vii)) for 1998, or
                                    ``(II) for a subsequent year, is 
                                the projected GME payment amount for 
                                the county or area for the previous 
                                year, adjusted by the general GME 
                                update factor for such subsequent year.
The Secretary shall determine the amount described in subclause (I) for 
a county or other area that includes hospitals reimbursed under section 
1814(b)(3) as though such hospitals had not been reimbursed under such 
section.
                            ``(vi) Average per capita cost.--The 
                        average per capita cost for the county or area 
                        determined under this clause for--
                                    ``(I) 1998 is the annual per capita 
                                rate of payment for 1997 determined 
                                under section 1876(a)(1)(C) for the 
                                county or area, increased by the 
                                national per capita MedicarePlus growth 
                                percentage for 1998 (as defined in 
                                section 1853(c)(6), but determined 
                                without regard to the adjustment 
                                described in subparagraph (B) of such 
                                section); or
                                    ``(II) a subsequent year is the 
                                average per capita cost determined 
                                under this clause for the previous year 
                                increased by the national per capita 
                                MedicarePlus growth percentage for the 
                                year involved (as defined in section 
                                1853(c)(6), but determined without 
                                regard to the adjustment described in 
                                subparagraph (B) of such section).
                            ``(vii) General gme update factor.--For 
                        purposes of clause (v), the `general GME update 
                        factor' for a year is equal to the Secretary's 
                        estimate of the national average percentage 
                        change in average per capita payments under 
                        sections 1886(d)(5)(B) and 1886(h) from the 
                        previous year to the year involved. Such amount 
                        takes into account changes in law and 
                        regulation affecting payment amounts under such 
                        sections.''.

SEC. 4009. DISPROPORTIONATE SHARE HOSPITAL PAYMENTS FOR MANAGED CARE 
              ENROLLEES.

    Section 1858, as inserted by section 4008(b), is further amended by 
adding at the end the following new subsection:
    ``(b) Disproportionate Share Hospital Payments.--
            ``(1) In general.--For portions of cost reporting periods 
        occurring on or after January 1, 1998, the Secretary shall 
        provide for an additional payment amount for each subsection 
        (d) hospital (as defined in section 1886(d)(1)(B)) and for each 
        hospital reimbursed a demonstration project reimbursement 
        system under section 1814(b)(3) that--
                  ``(A) furnishes services to individuals who are 
                enrolled under a risk-sharing contract with an eligible 
                organization under section 1876 and who are entitled to 
                part A and to individuals who are enrolled with a 
                MedicarePlus organization under this part, and
                    ``(B) is (or, if it were not reimbursed under 
                section 1814(b)(3), would qualify as) a 
                disproportionate share hospital described in section 
                1886(d)(5)(F)(i).
            ``(2) Amount of payment.--Subject to paragraph (3)(B), the 
        amount of the payment under this subsection shall be the 
        product of--
                    ``(A) the amount of the disproportionate share 
                adjustment percentage applicable to the hospital under 
                section 1886(d)(5)(F); and
                    ``(B) the product described in subsection 
                (a)(2)(C)(ii).
        The Secretary shall establish rules for the computation of the 
        amount described in subparagraph (A) for a hospital reimbursed 
        under section 1814(b)(3).
            ``(3) Limit.--
                    ``(A) Determination.--At the beginning of each 
                year, the Secretary shall--
                            ``(i) estimate the sum of the payments 
                        under this subsection for services or 
                        discharges occurring in the year, and
                            ``(ii) determine the amount of the annual 
                        payment limit under subparagraph (C)) for such 
                        year.
                    ``(B) Imposition of limit.--If the amount estimated 
                under subparagraph (A)(i) for a year exceeds the amount 
                determined under subparagraph (A)(ii) for the year, 
                then the Secretary shall adjust the amounts of the 
                payments under this subsection for the year in a pro 
                rata manner so that the total of such payments in the 
                year do not exceed the annual payment limit determined 
                under subparagraph (A)(ii) for that year.
                    ``(C) Annual payment limit.--The annual payment 
                limit under this subparagraph for a year shall be 
                determined in the same manner as the annual payment 
                limit is determined under clause (i) of subsection 
                (a)(3)(C), except that, for purposes of this clause, 
                any reference in clauses (i) through (vii) of such 
                subsection--
                            ``(i) to a payment adjustment under 
                        subsection (a) is deemed a reference to a 
                        payment adjustment under this subsection, or
                            ``(ii) to payments or payment adjustments 
                        under section 1886(d)(5)(B) and 1886(h) is 
                        deemed a reference to payments and payment 
                        adjustments under section 1886(d)(5)(F).''.

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

  Subchapter A--Programs of All-inclusive Care for the Elderly (PACE)

SEC. 4011. REFERENCE TO COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

    For provision amending title XVIII of the Social Security Act to 
provide for payments to, and coverage of benefits under, Programs of 
All-inclusive Care for the Elderly (PACE), see section 3431.

SEC. 4012. REFERENCE TO ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE 
              OPTION.

    For provision amending title XIX of the Social Security Act to 
establish the PACE program as a medicaid State option, see section 
3432.

         Subchapter B--Social Health Maintenance Organizations

SEC. 4015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

    (a) Extension of Demonstration Project Authorities.--Section 
4018(b) of the Omnibus Budget Reconciliation Act of 1987 is amended--
            (1) in paragraph (1), by striking ``1997'' and inserting 
        ``2000'', and
            (2) in paragraph (4), by striking ``1998'' and inserting 
        ``2001''.
    (b) Expansion of Cap.--Section 13567(c) of the Omnibus Budget 
Reconciliation Act of 1993 is amended by striking ``12,000'' and 
inserting ``36,000''.
    (b) Report on Integration and Transition.--
            (1) In general.--The Secretary of Health and Human Services 
        shall submit to Congress, by not later than January 1, 1999, a 
        plan for the integration of health plans offered by social 
        health maintenance organizations (including SHMO I and SHMO II 
        sites developed under section 2355 of the Deficit Reduction Act 
        of 1984 and under the amendment made by section 
        4207(b)(3)(B)(i) of OBRA-1990, respectively) and similar plans 
        as an option under the MedicarePlus program under part C of 
        title XVIII of the Social Security Act.
            (2) Provision for transition.--Such plan shall include a 
        transition for social health maintenance organizations 
        operating under demonstration project authority under such 
        section.
            (3) Payment policy.--The report shall also include 
        recommendations on appropriate payment levels for plans offered 
        by such organizations, including an analysis of the application 
        of risk adjustment factors appropriate to the population served 
        by such organizations.

                      Subchapter C--Other Programs

SEC. 4018. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION 
              PROJECTS.

    Section 9215 of the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended by section 6135 of OBRA-1989 and section 13557 of 
OBRA-1993, is further amended--
            (1) by inserting ``(a)'' before ``The Secretary'', and
            (2) by adding at the end the following: ``Subject to 
        subsection (c), the Secretary may further extend such 
        demonstration projects through December 31, 2000, but only with 
        respect to individuals are enrolled with such projects before 
        January 1, 1998.
    ``(b) The Secretary shall work with each such demonstration project 
to develop a plan, to be submitted to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of the 
Senate by March 31, 1998, for the orderly transition of demonstration 
projects and the project enrollees to a non-demonstration project 
health care delivery system, such as through integration with private 
or public health plan, including a medicaid managed care or 
MedicarePlus plan.
    ``(c) A demonstration project under subsection (a) which does not 
develop and submit a transition plan under subsection (b) by March 31, 
1998, or, if later, 6 months after the date of the enactment of this 
Act, shall be discontinued as of December 31, 1998. The Secretary shall 
provide appropriate technical assistance to assist in the transition so 
that disruption of medical services to project enrollees may be 
minimized.''.

SEC. 4019. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING ORGANIZATION 
              DEMONSTRATION PROJECTS.

    Notwithstanding any other provision of law, demonstration projects 
conducted under section 4079 of the Omnibus Budget Reconciliation Act 
of 1987 may be conducted for an additional period of 2 years, and the 
deadline for any report required relating to the results of such 
projects shall be not later than 6 months before the end of such 
additional period.

            CHAPTER 3--MEDICARE PAYMENT ADVISORY COMMISSION

SEC. 4021. MEDICARE PAYMENT ADVISORY COMMISSION.

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

                 ``medicare payment advisory commission

    ``Sec. 1805. (a) Establishment.--There is hereby established the 
Medicare Payment Advisory Commission (in this section referred to as 
the `Commission').
    ``(b) Duties.--
            ``(1) Review of payment policies and annual reports.--The 
        Commission shall--
                    ``(A) review payment policies under this title, 
                including the topics described in paragraph (2);
                    ``(B) make recommendations to Congress concerning 
                such payment policies; and
                    ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing the results of such reviews and its 
                recommendations concerning such policies and an 
                examination of issues affecting the medicare program.
            ``(2) Specific topics to be reviewed.--
                    ``(A) Medicareplus program.--Specifically, the 
                Commission shall review, with respect to the 
                MedicarePlus program under part C, the following:
                            ``(i) The methodology for making payment to 
                        plans under such program, including the making 
                        of differential payments and the distribution 
                        of differential updates among different payment 
                        areas.
                            ``(ii) The mechanisms used to adjust 
                        payments for risk and the need to adjust such 
                        mechanisms to take into account health status 
                        of beneficiaries.
                            ``(iii) The implications of risk selection 
                        both among MedicarePlus organizations and 
                        between the MedicarePlus option and the 
                        medicare fee-for-service option.
                            ``(iv) The development and implementation 
                        of mechanisms to assure the quality of care for 
                        those enrolled with MedicarePlus organizations.
                            ``(v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                            ``(vi) The appropriate role for the 
                        medicare program in addressing the needs of 
                        individuals with chronic illnesses.
                            ``(vii) Other major issues in 
                        implementation and further development of the 
                        MedicarePlus program.
                    ``(B) Fee-for-service system.--Specifically, the 
                Commission shall review payment policies under parts A 
                and B, including--
                            ``(i) the factors affecting expenditures 
                        for services in different sectors, including 
                        the process for updating hospital, skilled 
                        nursing facility, physician, and other fees,
                            ``(ii) payment methodologies, and
                            ``(iii) their relationship to access and 
                        quality of care for medicare beneficiaries.
                    ``(C) Interaction of medicare payment policies with 
                health care delivery generally.--Specifically, the 
                Commission shall review the effect of payment policies 
                under this title on the delivery of health care 
                services other than under this title and assess the 
                implications of changes in health care delivery in the 
                United States and in the general market for health care 
                services on the medicare program.
            ``(3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of Congress) a 
        report that is required by law and that relates to payment 
        policies under this title, the Secretary shall transmit a copy 
        of the report to the Commission. The Commission shall review 
        the report and, not later than 6 months after the date of 
        submittal of the Secretary's report to Congress, shall submit 
        to the appropriate committees of Congress written comments on 
        such report. Such comments may include such recommendations as 
        the Commission deems appropriate.
            ``(4) Agenda and additional reviews.--The Commission shall 
        consult periodically with the chairmen and ranking minority 
        members of the appropriate committees of Congress regarding the 
        Commission's agenda and progress towards achieving the agenda. 
        The Commission may conduct additional reviews, and submit 
        additional reports to the appropriate committees of Congress, 
        from time to time on such topics relating to the program under 
        this title as may be requested by such chairmen and members and 
        as the Commission deems appropriate.
            ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report submitted under 
        this subsection and shall make such reports available to the 
        public.
            ``(6) Appropriate committees.--For purposes of this 
        section, the term `appropriate committees of Congress' means 
        the Committees on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the Senate.
    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall be 
        composed of 11 members appointed by the Comptroller General.
            ``(2) Qualifications.--
                    ``(A) In general.--The membership of the Commission 
                shall include individuals with national recognition for 
                their expertise in health finance and economics, 
                actuarial science, health facility management, health 
                plans and integrated delivery systems, reimbursement of 
                health facilities, allopathic and osteopathic 
                physicians, and other providers of health services, and 
                other related fields, who provide a mix of different 
                professionals, broad geographic representation, and a 
                balance between urban and rural representatives.
                    ``(B) Inclusion.--The membership of the Commission 
                shall include (but not be limited to) physicians and 
                other health professionals, employers, third party 
                payers, individuals skilled in the conduct and 
                interpretation of biomedical, health services, and 
                health economics research and expertise in outcomes and 
                effectiveness research and technology assessment. Such 
                membership shall also include representatives of 
                consumers and the elderly.
                    ``(C) Majority nonproviders.--Individuals who are 
                directly involved in the provision, or management of 
                the delivery, of items and services covered under this 
                title shall not constitute a majority of the membership 
                of the Commission.
                    ``(D) Ethical disclosure.--The Comptroller General 
                shall establish a system for public disclosure by 
                members of the Commission of financial and other 
                potential conflicts of interest relating to such 
                members.
            ``(3) Terms.--
                    ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                    ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
            ``(4) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and member's regular place of business, 
        a member may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician comparability 
        allowance by the Commission in the same manner as Government 
        physicians may be provided such an allowance by an agency under 
        section 5948 of title 5, United States Code, and for such 
        purpose subsection (i) of such section shall apply to the 
        Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
            ``(5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
            ``(6) Meetings.--The Commission shall meet at the call of 
        the Chairman.
    ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
            ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
            ``(2) seek such assistance and support as may be required 
        in the performance of its duties from appropriate Federal 
        departments and agencies;
            ``(3) enter into contracts or make other arrangements, as 
        may be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
            ``(4) make advance, progress, and other payments which 
        relate to the work of the Commission;
            ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
            ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
            ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                    ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                    ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                    ``(C) adopt procedures allowing any interested 
                party to submit information for the Commission's use in 
                making reports and recommendations.
            ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all deliberations, 
        records, and nonproprietary data of the Commission, immediately 
        upon request.
            ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the Comptroller General.
    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out the 
        provisions of this section. 60 percent of such appropriation 
        shall be payable from the Federal Hospital Insurance Trust 
        Fund, and 40 percent of such appropriation shall be payable 
        from the Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Abolition of ProPAC and PPRC.--
            (1) Propac.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                            (i) by striking paragraphs (2) and (6); and
                            (ii) in paragraph (3), by striking ``(A) 
                        The Commission'' and all that follows through 
                        ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Advisory Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                    (B) Elimination of certain reports.--Section 1848 
                (42 U.S.C. 1395w-4) is amended by striking subparagraph 
                (B) of subsection (f)(1).
                    (C) Conforming amendments.--Section 1848 (42 U.S.C. 
                1395w-4) is amended by striking ``Physician Payment 
                Review Commission'' and inserting ``Medicare Payment 
                Advisory Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
    (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare Payment 
        Advisory Commission (in this subsection referred to as 
        ``MedPAC'') by not later than September 30, 1997.
            (2) Transition.--As quickly as possible after the date a 
        majority of members of MedPAC are first appointed, the 
        Comptroller General, in consultation with the Prospective 
        Payment Assessment Commission (in this subsection referred to 
        as ``ProPAC'') and the Physician Payment Review Commission (in 
        this subsection referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date of 
        termination of the respective Commissions, the amendments made 
        by paragraphs (1) and (2), respectively, of subsection (b) 
        become effective. The Comptroller General, to the extent 
        feasible, shall provide for the transfer to the MedPAC of 
        assets and staff of the ProPAC and the PPRC, without any loss 
        of benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or the PPRC for any period 
        shall be available to the MedPAC for such period for like 
        purposes.
            (3) Continuing responsibility for reports.--The MedPAC 
        shall be responsible for the preparation and submission of 
        reports required by law to be submitted (and which have not 
        been submitted by the date of establishment of the MedPAC) by 
        the ProPAC and the PPRC, and, for this purpose, any reference 
        in law to either such Commission is deemed, after the 
        appointment of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 4031. MEDIGAP PROTECTIONS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
            (1) in paragraph (3), by striking ``paragraphs (1) and 
        (2)'' and inserting ``this subsection'',
            (2) by redesignating paragraph (3) as paragraph (4), and
            (3) by inserting after paragraph (2) the following new 
        paragraph:
    ``(3)(A) The issuer of a medicare supplemental policy--
            ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy described in 
        subparagraph (C) that is offered and is available for issuance 
        to new enrollees by such issuer;
            ``(ii) may not discriminate in the pricing of such policy, 
        because of health status, claims experience, receipt of health 
        care, or medical condition; and
            ``(iii) may not impose an exclusion of benefits based on a 
        pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who seeks to 
enroll under the policy not later than 63 days after the date of the 
termination of enrollment described in such subparagraph and who 
submits evidence of the date of termination or disenrollment along with 
the application for such medicare supplemental policy.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
            ``(i) The individual is enrolled under an employee welfare 
        benefit plan that provides health benefits that supplement the 
        benefits under this title and the plan terminates or ceases to 
        provide all such supplemental health benefits to the 
        individual.
            ``(ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, and there 
        are circumstances permitting discontinuance of the individual's 
        election of the plan under section 1851(e)(4).
            ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a similar 
        organization operating under demonstration project authority, 
        with an organization under an agreement under section 
        1833(a)(1)(A), or with an organization under a policy described 
        in subsection (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 1851(e)(4) and, 
        in the case of a policy described in subsection (t), there is 
        no provision under applicable State law for the continuation of 
        coverage under such policy.
            ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such enrollment 
        ceases because--
                    ``(I) of the bankruptcy or insolvency of the issuer 
                or because of other involuntary termination of coverage 
                or enrollment under such policy and there is no 
                provision under applicable State law for the 
                continuation of such coverage;
                    ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                    ``(III) the issuer (or an agent or other entity 
                acting on the issuer's behalf) materially 
                misrepresented the policy's provisions in marketing the 
                policy to the individual.
            ``(v) The individual--
                    ``(I) was enrolled under a medicare supplemental 
                policy under this section,
                    ``(II) subsequently terminates such enrollment and 
                enrolls, for the first time, with any MedicarePlus 
                organization under a MedicarePlus plan under part C, 
                any eligible organization under a contract under 
                section 1876, any similar organization operating under 
                demonstration project authority, any organization under 
                an agreement under section 1833(a)(1)(A), or any policy 
                described in subsection (t), and
                    ``(III) the subsequent enrollment under subclause 
                (II) is terminated by the enrollee during the first 6 
                months (or 3 months for terminations occurring on or 
                after January 1, 2003) of such enrollment.
            ``(vi) The individual--
                    ``(I) was enrolled under a medicare supplemental 
                policy under this section,
                    ``(II) subsequently terminates such enrollment and 
                enrolls, for the first time, during or after the 
                annual, coordinated election period under section 
                1851(e)(3)(B) occurring during 2002, with an 
                organization or policy described in clause (v)(II), and
                    ``(III) the subsequent enrollment under subclause 
                (II) is terminated by the enrollee during the next 
                annual, coordinated election period under such section.
    ``(C)(i) Subject to clauses (ii) and (iii), a medicare supplemental 
policy described in this subparagraph has a benefit package classified 
as `A', `B', `C', or `F' under the standards established under 
subsection (p)(2).
    ``(ii) Only for purposes of an individual described in subparagraph 
(B)(v), a medicare supplemental policy described in this subparagraph 
also includes (if available from the same issuer) the same medicare 
supplemental policy referred to in such subparagraph in which the 
individual was most recently previously enrolled.
    ``(iii) For purposes of applying this paragraph in the case of a 
State that provides for offering of benefit packages other than under 
the classification referred to in clause (i), the references to benefit 
packages in such clause are deemed references to comparable benefit 
packages offered in such State.
    ``(D) At the time of an event described in subparagraph (B) because 
of which an individual ceases enrollment or loses coverage or benefits 
under a contract or agreement, policy, or plan, the organization that 
offers the contract or agreement, the insurer offering the policy, or 
the administrator of the plan, respectively, shall notify the 
individual of the rights of the individual, and obligations of issuers 
of medicare supplemental policies, under subparagraph (A).''.
    (b) Limitation on Imposition of Preexisting Condition Exclusion 
During Initial Open Enrollment Period.--Section 1882(s)(2) (42 U.S.C. 
1395ss(s)(2)) is amended--
            (1) in subparagraph (B), by striking ``subparagraph (C)'' 
        and inserting ``subparagraphs (C) and (D)'', and
            (2) by adding at the end the following new subparagraph:
    ``(D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years of age 
or older as of the date of issuance and who as of the date of the 
application for enrollment has a continuous period of creditable 
coverage (as defined in 2701(c) of the Public Health Service Act) of--
            ``(i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
            ``(ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy shall 
        reduce the period of any preexisting condition exclusion by the 
        aggregate of the periods of creditable coverage (if any, as so 
        defined) applicable to the individual as of the enrollment 
        date.
The Secretary shall specify the manner of the reduction under clause 
(ii), based upon the rules used by the Secretary in carrying out 
section 2701(a)(3) of such Act.''.
    (c) Effective Dates.--
            (1) Guaranteed issue.--The amendment made by subsection (a) 
        shall take effect on July 1, 1998.
            (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to policies issued 
        on or after July 1, 1998.
    (d) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to 
        the changes made by this section, the State regulatory program 
        shall not be considered to be out of compliance with the 
        requirements of section 1882 of the Social Security Act due 
        solely to failure to make such change until the date specified 
        in paragraph (4).
            (2) NAIC standards.--If, within 9 months after the date of 
        the enactment of this Act, the National Association of 
        Insurance Commissioners (in this subsection referred to as the 
        ``NAIC'') modifies its NAIC Model Regulation relating to 
        section 1882 of the Social Security Act (referred to in such 
        section as the 1991 NAIC Model Regulation, as modified pursuant 
        to section 171(m)(2) of the Social Security Act Amendments of 
        1994 (Public Law 103-432) and as modified pursuant to section 
        1882(d)(3)(A)(vi)(IV) of the Social Security Act, as added by 
        section 271(a) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191) to conform to 
        the amendments made by this section, such revised regulation 
        incorporating the modifications shall be considered to be the 
        applicable NAIC model regulation (including the revised NAIC 
        model regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        Regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State changes its statutes 
                        or regulations to conform its regulatory 
                        program to the changes made by this section, or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first makes the modifications under 
                        paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) to conform its 
                        regulatory program to the changes made in this 
                        section, but
                            (ii) having a legislature which is not 
                        scheduled to meet in 1999 in a legislative 
                        session in which such legislation may be 
                        considered,
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after July 1, 1999. For 
                purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

SEC. 4032. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

    (a) Establishment of Project.--The Secretary of Health and Human 
Services shall provide, beginning not later than 1 year after the date 
of the enactment of this Act, for implementation of a project (in this 
section referred to as the ``project'') to demonstrate the application 
of, and the consequences of applying, a market-oriented pricing system 
for the provision of a full range of medicare benefits in a geographic 
area.
    (b) Research Design Advisory Committee.--
            (1) In general.--Before implementing the project under this 
        section, the Secretary shall appoint a national advisory 
        committee, including independent actuaries and individuals with 
        expertise in competitive health plan pricing, to make 
        recommendations to the Secretary concerning the appropriate 
        research design for implementing the project.
            (2) Initial recommendations.--The committee initially shall 
        submit recommendations respecting the method for area 
        selection, benefit design among plans offered, structuring 
        choice among health plans offered, methods for setting the 
        price to be paid to plans, collection of plan information 
        (including information concerning quality and access to care), 
        information dissemination, and methods of evaluating the 
        results of the project.
            (3) Advice during implementation.--Upon implementation of 
        the project, the committee shall continue to advise the 
        Secretary on the application of the design in different areas 
        and changes in the project based on experience with its 
        operations.
    (c) Area Selection.--
            (1) In general.--Taking into account the recommendations of 
        the advisory committee submitted under subsection (b), the 
        Secretary shall designate areas in which the project will 
        operate.
            (2) Appointment of area advisory committee.--Upon the 
        designation of an area for inclusion in the project, the 
        Secretary shall appoint an area advisory committee, composed of 
        representatives of health plans, providers, and medicare 
        beneficiaries in the area, to advise the Secretary concerning 
        how the project will actually be implemented in the area. Such 
        advice may include advice concerning the marketing and pricing 
        of plans in the area and other salient factors relating.
    (d) Monitoring and Report.--
            (1) Monitoring impact.--Taking into consideration the 
        recommendations of the general advisory committee (appointed 
        under subsection (b)), the Secretary shall closely monitor the 
        impact of projects in areas on the price and quality of, and 
        access to, medicare covered services, choice of health plan, 
        changes in enrollment, and other relevant factors.
            (2) Report.--The Secretary shall periodically report to 
        Congress on the progress under the project under this section.
    (e) Waiver Authority.--The Secretary of Health and Human Services 
may waive such requirements of section 1876 (and such requirements of 
part C of title XVIII, as amended by chapter 1), of the Social Security 
Act as may be necessary for the purposes of carrying out the project.
    (f) Relationship to Other Authority.--Except pursuant to this 
section the Secretary of Health and Human Services may not conduct or 
continue any medicare demonstration project relating to payment of 
health maintenance organizations, MedicarePlus organizations, or 
similar prepaid managed care entities on the basis of a competitive 
bidding process or pricing system described in subsection (a) rather 
than on the bases described in section 1853 or 1876 of the Social 
Security Act.

                   Subtitle B--Prevention Initiatives

SEC. 4101. SCREENING MAMMOGRAPHY.

    (a) Providing Annual Screening Mammography for Women Over Age 39.--
Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is amended--
            (1) in clause (iii), to read as follows:
                            ``(iii) In the case of a woman over 39 
                        years of age, payment may not be made under 
                        this part for screening mammography performed 
                        within 11 months following the month in which a 
                        previous screening mammography was 
                        performed.''; and
            (2) by striking clauses (iv) and (v).
    (b) 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 before the period at the end the 
        following: ``, and (5) such deductible shall not apply with 
        respect to screening mammography (as described in section 
        1861(jj))''.
    (c) Conforming Amendment.--Section 1834(c)(1)(C) of such Act (42 
U.S.C. 1395m(c)(1)(C)) is amended by striking ``, subject to the 
deductible established under section 1833(b),''.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4102. SCREENING PAP SMEAR AND PELVIC EXAMS.

    (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage of 
Pap Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is amended--
            (1) in the heading, by striking ``Smear'' and inserting 
        ``Smear; Screening Pelvic Exam'';
            (2) by inserting ``or vaginal'' after ``cervical'' each 
        place it appears;
            (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
            (4) by striking ``3 years'' and all that follows and 
        inserting ``3 years, or during the preceding year in the case 
        of a woman described in paragraph (3).''; and
            (5) by adding at the end the following new paragraphs:
    ``(2) The term `screening pelvic exam' means an pelvic examination 
provided to a woman if the woman involved has not had such an 
examination during the preceding 3 years, or during the preceding year 
in the case of a woman described in paragraph (3), and includes a 
clinical breast examination.
    ``(3) A woman described in this paragraph is a woman who--
            ``(A) is of childbearing age and has not had a test 
        described in this subsection during each of the preceding 3 
        years that did not indicate the presence of cervical or vaginal 
        cancer; or
            ``(B) is at high risk of developing cervical or vaginal 
        cancer (as determined pursuant to factors identified by the 
        Secretary).''.
    (b) Waiver of Deductible.--The first sentence of section 1833(b) 
(42 U.S.C. 1395l(b)), as amended by section 4101(b), is amended--
            (1) by striking ``and'' before ``(5)'', and
            (2) by inserting before the period at the end the 
        following: ``, and (6) such deductible shall not apply with 
        respect to screening pap smear and screening pelvic exam (as 
        described in section 1861(nn))''.
    (c) Conforming Amendments.--Sections 1861(s)(14) and 1862(a)(1)(F) 
(42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each amended by inserting 
``and screening pelvic exam'' after ``screening pap smear''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3)(42 
U.S.C. 1395w-4(j)(3)) is amended by striking ``and (4)'' and inserting 
``, (4) and (14) (with respect to services described in section 
1861(nn)(2))''.
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.
    (f) Report on Rescreening Pap Smears.--Not later than 6 months 
after the date of the enactment of this Act, the Secretary of Health 
and Human Services shall submit to Congress a report on the extent to 
which the use of supplemental computer-assisted diagnostic tests 
consisting of interactive automated computer-imaging of an exfoliative 
cytology test, in conjunction with the pap smears, improves the early 
detection of cervical or vaginal cancer and the costs implications for 
coverage of such supplemental tests under the medicare program.

SEC. 4103. PROSTATE CANCER SCREENING TESTS.

    (a) Coverage.--Section 1861 (42 U.S.C. 1395x) is amended--
            (1) in subsection (s)(2)--
                    (A) by striking ``and'' at the end of subparagraphs 
                (N) and (O), and
                    (B) by inserting after subparagraph (O) the 
                following new subparagraph:
            ``(P) prostate cancer screening tests (as defined in 
        subsection (oo)); and''; and
            (2) by adding at the end the following new subsection:

                   ``Prostate Cancer Screening Tests

    ``(oo)(1) The term `prostate cancer screening test' means a test 
that consists of any (or all) of the procedures described in paragraph 
(2) provided for the purpose of early detection of prostate cancer to a 
man over 50 years of age who has not had such a test during the 
preceding year.
    ``(2) The procedures described in this paragraph are as follows:
            ``(A) A digital rectal examination.
            ``(B) A prostate-specific antigen blood test.
            ``(C) For years beginning after 2001, such other procedures 
        as the Secretary finds appropriate for the purpose of early 
        detection of prostate cancer, taking into account changes in 
        technology and standards of medical practice, availability, 
        effectiveness, costs, and such other factors as the Secretary 
        considers appropriate.''.
    (b) Payment for Prostate-specific Antigen Blood Test Under Clinical 
Diagnostic Laboratory Test Fee Schedules.--Section 1833(h)(1)(A) (42 
U.S.C. 1395l(h)(1)(A)) is amended by inserting after ``laboratory 
tests'' the following: ``(including prostate cancer screening tests 
under section 1861(oo) consisting of prostate-specific antigen blood 
tests)''.
    (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (E), by striking ``and'' at the 
                end,
                    (B) in subparagraph (F), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) in the case of prostate cancer screening tests (as 
        defined in section 1861(oo)), which are performed more 
        frequently than is covered under such section;''; and
            (2) in paragraph (7), by striking ``paragraph (1)(B) or 
        under paragraph (1)(F)'' and inserting ``subparagraphs (B), 
        (F), or (G) of paragraph (1)''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3)(42 
U.S.C. 1395w-4(j)(3)), as amended by section 4102, is amended by 
inserting ``(2)(P) (with respect to services described in subparagraphs 
(A) and (C) of section 1861(oo),'' after ``(2)(G)''
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4104. COVERAGE OF COLORECTAL SCREENING.

    (a) Coverage.--
            (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended 
        by section 4103(a), is amended--
                    (A) in subsection (s)(2)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (P);
                            (ii) by adding ``and'' at the end of 
                        subparagraph (Q); and
                            (iii) by adding at the end the following 
                        new subparagraph:
            ``(R) colorectal cancer screening tests (as defined in 
        subsection (pp)); and''; and
                    (B) by adding at the end the following new 
                subsection:

                  ``Colorectal Cancer Screening Tests

    ``(pp)(1) The term `colorectal cancer screening test' means any of 
the following procedures furnished to an individual for the purpose of 
early detection of colorectal cancer:
            ``(A) Screening fecal-occult blood test.
            ``(B) Screening flexible sigmoidoscopy.
            ``(C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
            ``(D) Screening barium enema, if found by the Secretary to 
        be an appropriate alternative to screening flexible 
        sigmoidoscopy under subparagraph (B) or screening colonoscopy 
        under subparagraph (C).
            ``(E) For years beginning after 2002, such other procedures 
        as the Secretary finds appropriate for the purpose of early 
        detection of colorectal cancer, taking into account changes in 
        technology and standards of medical practice, availability, 
        effectiveness, costs, and such other factors as the Secretary 
        considers appropriate.
    ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family history, 
prior experience of cancer or precursor neoplastic polyps, a history of 
chronic digestive disease condition (including inflammatory bowel 
disease, Crohn's Disease, or ulcerative colitis), the presence of any 
appropriate recognized gene markers for colorectal cancer, or other 
predisposing factors, faces a high risk for colorectal cancer.''.
            (2) Deadline for decision on coverage of screening barium 
        enema.--Not later than 2 years after the date of the enactment 
        of this section, the Secretary of Health and Human Services 
        shall issue and publish a determination on the treatment of 
        screening barium enema as a colorectal cancer screening test 
        under section 1861(pp) (as added by subparagraph (B)) as an 
        alternative procedure to a screening flexible sigmoidoscopy or 
        screening colonoscopy.
    (b) Frequency and Payment Limits.--
            (1) In general.--Section 1834 (42 U.S.C. 1395m) is amended 
        by inserting after subsection (c) the following new subsection:
    ``(d) Frequency and Payment Limits for Colorectal Cancer Screening 
Tests.--
            ``(1) Screening fecal-occult blood tests.--
                    ``(A) Payment limit.--In establishing fee schedules 
                under section 1833(h) with respect to colorectal cancer 
                screening tests consisting of screening fecal-occult 
                blood tests, except as provided by the Secretary under 
                paragraph (4)(A), the payment amount established for 
                tests performed--
                            ``(i) in 1998 shall not exceed $5; and
                            ``(ii) in a subsequent year, shall not 
                        exceed the limit on the payment amount 
                        established under this subsection for such 
                        tests for the preceding year, adjusted by the 
                        applicable adjustment under section 1833(h) for 
                        tests performed in such year.
                    ``(B) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for colorectal cancer screening 
                test consisting of a screening fecal-occult blood 
                test--
                            ``(i) if the individual is under 50 years 
                        of age; or
                            ``(ii) if the test is performed within the 
                        11 months after a previous screening fecal-
                        occult blood test.
            ``(2) Screening flexible sigmoidoscopies.--
                    ``(A) Fee schedule.--The Secretary shall establish 
                a payment amount under section 1848 with respect to 
                colorectal cancer screening tests consisting of 
                screening flexible sigmoidoscopies that is consistent 
                with payment amounts under such section for similar or 
                related services, except that such payment amount shall 
                be established without regard to subsection (a)(2)(A) 
                of such section.
                    ``(B) Payment limit.--In the case of screening 
                flexible sigmoidoscopy services--
                            ``(i) the payment amount may not exceed 
                        such amount as the Secretary specifies, based 
                        upon the rates recognized under this part for 
                        diagnostic flexible sigmoidoscopy services; and
                            ``(ii) that, in accordance with 
                        regulations, may be performed in an ambulatory 
                        surgical center and for which the Secretary 
                        permits ambulatory surgical center payments 
                        under this part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment amount under 
                        this part may not exceed the lesser of (I) the 
                        payment rate that would apply to such services 
                        if they were performed in a hospital outpatient 
                        department, or (II) the payment rate that would 
                        apply to such services if they were performed 
                        in an ambulatory surgical center.
                    ``(C) Special rule for detected lesions.--If during 
                the course of such screening flexible sigmoidoscopy, a 
                lesion or growth is detected which results in a biopsy 
                or removal of the lesion or growth, payment under this 
                part shall not be made for the screening flexible 
                sigmoidoscopy but shall be made for the procedure 
                classified as a flexible sigmoidoscopy with such biopsy 
                or removal.
                    ``(D) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for a colorectal cancer screening 
                test consisting of a screening flexible sigmoidoscopy--
                            ``(i) if the individual is under 50 years 
                        of age; or
                            ``(ii) if the procedure is performed within 
                        the 47 months after a previous screening 
                        flexible sigmoidoscopy.
            ``(3) Screening colonoscopy for individuals at high risk 
        for colorectal cancer.--
                    ``(A) Fee schedule.--The Secretary shall establish 
                a payment amount under section 1848 with respect to 
                colorectal cancer screening test consisting of a 
                screening colonoscopy for individuals at high risk for 
                colorectal cancer (as defined in section 1861(pp)(2)) 
                that is consistent with payment amounts under such 
                section for similar or related services, except that 
                such payment amount shall be established without regard 
                to subsection (a)(2)(A) of such section.
                    ``(B) Payment limit.--In the case of screening 
                colonoscopy services--
                            ``(i) the payment amount may not exceed 
                        such amount as the Secretary specifies, based 
                        upon the rates recognized under this part for 
                        diagnostic colonoscopy services; and
                            ``(ii) that are performed in an ambulatory 
                        surgical center or hospital outpatient 
                        department, the payment amount under this part 
                        may not exceed the lesser of (I) the payment 
                        rate that would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate that would 
                        apply to such services if they were performed 
                        in an ambulatory surgical center.
                    ``(C) Special rule for detected lesions.--If during 
                the course of such screening colonoscopy, a lesion or 
                growth is detected which results in a biopsy or removal 
                of the lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but shall be 
                made for the procedure classified as a colonoscopy with 
                such biopsy or removal.
                    ``(D) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for a colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer if the 
                procedure is performed within the 23 months after a 
                previous screening colonoscopy.
            ``(4) Reductions in payment limit and revision of 
        frequency.--
                    ``(A) Reductions in payment limit for screening 
                fecal-occult blood tests.--The Secretary shall review 
                from time to time the appropriateness of the amount of 
                the payment limit established for screening fecal-
                occult blood tests under paragraph (1)(A). The 
                Secretary may, with respect to tests performed in a 
                year after 2000, reduce the amount of such limit as it 
                applies nationally or in any area to the amount that 
                the Secretary estimates is required to assure that such 
                tests of an appropriate quality are readily and 
                conveniently available during the year.
                    ``(B) Revision of frequency.--
                            ``(i) Review.--The Secretary shall review 
                        periodically the appropriate frequency for 
                        performing colorectal cancer screening tests 
                        based on age and such other factors as the 
                        Secretary believes to be pertinent.
                            ``(ii) Revision of frequency.--The 
                        Secretary, taking into consideration the review 
                        made under clause (i), may revise from time to 
                        time the frequency with which such tests may be 
                        paid for under this subsection, but no such 
                        revision shall apply to tests performed before 
                        January 1, 2001.
            ``(5) Limiting charges of nonparticipating physicians.--
                    ``(A) In general.--In the case of a colorectal 
                cancer screening test consisting of a screening 
                flexible sigmoidoscopy or a screening colonoscopy 
                provided to an individual at high risk for colorectal 
                cancer for which payment may be made under this part, 
                if a nonparticipating physician provides the procedure 
                to an individual enrolled under this part, the 
                physician may not charge the individual more than the 
                limiting charge (as defined in section 1848(g)(2)).
                    ``(B) Enforcement.--If a physician or supplier 
                knowing and willfully imposes a charge in violation of 
                subparagraph (A), the Secretary may apply sanctions 
                against such physician or supplier in accordance with 
                section 1842(j)(2).''.
            (2) Special rule for screening barium enema.--If the 
        Secretary of Health and Human Services issues a determination 
        under subsection (a)(2) that screening barium enema should be 
        covered as a colorectal cancer screening test under section 
        1861(pp) (as added by subsection (a)(1)(B)), the Secretary 
        shall establish frequency limits (including revisions of 
        frequency limits) for such procedure consistent with the 
        frequency limits for other colorectal cancer screening tests 
        under section 1834(d) (as added by subsection (b)(1)), and 
        shall establish payment limits (including limits on charges of 
        nonparticipating physicians) for such procedure consistent with 
        the payment limits under part B of title XVIII for diagnostic 
        barium enema procedures.
    (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) of 
section 1833(a) (42 U.S.C. 1395l(a)) are each amended by inserting ``or 
section 1834(d)(1)'' after ``subsection (h)(1)''.
    (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
striking ``The Secretary'' and inserting ``Subject to paragraphs (1) 
and (4)(A) of section 1834(d), the Secretary''.
    (3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42 U.S.C. 1395w-
4(a)(2)(A)) are each amended by inserting after ``a service'' the 
following: ``(other than a colorectal cancer screening test consisting 
of a screening colonoscopy provided to an individual at high risk for 
colorectal cancer or a screening flexible sigmoidoscopy)''.
    (4) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by section 
4103(c), is amended--
            (A) in paragraph (1)--
                    (i) in subparagraph (F), by striking ``and'' at the 
                end,
                    (ii) in subparagraph (G), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (iii) by adding at the end the following new 
                subparagraph:
            ``(H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered under 
        section 1834(d);''; and
            (B) in paragraph (7), by striking ``or (G)'' and inserting 
        ``(G), or (H)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4105. DIABETES SCREENING TESTS.

    (a) Coverage of Diabetes Outpatient Self-management Training 
Services.--
            (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended 
        by sections 4103(a) and 4104(a), is amended--
                    (A) in subsection (s)(2)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (Q);
                            (ii) by adding ``and'' at the end of 
                        subparagraph (R); and
                            (iii) by adding at the end the following 
                        new subparagraph:
            ``(S) diabetes outpatient self-management training services 
        (as defined in subsection (qq)); and''; and
                    (B) by adding at the end the following new 
                subsection:

        ``Diabetes Outpatient Self-Management Training Services

    ``(qq)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished to an 
individual with diabetes by 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-administration of injectable drugs) to participate 
in the management of the individual's condition.
    ``(2) In paragraph (1)--
            ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, 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) a physician, or such other individual or entity, 
        meets the quality standards described in this paragraph if the 
        physician, or individual or entity, meets quality standards 
        established by the Secretary, except that the physician or 
        other individual or entity shall be deemed to have met such 
        standards if the physician or other 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 an organization 
        that represents individuals (including individuals under this 
        title) with diabetes as meeting standards for furnishing the 
        services.''.
            (2) Payment Under Physician Fee Schedule.--Section 
        1848(j)(3)(42 U.S.C. 1395w-4(j)(3)) as amended in sections 4102 
        and 4103, is amended by inserting ``(2)(S),'' before ``(3),''.
            (3) Consultation with organizations in establishing payment 
        amounts for services provided by physicians.--In establishing 
        payment amounts under section 1848 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 such organizations representing individuals or 
        medicare beneficiaries with diabetes, in determining the 
        relative value for such services under section 1848(c)(2) of 
        such Act.
    (b) Blood-testing Strips for Individuals With Diabetes.--
            (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 U.S.C. 
        1395x(n)) is amended by inserting before the semicolon the 
        following: ``, and includes blood-testing strips and 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 
        appropriate organizations)''.
            (2) 10 percent reduction in payments for testing strips.--
        Section 1834(a)(2)(B)(iv) (42 U.S.C. 1395m(a)(2)(B)(iv)) is 
        amended by adding before the period the following: ``(reduced 
        by 10 percent, in the case of a blood glucose testing strip 
        furnished after 1997 for an individual with diabetes)''.
    (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
            (1) In general.--The Secretary of Health and Human 
        Services, in consultation with appropriate organizations, shall 
        establish outcome measures, including glysolated hemoglobin 
        (past 90-day average blood sugar levels), for purposes of 
        evaluating the improvement of the health status of medicare 
        beneficiaries with diabetes mellitus.
            (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the health status 
        of medicare beneficiaries with diabetes mellitus as measured 
        under the outcome measures established under subparagraph (A), 
        the Secretary shall from time to time submit recommendations to 
        Congress regarding modifications to the coverage of services 
        for such beneficiaries under the medicare program.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4106. STANDARDIZATION OF MEDICARE COVERAGE OF BONE MASS 
              MEASUREMENTS.

    (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended by 
sections 4103(a), 4104(a), 4105(a), is amended--
            (1) in subsection (s)--
                    (A) in paragraph (12)(C), by striking ``and'' at 
                the end,
                    (B) by striking the period at the end of paragraph 
                (14) and inserting ``; and'',
                    (C) by redesignating paragraphs (15) and (16) as 
                paragraphs (16) and (17), respectively, and
                    (D) by inserting after paragraph (14) the following 
                new paragraph:
            ``(15) bone mass measurement (as defined in subsection 
        (rr)).''; and
            (2) by inserting after subsection (qq) the following new 
        subsection:

                        ``Bone Mass Measurement

    ``(rr)(1) The term `bone mass measurement' means a radiologic or 
radioisotopic procedure or other procedure approved by the Food and 
Drug Administration performed on a qualified individual (as defined in 
paragraph (2)) for the purpose of identifying bone mass or detecting 
bone loss or determining bone quality, and includes a physician's 
interpretation of the results of the procedure.
    ``(2) For purposes of this subsection, the term `qualified 
individual' means an individual who is (in accordance with regulations 
prescribed by the Secretary)--
            ``(A) an estrogen-deficient woman at clinical risk for 
        osteoporosis;
            ``(B) an individual with vertebral abnormalities;
            ``(C) an individual receiving long-term glucocorticoid 
        steroid therapy;
            ``(D) an individual with primary hyperparathyroidism; or
            ``(E) an individual being monitored to assess the response 
        to or efficacy of an approved osteoporosis drug therapy.
    ``(3) The Secretary shall establish such standards regarding the 
frequency with which a qualified individual shall be eligible to be 
provided benefits for bone mass measurement under this title.''.
    (b) Payment under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 4102, 4103, and 4105, is 
amended--
            (1) by striking ``(4) and (14)'' and inserting ``(4), 
        (14)'' and
            (2) by inserting `` and (15)'' after ``1861(nn)(2))''.
    (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), and 
1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), and 
1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs (15) and 
(16)'' each place it appears and inserting ``paragraphs (16) and 
(17)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bone mass measurements performed on or after July 1, 1998.

SEC. 4107. VACCINES OUTREACH EXPANSION.

    (a) Extension of Influenza and Pneumococcal Vaccination Campaign.--
In order to increase utilization of pneumococcal and influenza vaccines 
in medicare beneficiaries, the Influenza and Pneumococcal Vaccination 
Campaign carried out by the Health Care Financing Administration in 
conjunction with the Centers for Disease Control and Prevention and the 
National Coalition for Adult Immunization, is extended until the end of 
fiscal year 2002.
    (b) Appropriation.--There are hereby appropriated for each of 
fiscal years 1998 through 2002, $8,000,000 to the Campaign described in 
subsection (a). Of the amount of such appropriation in each fiscal 
year, 60 percent of such appropriation shall be payable from the 
Federal Hospital Insurance Trust Fund, and 40 percent shall be payable 
from the Federal Supplementary Medical Insurance Trust Fund under title 
XVIII of the Social Security Act (42 U.S.C. 1395i, 1395t).

SEC. 4108. STUDY ON PREVENTIVE BENEFITS.

    (a) Study.--The Secretary of Health and Human Services shall 
request the National Academy of Sciences, in conjunction with the 
United States Preventive Services Task Force, to analyze the expansion 
or modification of preventive benefits provided to medicare 
beneficiaries under title XVIII of the Social Security Act. The 
analysis shall consider both the short term and long term benefits, and 
costs to the medicare program, of such expansion or modification,
    (b) Report.--
            (1) Initial report.--Not later than 2 years after the date 
        of the enactment of this Act, the Secretary shall submit a 
        report on the findings of the analysis conducted under 
        subsection (a) to the Committee on Ways and Means and the 
        Committee on Commerce of the House of Representatives and the 
        Committee on Finance of the Senate.
            (2) Contents.--Such report shall include specific findings 
        with respect to coverage of the following preventive benefits:
                    (A) Nutrition therapy, including parenteral and 
                enteral nutrition.
                    (B) Skin cancer screening.
                    (C) Medically necessary dental care.
                    (D) Routine patient care costs for beneficiaries 
                enrolled in approved clinical trial programs.
                    (E) Elimination of time limitation for coverage of 
                immunosuppressive drugs for transplant patients.
            (3) Funding.--From funds appropriated to the Department of 
        Health and Human Services for fiscal years 1998 and 1999, the 
        Secretary shall provide for such funding as may be necessary 
        for the conduct of the analysis by the National Academy of 
        Sciences under this section.

                     Subtitle C--Rural Initiatives

SEC. 4206. INFORMATICS, TELEMEDICINE, AND EDUCATION DEMONSTRATION 
              PROJECT.

    (a) Purpose and Authorization.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this section, the Secretary of Health and Human 
        Services shall provide for a demonstration project described in 
        paragraph (2).
            (2) Description of project.--
                    (A) In general.--The demonstration project 
                described in this paragraph is a single demonstration 
                project to use eligible health care provider 
                telemedicine networks to apply high-capacity computing 
                and advanced networks to improve primary care (and 
                prevent health care complications) to medicare 
                beneficiaries with diabetes mellitus who are residents 
                of medically underserved rural areas or residents of 
                medically underserved inner-city areas.
                    (B) Medically underserved defined.--As used in this 
                paragraph, the term ``medically underserved'' has the 
                meaning given such term in section 330(b)(3) of the 
                Public Health Service Act (42 U.S.C. 254b(b)(3)).
            (3) Waiver.--The Secretary shall waive such provisions of 
        title XVIII of the Social Security Act as may be necessary to 
        provide for payment for services under the project in 
        accordance with subsection (d).
            (4) Duration of project.--The project shall be conducted 
        over a 4-year period.
    (b) Objectives of Project.--The objectives of the project include 
the following:
            (1) Improving patient access to and compliance with 
        appropriate care guidelines for individuals with diabetes 
        mellitus through direct telecommunications link with 
        information networks in order to improve patient quality-of-
        life and reduce overall health care costs.
            (2) Developing a curriculum to train, and providing 
        standards for credentialing and licensure of, health 
        professionals (particularly primary care health professionals) 
        in the use of medical informatics and telecommunications.
            (3) Demonstrating the application of advanced technologies, 
        such as video-conferencing from a patient's home, remote 
        monitoring of a patient's medical condition, interventional 
        informatics, and applying individualized, automated care 
        guidelines, to assist primary care providers in assisting 
        patients with diabetes in a home setting.
            (4) Application of medical informatics to residents with 
        limited English language skills.
            (5) Developing standards in the application of telemedicine 
        and medical informatics.
            (6) Developing a model for the cost-effective delivery of 
        primary and related care both in a managed care environment and 
        in a fee-for-service environment.
    (c) Eligible Health Care Provider Telemedicine Network Defined.--
For purposes of this section, the term ``eligible health care provider 
telemedicine network'' means a consortium that includes at least one 
tertiary care hospital (but no more than 2 such hospitals), at least 
one medical school, no more than 4 facilities in rural or urban areas, 
and at least one regional telecommunications provider and that meets 
the following requirements:
            (1) The consortium is located in an area with one of the 
        highest concentrations of medical schools and tertiary care 
        facilities in the United States and has appropriate 
        arrangements (within or outside the consortium) with such 
        schools and facilities, universities, and telecommunications 
        providers, in order to conduct the project.
            (2) The consortium submits to the Secretary an application 
        at such time, in such manner, and containing such information 
        as the Secretary may require, including a description of the 
        use to which the consortium would apply any amounts received 
        under the project and the source and amount of non-Federal 
        funds used in the project.
            (3) The consortium guarantees that it will be responsible 
        for payment for all costs of the project that are not paid 
        under this section and that the maximum amount of payment that 
        may be made to the consortium under this section shall not 
        exceed the amount specified in subsection (d)(3).
    (d) Coverage as Medicare Part B Services.--
            (1) In general.--Subject to the succeeding provisions of 
        this subsection, services related to the treatment or 
        management of (including prevention of complications from) 
        diabetes for medicare beneficiaries furnished under the project 
        shall be considered to be services covered under part B of 
        title XVIII of the Social Security Act.
            (2) Payments.--
                    (A) In general.--Subject to paragraph (3), payment 
                for such services shall be made at a rate of 50 percent 
                of the costs that are reasonable and related to the 
                provision of such services. In computing such costs, 
                the Secretary shall include costs described in 
                subparagraph (B), but may not include costs described 
                in subparagraph (C).
                    (B) Costs that may be included.--The costs 
                described in this subparagraph are the permissible 
                costs (as recognized by the Secretary) for the 
                following:
                            (i) The acquisition of telemedicine 
                        equipment for use in patients' homes (but only 
                        in the case of patients located in medically 
                        underserved areas).
                            (ii) Curriculum development and training of 
                        health professionals in medical informatics and 
                        telemedicine.
                            (iii) Payment of telecommunications costs 
                        (including salaries and maintenance of 
                        equipment), including costs of 
                        telecommunications between patients' homes and 
                        the eligible network and between the network 
                        and other entities under the arrangements 
                        described in subsection (c)(1).
                            (iv) Payments to practitioners and 
                        providers under the medicare programs.
                    (C) Costs not included.--The costs described in 
                this subparagraph are costs for any of the following:
                            (i) The purchase or installation of 
                        transmission equipment (other than such 
                        equipment used by health professionals to 
                        deliver medical informatics services under the 
                        project).
                            (ii) The establishment or operation of a 
                        telecommunications common carrier network.
                            (iii) Construction (except for minor 
                        renovations related to the installation of 
                        reimbursable equipment) or the acquisition or 
                        building of real property.
            (3) Limitation.--The total amount of the payments that may 
        be made under this section shall not exceed $30,000,000.
            (4) Limitation on cost-sharing.--The project may not impose 
        cost sharing on a medicare beneficiary for the receipt of 
        services under the project in excess of 20 percent of the 
        recognized costs of the project attributable to such services.
    (e) Reports.--The Secretary shall submit to the Committees on Ways 
and Means and Commerce of the House of Representatives and the 
Committee on Finance of the Senate interim reports on the project and a 
final report on the project within 6 months after the conclusion of the 
project. The final report shall include an evaluation of the impact of 
the use of telemedicine and medical informatics on improving access of 
medicare beneficiaries to health care services, on reducing the costs 
of such services, and on improving the quality of life of such 
beneficiaries.
    (f) Definitions.--For purposes of this section:
            (1) Interventional informatics.--The term ``interventional 
        informatics'' means using information technology and virtual 
        reality technology to intervene in patient care.
            (2) Medical informatics.--The term ``medical informatics'' 
        means the storage, retrieval, and use of biomedical and related 
        information for problem solving and decision-making through 
        computing and communications technologies.
            (3) Project.--The term ``project'' means the demonstration 
        project under this section.

              Subtitle D--Anti-Fraud and Abuse Provisions

SEC. 4301. PERMANENT EXCLUSION FOR THOSE CONVICTED OF 3 HEALTH CARE 
              RELATED CRIMES.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
            (1) in subparagraph (A), by inserting ``or in the case 
        described in subparagraph (G)'' after ``subsection (b)(12)'';
            (2) in subparagraphs (B) and (D), by striking ``In the 
        case'' and inserting ``Subject to subparagraph (G), in the 
        case''; and
            (3) by adding at the end the following new subparagraph:
    ``(G) In the case of an exclusion of an individual under subsection 
(a) based on a conviction occurring on or after the date of the 
enactment of this subparagraph, if the individual has (before, on, or 
after such date and before the date of the conviction for which the 
exclusion is imposed) been convicted--
            ``(i) on one previous occasion of one or more offenses for 
        which an exclusion may be effected under such subsection, the 
        period of the exclusion shall be not less than 10 years, or
            ``(ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under such 
        subsection, the period of the exclusion shall be permanent.''.

SEC. 4302. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
              INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

    (a) Medicare Part A.--Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) 
is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``, or''; and
            (3) by adding after subparagraph (C) the following new 
        subparagraph:
                    ``(D) has ascertained that the provider has been 
                convicted of a felony under Federal or State law for an 
                offense which the Secretary determines is inconsistent 
                with the best interests of program beneficiaries.''.
    (b) Medicare Part B.--Section 1842 (42 U.S.C. 1395u) is amended by 
adding after subsection (r) the following new subsection:
    ``(s) The Secretary may refuse to enter into an agreement with a 
physician or supplier under subsection (h) or may terminate or refuse 
to renew such agreement, in the event that such physician or supplier 
has been convicted of a felony under Federal or State law for an 
offense which the Secretary determines is inconsistent with the best 
interests of program beneficiaries.''.
    (c) Medicaid.--Section 1902(a)(23) (42 U.S.C. 1396(a)) is amended--
            (1) by relocating the matter that precedes ``provide that, 
        (A)'' immediately before the semicolon;
            (2) by inserting a semicolon after ``1915'';
            (3) by striking the comma after ``Guam'' and inserting a 
        semicolon; and
            (4) by inserting before the semicolon at the end the 
        following: ``and except that this provision does not require a 
        State to provide medical assistance for such services furnished 
        by a person or entity convicted of a felony under Federal or 
        State law for an offense which the State agency determines is 
        inconsistent with the best interests of beneficiaries under the 
        State plan''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and apply to the entry 
and renewal of contracts on or after such date.

SEC. 4303. INCLUSION OF TOLL-FREE NUMBER TO REPORT MEDICARE WASTE, 
              FRAUD, AND ABUSE IN EXPLANATION OF BENEFITS FORMS.

    (a) In General.--Section 1842(h)(7) (42 U.S.C. 1395u(h)(7)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (D),
            (2) by striking the period at the end of subparagraph (E), 
        and
            (3) by adding at the end the following new subparagraph:
            ``(E) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human 
        Services for the receipt of complaints and information about 
        waste, fraud, and abuse in the provision or billing of services 
        under this title.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to explanations of benefits provided on or after such date (not 
later than January 1, 1999) as the Secretary of Health and Human 
Services shall provide.

SEC. 4304. LIABILITY OF MEDICARE CARRIERS AND FISCAL INTERMEDIARIES FOR 
              CLAIMS SUBMITTED BY EXCLUDED PROVIDERS.

    (a) Reimbursement to the Secretary for Amounts Paid to Excluded 
Providers.--
            (1) Requirements for fiscal intermediaries.--
                    (A) In general.--Section 1816 (42 U.S.C. 1395h) is 
                amended by adding at the end the following new 
                subsection:
    ``(m) An agreement with an agency or organization under this 
section shall require that such agency or organization reimburse the 
Secretary for any amounts paid by the agency or organization for a 
service under this title which is furnished, directed, or prescribed by 
an individual or entity during any period for which the individual or 
entity is excluded pursuant to section 1128, 1128A, or 1156, from 
participation in the program under this title, if the amounts are paid 
after the Secretary notifies the agency or organization of the 
exclusion.''.
                    (B) Conforming amendment.--Subsection (i) of such 
                section is amended by adding at the end the following 
                new paragraph:
    ``(4) Nothing in this subsection shall be construed to prohibit 
reimbursement by an agency or organization under subsection (m).''.
            (2) Requirements for carriers.--Section 1842(b)(3) (42 
        U.S.C. 1395u(b)(3)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (I); and
                    (B) by inserting after subparagraph (I) the 
                following new subparagraph:
            ``(J) will reimburse the Secretary for any amounts paid by 
        the carrier for an item or service under this part which is 
        furnished, directed, or prescribed by an individual or entity 
        during any period for which the individual or entity is 
        excluded pursuant to section 1128, 1128A, or 1156, from 
        participation in the program under this title, if the amounts 
        are paid after the Secretary notifies the carrier of the 
        exclusion, and''.
            (3) Medicaid Provision.--Section 1902(a)(39) (42 U.S.C. 
        1396a(a)(39)) is amended by inserting before the semicolon at 
        the end the following: ``, and provide further for 
        reimbursement to the Secretary of any payments made under the 
        plan or any item or service furnished, directed, or prescribed 
        by the excluded individual or entity during such period, after 
        the Secretary notifies the State of such exclusion''.
    (b) Conforming Repeal of Mandatory Payment Rule.--Paragraph (2) of 
section 1862(e) (42 U.S.C. 1395y(e)) is amended to read as follows:
    ``(2) No individual or entity may bill (or collect any amount from) 
any individual for any item or service for which payment is denied 
under paragraph (1). No person is liable for payment of any amounts 
billed for such an item or service in violation of the previous 
sentence.''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to contracts and agreements entered into, renewed, or extended 
after the date of the enactment of this Act, but only with respect to 
claims submitted on or after the later of January 1, 1998, or the date 
such entry, renewal, or extension becomes effective.

SEC. 4305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
              SANCTIONED INDIVIDUAL.

    (a) In General.--Section 1128 (42 U.S.C. 1320a-7) is amended--
            (1) in subsection (b)(8)(A)--
                    (A) by striking ``or'' at the end of clause (i), 
                and
                    (B) by striking the dash at the end of clause (ii) 
                and inserting ``; or'', and
                    (C) by inserting after clause (ii) the following:
                    ``(iii) who was described in clause (i) but is no 
                longer so described because of a transfer of ownership 
                or control interest, in anticipation of (or following) 
                a conviction, assessment, or exclusion described in 
                subparagraph (B) against the person, to an immediate 
                family member (as defined in subsection (j)(1)) or a 
                member of the household of the person (as defined in 
                subsection (j)(2)) who continues to maintain an 
                interest described in such clause--''; and
            (2) by adding after subsection (i) the following new 
        subsection:
    ``(j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
            ``(1) The term `immediate family member' means, with 
        respect to a person--
                    ``(A) the husband or wife of the person;
                    ``(B) the natural or adoptive parent, child, or 
                sibling of the person;
                    ``(C) the stepparent, stepchild, stepbrother, or 
                stepsister of the person;
                    ``(D) the father-, mother-, daughter-, son-, 
                brother-, or sister-in-law of the person;
                    ``(E) the grandparent or grandchild of the person; 
                and
                    ``(F) the spouse of a grandparent or grandchild of 
                the person.
            ``(2) The term `member of the household' means, with 
        respect to an person, any individual sharing a common abode as 
        part of a single family unit with the person, including 
        domestic employees and others who live together as a family 
        unit, but not including a roomer or boarder.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect on the date that is 45 days after the date of the enactment 
of this Act.

SEC. 4306. IMPOSITION OF CIVIL MONEY PENALTIES.

    (a) Civil Money Penalties for Persons That Contract With Excluded 
Individuals.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by adding ``or'' at the end of paragraph (5); and
            (3) by adding after paragraph (5) the following new 
        paragraph:
            ``(6) arranges or contracts (by employment or otherwise) 
        with an individual or entity that the person knows or should 
        know is excluded from participation in a Federal health care 
        program (as defined in section 1128B(f)), for the provision of 
        items or services for which payment may be made under such a 
        program;''.
    (b) Effective Dates.--The amendments made by subsection (a) shall 
apply to arrangements and contracts entered into after the date of the 
enactment of this Act.

SEC. 4307. DISCLOSURE OF INFORMATION AND SURETY BONDS.

    (a) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--Section 1834(a) (42 U.S.C. 
1395m(a)) is amended by inserting after paragraph (15) the following 
new paragraph:
            ``(16) Conditions for issuance of provider number.--The 
        Secretary shall not provide for the issuance (or renewal) of a 
        provider number for a supplier of durable medical equipment, 
        for purposes of payment under this part for durable medical 
        equipment furnished by the supplier, unless the supplier 
        provides the Secretary on a continuing basis with--
                    ``(A)(i) full and complete information as to the 
                identity of each person with an ownership or control 
                interest (as defined in section 1124(a)(3)) in the 
                supplier or in any subcontractor (as defined by the 
                Secretary in regulations) in which the supplier 
                directly or indirectly has a 5 percent or more 
                ownership interest, and
                    ``(ii) to the extent determined to be feasible 
                under regulations of the Secretary, the name of any 
                disclosing entity (as defined in section 1124(a)(2)) 
                with respect to which a person with such an ownership 
                or control interest in the supplier is a person with 
                such an ownership or control interest in the disclosing 
                entity; and
                    ``(B) a surety bond in a form specified by the 
                Secretary and in an amount that is not less than 
                $50,000.
        The Secretary may waive the requirement of a bond under 
        subparagraph (B) in the case of a supplier that provides a 
        comparable surety bond under State law.''.
    (b) Surety Bond Requirement for Home Health Agencies.--
            (1) In general.--Section 1861(o) (42 U.S.C. 1395x(o)) is 
        amended--
                    (A) in paragraph (7), by inserting ``and including 
                providing the Secretary on a continuing basis with a 
                surety bond in a form specified by the Secretary and in 
                an amount that is not less than $50,000,'' after 
                ``financial security of the program'', and
                    (B) by adding at the end the following: ``The 
                Secretary may waive the requirement of a bond under 
                paragraph (7) in the case of an agency or organization 
                that provides a comparable surety bond under State 
                law.''.
            (2) Conforming amendments.--Section 1861(v)(1)(H) (42 
        U.S.C. 1395x(v)(1)(H)) is amended--
                    (A) in clause (i), by striking ``the financial 
                security requirement'' and inserting ``the financial 
                security and surety bond requirements''; and
                    (B) in clause (ii), by striking ``the financial 
                security requirement described in subsection (o)(7) 
                applies'' and inserting ``the financial security and 
                surety bond requirements described in subsection (o)(7) 
                apply''.
            (3) Reference to current disclosure requirement.--For 
        provision of current law requiring home health agencies to 
        disclose information on ownership and control interests, see 
        section 1124 of the Social Security Act.
    (c) Authorizing Application of Disclosure and Surety Bond 
Requirements to Ambulance Services and Certain Clinics.--Section 
1834(a)(16) (42 U.S.C. 1395m(a)(16)), as added by subsection (a), is 
amended by adding at the end the following: ``The Secretary, in the 
Secretary's discretion, may impose the requirements of the previous 
sentence with respect to some or all classes of suppliers of ambulance 
services described in section 1861(s)(7) and clinics that furnish 
medical and other health services (other than physicians' services) 
under this part.''.
    (d) Application to Comprehensive Outpatient Rehabilitation 
Facilities (CORFs).--Section 1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is 
amended--
            (1) in subparagraph (I), by inserting before the period at 
        the end the following: ``and providing the Secretary on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000'', and
            (2) by adding after and below subparagraph (I) the 
        following:
``The Secretary may waive the requirement of a bond under subparagraph 
(I) in the case of a facility that provides a comparable surety bond 
under State law.''.
    (e) Application to Rehabilitation Agencies.--Section 1861(p) (42 
U.S.C. 1395x(p)) is amended--
            (1) in paragraph (4)(A)(v), by inserting after ``as the 
        Secretary may find necessary,'' the following: ``and provides 
        the Secretary, to the extent required by the Secretary, on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000'', and
            (2) by adding at the end the following: ``The Secretary may 
        waive the requirement of a bond under paragraph (4)(A)(v) in 
        the case of a clinic or agency that provides a comparable 
        surety bond under State law.''.
    (f) Effective Dates.--(1) The amendment made by subsection (a) 
shall apply to suppliers of durable medical equipment with respect to 
such equipment furnished on or after January 1, 1998.
    (2) The amendments made by subsection (b) shall apply to home 
health agencies with respect to services furnished on or after such 
date. The Secretary of Health and Human Services shall modify 
participation agreements under section 1866(a)(1) of the Social 
Security Act with respect to home health agencies to provide for 
implementation of such amendments on a timely basis.
    (3) The amendments made by subsections (c) through (e) shall take 
effect on the date of the enactment of this Act and may be applied with 
respect to items and services furnished on or after the date specified 
in paragraph (1).

SEC. 4308. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

    (a) Requirements to Disclose Employer Identification Numbers (EINS) 
and Social Security Account Numbers (SSNs).--Section 1124(a)(1) (42 
U.S.C. 1320a-3(a)(1)) is amended by inserting before the period at the 
end the following: ``and supply the Secretary with the both the 
employer identification number (assigned pursuant to section 6109 of 
the Internal Revenue Code of 1986) and social security account number 
(assigned under section 205(c)(2)(B)) of the disclosing entity, each 
person with an ownership or control interest (as defined in subsection 
(a)(3)), and any subcontractor in which the entity directly or 
indirectly has a 5 percent or more ownership interest. Use of the 
social security account number under this section shall be limited to 
identity verification and identity matching purposes only. The social 
security account number shall not be disclosed to any person or entity 
other than the Secretary, the Social Security Administration, or the 
Secretary of the Treasury, In obtaining the social security account 
numbers of the disclosing entity and other persons described in this 
section, the Secretary shall comply with section 7 of the Privacy Act 
of 1974 (5 U.S.C. 552a note)''.
    (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 1320a-3a) 
is amended--
            (1) in subsection (a)--
                    (A) by striking ``and'' at the end of paragraph 
                (1);
                    (B) by striking the period at the end of paragraph 
                (2) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal Revenue Code 
        of 1986) and social security account number (assigned under 
        section 205(c)(2)(B)) of the disclosing part B provider and any 
        person, managing employee, or other entity identified or 
        described under paragraph (1) or (2).''; and
            (2) in subsection (c) by inserting ``(or, for purposes of 
        subsection (a)(3), any entity receiving payment)'' after ``on 
        an assignment-related basis''.
    (c) Verification by Social Security Administration (SSA).--Section 
1124A (42 U.S.C. 1320a-3a) is amended--
            (1) by redesignating subsection (c) as subsection (d); and
            (2) by inserting after subsection (b) the following new 
        subsection:
    ``(c) Verification.--
            ``(1) Transmittal by hhs.--The Secretary shall transmit--
                    ``(A) to the Commissioner of Social Security 
                information concerning each social security account 
                number (assigned under section 205(c)(2)(B)), and
                    ``(B) to the Secretary of the Treasury information 
                concerning each employer identification number 
                (assigned pursuant to section 6109 of the Internal 
                Revenue Code of 1986),
        supplied to the Secretary pursuant to subsection (a)(3) or 
        section 1124(c) to the extent necessary for verification of 
        such information in accordance with paragraph (2).
            ``(2) Verification.--The Commissioner of Social Security 
        and the Secretary of the Treasury shall verify the accuracy of, 
        or correct, the information supplied by the Secretary to such 
        official pursuant to paragraph (1), and shall report such 
        verifications or corrections to the Secretary.
            ``(3) Fees for verification.--The Secretary shall reimburse 
        the Commissioner and Secretary of the Treasury, at a rate 
        negotiated between the Secretary and such official, for the 
        costs incurred by such official in performing the verification 
        and correction services described in this subsection.''.
    (d) Report.--Before this subsection shall be effective, the 
Secretary of Health and Human Services shall submit to Congress a 
report on steps the Secretary has taken to assure the confidentiality 
of social security account numbers that will be provided to the 
Secretary under the amendments made by this section. If Congress 
determines that the Secretary has not taken adequate steps to assure 
the confidentiality of social security account numbers to be provided 
to the Secretary under the amendments made by this section, the 
amendments made by this section shall not take effect.
    (e) Effective Dates.--Subject to subsection (d)--
            (1) the amendment made by subsection (a) shall apply to the 
        application of conditions of participation, and entering into 
        and renewal of contracts and agreements, occurring more than 90 
        days after the date of submission of the report under 
        subsection (d); and
            (2) the amendments made by subsection (b) shall apply to 
        payment for items and services furnished more than 90 days 
        after the date of submission of such report.

SEC. 4309. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
              PROVISIONS.

    Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at the 
end the following new paragraph:
            ``(6) Advisory opinions.--
                    ``(A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a referral 
                relating to designated health services (other than 
                clinical laboratory services) is prohibited under this 
                section.
                    ``(B) Binding as to secretary and parties 
                involved.--Each advisory opinion issued by the 
                Secretary shall be binding as to the Secretary and the 
                party or parties requesting the opinion.
                    ``(C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, apply the 
                regulations promulgated under section 1128D(b)(5) to 
                the issuance of advisory opinions under this paragraph.
                    ``(D) Applicability.--This paragraph shall apply to 
                requests for advisory opinions made during the period 
                described in section 1128D(b)(6).''.

SEC. 4310. NONDISCRIMINATION IN POST-HOSPITAL REFERRAL TO HOME HEALTH 
              AGENCIES.

    (a) Notification of Availability of Home Health Agencies As Part of 
Discharge Planning Process.--Section 1861(ee)(2) (42 U.S.C. 
1395x(ee)(2)) is amended--
            (1) in subparagraph (D), by inserting before the period the 
        following: ``, including the availability of home health 
        services through individuals and entities that participate in 
        the program under this title and that serve the area in which 
        the patient resides and that request to be listed by the 
        hospital as available''; and
            (2) by adding at the end the following:
            ``(H) Consistent with section 1802, the discharge plan 
        shall--
                    ``(i) not specify or otherwise limit the qualified 
                provider which may provide post-hospital home health 
                services, and
                    ``(ii) identify (in a form and manner specified by 
                the Secretary) any home health agency (to whom the 
                individual is referred) in which the hospital has a 
                disclosable financial interest (as specified by the 
                Secretary consistent with section 1866(a)(1)(R)) or 
                which has such an interest in the hospital.''.
    (b) Maintenance and Disclosure of Information on Post-Hospital Home 
Health Agencies.--Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (Q),
            (2) by striking the period at the end of subparagraph (R), 
        and
            (3) by adding at the end the following:
            ``(S) in the case of a hospital that has a financial 
        interest (as specified by the Secretary in regulations) in a 
        home health agency, or in which such an agency has such a 
        financial interest, or in which another entity has such a 
        financial interest (directly or indirectly) with such hospital 
        and such an agency, to maintain and disclose to the Secretary 
        (in a form and manner specified by the Secretary) information 
        on--
                    ``(i) the nature of such financial interest,
                    ``(ii) the number of individuals who were 
                discharged from the hospital and who were identified as 
                requiring home health services, and
                    ``(iii) the percentage of such individuals who 
                received such services from such provider (or another 
                such provider).''.
    (c) Disclosure of Information to the Public.--Title XI is amended 
by inserting after section 1145 the following new section:

   ``public disclosure of certain information on hospital financial 
                     interest and referral patterns

    ``Sec. 1146. The Secretary shall make available to the public, in a 
form and manner specified by the Secretary, information disclosed to 
the Secretary pursuant to section 1866(a)(1)(R).''.
    (d) Effective Dates.--
            (1) The amendments made by subsection (a) shall apply to 
        discharges occurring on or after 90 days after the date of the 
        enactment of this Act.
            (2) The Secretary of Health and Human Services shall issue 
        regulations by not later than 1 year after the date of the 
        enactment of this Act to carry out the amendments made by 
        subsections (b) and (c) and such amendments shall take effect 
        as of such date (on or after the issuance of such regulations) 
        as the Secretary specifies in such regulations.

SEC. 4311. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

    (a) Reference Correction.--(1) Section 1128D(b)(2)(D) (42 U.S.C. 
1320a-7d(b)(2)(D)), as added by section 205 of the Health Insurance 
Portability and Accountability Act of 1996, is amended by striking 
``1128B(b)'' and inserting ``1128A(b)''.
    (2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a-7e(g)(3)(C)) is amended 
by striking ``Veterans' Administration'' and inserting ``Department of 
Veterans Affairs''.
    (b) Language in Definition of Conviction.--Section 1128E(g)(5) (42 
U.S.C. 1320a-7e(g)(5)), as inserted by section 221(a) of the Health 
Insurance Portability and Accountability Act of 1996, is amended by 
striking ``paragraph (4)'' and inserting ``paragraphs (1) through 
(4)''.
    (c) Implementation of Exclusions.--Section 1128 (42 U.S.C. 1320a-7) 
is amended--
            (1) in subsection (a), by striking ``any program under 
        title XVIII and shall direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program (as defined in subsection (h))'' and inserting 
        ``any Federal health care program (as defined in section 
        1128B(f))''; and
            (2) in subsection (b), by striking ``any program under 
        title XVIII and may direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program'' and inserting ``any Federal health care program 
        (as defined in section 1128B(f))''.
    (d) Sanctions for Failure to Report.--Section 1128E(b) (42 U.S.C. 
1320a-7e(b)), as inserted by section 221(a) of the Health Insurance 
Portability and Accountability Act of 1996, is amended by adding at the 
end the following:
            ``(6) Sanctions for failure to report.--
                    ``(A) Health plans.--Any health plan that fails to 
                report information on an adverse action required to be 
                reported under this subsection shall be subject to a 
                civil money penalty of not more than $25,000 for each 
                such adverse action not reported. Such penalty shall be 
                imposed and collected in the same manner as civil money 
                penalties under subsection (a) of section 1128A are 
                imposed and collected under that section.
                    ``(B) Governmental agencies.--The Secretary shall 
                provide for a publication of a public report that 
                identifies those Government agencies that have failed 
                to report information on adverse actions as required to 
                be reported under this subsection.''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall be effective as if 
        included in the enactment of the Health Insurance Portability 
        and Accountability Act of 1996.
            (2) Federal health program.--The amendments made by 
        subsection (c) shall take effect on the date of the enactment 
        of this Act.
            (3) Sanction for failure to report.--The amendment made by 
        subsection (d) shall apply to failures occurring on or after 
        the date of the enactment of this Act.

                Subtitle E--Prospective Payment Systems

                    CHAPTER 2--PAYMENT UNDER PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

SEC. 4411. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

    (a) Elimination of FDO for Ambulatory Surgical Center Procedures.--
Section 1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is 
amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
    (b) Elimination of FDO for Radiology Services and Diagnostic 
Procedures.--Section 1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is 
amended--
            (1) by striking ``of 80 percent'', and
            (2) by inserting before the period at the end the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished during portions of cost reporting periods 
occurring on or after October 1, 1997.

SEC. 4412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
              OUTPATIENT SERVICES.

    (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``through 1998'' and inserting ``through 1999 and during 
fiscal year 2000 before January 1, 2000''.
    (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``through 1998'' and inserting ``through 1999 and during 
fiscal year 2000 before January 1, 2000''.

SEC. 4413. PROSPECTIVE PAYMENT SYSTEM 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.--With respect to hospital outpatient 
        services designated by the Secretary (in this section referred 
        to as `covered OPD services') and furnished during a year 
        beginning with 1999, the amount of payment 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 payment system--
                    ``(A) the Secretary shall develop a classification 
                system for covered OPD services;
                    ``(B) the Secretary may establish groups of covered 
                OPD services, within the classification system 
                described in subparagraph (A), so that services 
                classified within each group are comparable clinically 
                and with respect to the use of resources;
                    ``(C) the Secretary shall, using data on claims 
                from 1996 and using data from the most recent available 
                cost reports, establish relative payment weights for 
                covered OPD services (and any groups of such services 
                described in subparagraph (B)) based on median hospital 
                costs and shall determine projections of the frequency 
                of utilization of each such service (or group of 
                services) in 1999;
                    ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of payment and 
                coinsurance attributable to labor-related costs for 
                relative differences in labor and labor-related costs 
                across geographic regions in a budget neutral manner;
                    ``(E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as determined 
                to be necessary to ensure equitable payments, such as 
                outlier adjustments, adjustments to account for 
                variations in coinsurance payments for procedures with 
                similar resource costs, or adjustments for certain 
                classes of hospitals; and
                    ``(F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume of 
                covered OPD services.
            ``(3) Calculation of base amounts.--
                    ``(A) Aggregate amounts that would be payable if 
                deductibles were disregarded.--The Secretary shall 
                estimate the total amounts that would be payable from 
                the Trust Fund under this part for covered OPD services 
                in 1999, determined without regard to this subsection, 
                as though the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described in 
                section 1866(a)(2)(A)(ii) (as in effect before the date 
                of the enactment of this subsection) continued to 
                apply.
                    ``(B) Unadjusted copayment amount.--
                            ``(i) In general.--For purposes of this 
                        subsection, subject to clause (ii), the 
                        `unadjusted copayment amount' applicable to a 
                        covered OPD service (or group of such services) 
                        is 20 percent of national median of the charges 
                        for the service (or services within the group) 
                        furnished during 1996, updated to 1999 using 
                        the Secretary's estimate of charge growth 
                        during the period.
                            ``(ii) Adjusted to be 20 percent when fully 
                        phased in.--If the pre-deductible payment 
                        percentage for a covered OPD service (or group 
                        of such services) furnished in a year would be 
                        equal to or exceed 80 percent, then the 
                        unadjusted copayment amount shall be 25 percent 
                        of amount determined under subparagraph (D)(i).
                            ``(iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted copayment amount 
                        for a covered OPD service not furnished during 
                        1996, based upon its classification within a 
                        group of such services.
                    ``(C) Calculation of conversion factors.--
                                    ``(I) In general.--The Secretary 
                                shall establish a 1999 conversion 
                                factor for determining the medicare 
                                pre-deductible OPD fee payment amounts 
                                for each covered OPD service (or group 
                                of such services) furnished in 1999. 
                                Such conversion factor shall be 
                                established on the basis of the weights 
                                and frequencies described in paragraph 
                                (2)(C) and in a manner such that the 
                                sum for all services and groups of the 
                                products (described in subclause (II) 
                                for each such service or group) equals 
                                the total projected amount described in 
                                subparagraph (A).
                            ``(II) Product described.--The product 
                        described in this subclause, for a service or 
                        group, is the product of the medicare pre-
                        deductible OPD fee payment amounts (taking into 
                        account appropriate adjustments described in 
                        paragraphs (2)(D) and (2)(E)) and the 
                        frequencies for such service or group.
                            ``(ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall establish 
                        a conversion factor for covered OPD services 
                        furnished in subsequent years in an amount 
                        equal to the conversion factor established 
                        under this subparagraph and applicable to such 
                        services furnished in the previous year 
                        increased by the OPD payment increase factor 
                        specified under clause (iii) for the year 
                        involved.
                            ``(iii) OPD payment increase factor.--For 
                        purposes of this subparagraph, the `OPD payment 
                        increase factor' for services furnished in a 
                        year is equal to the sum of--
                                    ``(I) market basket percentage 
                                increase (applicable under section 
                                1886(b)(3)(B)(iii) to hospital 
                                discharges occurring during the fiscal 
                                year ending in such year, and
                                    ``(II) in the case of a covered OPD 
                                service (or group of such services) 
                                furnished in a year in which the pre-
                                deductible payment percentage would not 
                                exceed 80 percent, 3.5 percentage 
                                points, but in no case greater than 
                                such number of percentage points as 
                                will result in the pre-deductible 
                                payment percentage exceeding 80 
                                percent.
                        In applying the previous sentence for years 
                        beginning with 2000, the Secretary may 
                        substitute for the market basket percentage 
                        increase under subclause (I) an annual 
                        percentage increase that is computed and 
                        applied with respect to covered OPD services 
                        furnished in a year in the same manner as the 
                        market basket percentage increase is determined 
                        and applied to inpatient hospital services for 
                        discharges occurring in a fiscal year.
                    ``(D) Pre-deductible payment percentage.--The pre-
                deductible payment percentage for a covered OPD service 
                (or group of such services) furnished in a year is 
                equal to the ratio of--
                            ``(i) the conversion factor established 
                        under subparagraph (C) for the year, multiplied 
                        by the weighting factor established under 
                        paragraph (2)(C) for the service (or group), to
                            ``(ii) the sum of the amount determined 
                        under clause (i) and the unadjusted copayment 
                        amount determined under subparagraph (B) for 
                        such service or group.
                    ``(E) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a medicare OPD 
                fee schedule amount for each covered OPD service (or 
                group of such services) furnished in a year, in an 
                amount equal to the product of--
                            ``(i) the conversion factor computed under 
                        subparagraph (C) for the year, and
                            ``(ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for the 
                        service or group.
            ``(4) Medicare payment amount.--The amount of payment made 
        from the Trust Fund under this part for a covered OPD service 
        (and such services classified within a group) furnished in a 
        year is determined as follows:
                    ``(A) Fee schedule and copayment amount.--Add (i) 
                the medicare OPD fee schedule amount (computed under 
                paragraph (3)(E)) for the service or group and year, 
                and (ii) the unadjusted copayment amount (determined 
                under paragraph (3)(B)) for the service or group.
                    ``(B) Subtract applicable deductible.--Reduce the 
                adjusted sum by the amount of the deductible under 
                section 1833(b), to the extent applicable.
                    ``(C) Apply payment proportion to remainder.--
                Multiply the amount so determined under subparagraph 
                (B) by the pre-deductible payment percentage (as 
                determined under paragraph (3)(D)) for the service or 
                group and year involved.
                    ``(D) Labor-related adjustment.--The amount of 
                payment is the product determined under subparagraph 
                (C) with the labor-related portion of such product 
                adjusted for relative differences in the cost of labor 
                and other factors determined by the Secretary, as 
                computed under paragraph (2)(D).
            ``(5) Copayment amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under this 
                subsection is determined as follows:
                            ``(i) Unadjusted copayment.--Compute the 
                        amount by which the amount described in 
                        paragraph (4)(B) exceeds the amount of payment 
                        determined under paragraph (4)(C).
                            ``(ii) Labor adjustment.--The copayment 
                        amount is the difference determined under 
                        clause (i) with the labor-related portion of 
                        such difference adjusted for relative 
                        differences in the cost of labor and other 
                        factors determined by the Secretary, as 
                        computed under paragraphs (2)(D). The 
                        adjustment under this clause shall be made in a 
                        manner that does not result in any change in 
                        the aggregate copayments made in any year if 
                        the adjustment had not been made.
                    ``(B) Election to offer reduced copayment amount.--
                The Secretary shall establish a procedure under which a 
                hospital, before the beginning of a year (beginning 
                with 1999), may elect to reduce the copayment amount 
                otherwise established under subparagraph (A) for some 
                or all covered OPD services to an amount that is not 
                less than 25 percent of the medicare OPD fee schedule 
                amount (computed under paragraph (3)(E)) for the 
                service involved, adjusted for relative differences in 
                the cost of labor and other factors determined by the 
                Secretary, as computed under subparagraphs (D) and (E) 
                of paragraph (2). Under such procedures, such reduced 
                copayment amount may not be further reduced or 
                increased during the year involved and the hospital may 
                disseminate information on the reduction of copayment 
                amount effected under this subparagraph.
                    ``(C) No impact on deductibles.--Nothing in this 
                paragraph shall be construed as affecting a hospital's 
                authority to waive the charging of a deductible under 
                section 1833(b).
            ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                    ``(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) to take into account changes 
                in medical practice, changes in technology, the 
                addition of new services, new cost data, and other 
                relevant information and factors.
                    ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph (A), 
                then the 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 the adjustments had not been made.
                    ``(C) Update factor.--If the Secretary determines 
                under methodologies described in subparagraph (2)(F) 
                that the volume of services paid for under this 
                subsection increased beyond amounts established through 
                those methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor otherwise 
                applicable in a subsequent year.
            ``(7) Special rule for ambulance services.--The Secretary 
        shall pay for hospital outpatient services that are ambulance 
        services on the basis described in the matter in subsection 
        (a)(1) preceding subparagraph (A).
            ``(8) Special rules for certain hospitals.--In the case of 
        hospitals described in section 1886(d)(1)(B)(v)--
                    ``(A) the system under this subsection shall not 
                apply to covered OPD services furnished before January 
                1, 2000; and
                    ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner that 
                specifically takes into account the unique costs 
                incurred by such hospitals by virtue of their patient 
                population and service intensity.
            ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the development of the classification system 
                under paragraph (2), including the establishment of 
                groups and relative payment weights for covered OPD 
                services, of wage adjustment factors, other 
                adjustments, and methods described in paragraph (2)(F);
                    ``(B) the calculation of base amounts under 
                paragraph (3);
                    ``(C) periodic adjustments made under paragraph 
                (6); and
                    ``(D) the establishment of a separate conversion 
                factor under paragraph (8)(B).''.
    (b) 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: 
``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 
copayment amount established under section 1833(t)(5).''.
    (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B),
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``; or'', and
            (3) by adding at the end the following new subparagraph:
                    ``(D) a reduction in the copayment amount for 
                covered OPD services under section 1833(t)(5)(B).''.
    (d) Conforming Amendments.--
            (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                    (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                13951(i)(3)(A)) is amended--
                            (I) by inserting ``before January 1, 
                        1999,'' after ``furnished'', and
                            (II) by striking ``in a cost reporting 
                        period''.
                    (ii) The amendment made by clause (i) shall apply 
                to services furnished on or after January 1, 1999.
                    (B) Section 1833(a)(4) (42 U.S.C. 13951(a)(4)) is 
                amended by inserting ``or subsection (t)'' before the 
                semicolon.
            (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, 1999,'' 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 inserting ``or, for 
                services or procedures performed on or after January 1, 
                1999, (t)'' before the semicolon.
            (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 ``furnished before 
                January 1, 1999,'' after ``(i)'',
                    (B) in clause (ii), by inserting ``before January 
                1, 1999,'' after ``furnished'',
                    (C) by redesignating clause (iii) as clause 
                (iv),and
                    (D) by inserting after clause (ii), the following 
                new clause:
                            ``(iii) if such services are furnished on 
                        or after January 1, 1999, the amount determined 
                        under subsection (t), or''.

                 Subchapter B--Rehabilitation Services

SEC. 4421. REHABILITATION AGENCIES AND SERVICES.

    (a) Payment Based on Fee Schedule.--
            (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
        1395l(a)) is amended--
                    (A) in paragraph (2) in the matter before 
                subparagraph (A), by inserting ``(C),'' before ``(D)'';
                    (B) in paragraph (6), by striking ``and'' at the 
                end;
                    (C) in paragraph (7), by striking the period at the 
                end and inserting ``; and'';
                    (D) by adding at the end the following new 
                paragraph:
            ``(8) in the case of services described in section 
        1832(a)(2)(C) (that are not described in section 
        1832(a)(2)(B)), the amounts described in section 1834(k).''.
            (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is 
        amended by adding at the end the following new subsection:
    ``(k) Payment for Outpatient Therapy Services.--
            ``(1) In general.--With respect to outpatient physical 
        therapy services (which includes outpatient speech-language 
        pathology services) and outpatient occupational therapy 
        services for which payment is determined under this subsection, 
        the payment basis shall be--
                    ``(A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                    ``(B) for services furnished during a subsequent 
                year, 80 percent of the lesser of--
                            ``(i) the actual charge for the services, 
                        or
                            ``(ii) the applicable fee schedule amount 
                        (as defined in paragraph (3)) for the services.
            ``(2) Payment in 1998 based upon charges or adjusted 
        reasonable costs.--The amount under this paragraph for services 
        is the lesser of--
                    ``(A) the charges imposed for the services, or
                    ``(B) the adjusted reasonable costs (as defined in 
                paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed for such 
        services.
            ``(3) Applicable fee schedule amount.--In this paragraph, 
        the term `applicable fee schedule amount' means, with respect 
        to services furnished in a year, the fee schedule amount 
        established under section 1848 for such services furnished 
        during the year or, if there is no such fee schedule amount 
        established for such services, for such comparable services as 
        the Secretary specifies.
            ``(4) Adjusted reasonable costs.--In paragraph (2), the 
        term `adjusted reasonable costs' means reasonable costs 
        determined reduced by--
                    ``(A) 5.8 percent of the reasonable costs for 
                operating costs, and
                    ``(B) 10 percent of the reasonable costs for 
                capital costs.
            ``(5) Uniform coding.--For claims for services submitted on 
        or after April 1, 1998, for which the amount of payment is 
        determined under this subsection, the claim shall include a 
        code (or codes) under a uniform coding system specified by the 
        Secretary that identifies the services furnished.
            ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        therapy services for which payment is made under this 
        subsection in the same manner as they apply to services 
        provided by a practitioner described in section 
        1842(b)(18)(C).''.
    (b) Application of Standards to Outpatient Occupational and 
Physical Therapy Services Provided As an Incident to a Physician's 
Professional Services.--Section 1862(a), as amended by section 4401(b), 
(42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (16);
            (2) by striking the period at the end of paragraph (17) and 
        inserting ``; or''; and
            (3) by inserting after paragraph (17) the following:
            ``(18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services furnished as 
        an incident to a physician's professional services (as 
        described in section 1861(s)(2)(A)), that do not meet the 
        standards and conditions under the second sentence of section 
        1861(g) or 1861(p) as such standards and conditions would apply 
        to such therapy services if furnished by a therapist.''.
    (c) Applying Financial Limitation to All Rehabilitation Services.--
Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
            (1) in the first sentence, by striking ``services described 
        in the second sentence of section 1861(p)'' and inserting 
        ``physical therapy services of the type described in section 
        1861(p) (regardless of who furnishes the services or whether 
        the services may be covered as physicians' services so long as 
        the services are furnished other than in a hospital setting)'', 
        and
            (2) in the second sentence, by striking ``outpatient 
        occupational therapy services which are described in the second 
        sentence of section 1861(p) through the operation of section 
        1861(g)'' and inserting ``occupational therapy services (of the 
        type that are described in section 1861(p) through the 
        operation of section 1861(g)), regardless of who furnishes the 
        services or whether the services may be covered as physicians' 
        services so long as the services are furnished other than in a 
        hospital setting''.
    (d) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1998; except that the 
amendments made by subsection (c) apply to services furnished on or 
after January 1, 1999.

SEC. 4422. COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES (CORF).

    (a) Payment Based on Fee Schedule.--
            (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
        1395l(a)), as amended by section 4421(a), is amended--
                    (A) in paragraph (3), by striking ``subparagraphs 
                (D) and (E) of section 1832(a)(2)'' and inserting 
                ``section 1832(a)(2)(E)'';
                    (B) in paragraph (7), by striking ``and'' at the 
                end;
                    (C) in paragraph (8), by striking the period at the 
                end and inserting ``; and'';
                    (D) by adding at the end the following new 
                paragraph:
            ``(9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 1834(k).''.
            (2) Payment rates.--Section 1834(k) (42 U.S.C. 1395m(k)), 
        as added by section 4421(a), is amended--
                    (A) in the heading, by inserting ``and 
                Comprehensive Outpatient Rehabilitation Facility 
                Services'' after ``Therapy Services''; and
                    (B) in paragraph (1), by inserting ``and with 
                respect to comprehensive outpatient rehabilitation 
                facility services'' after ``occupational therapy 
                services''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 1998, and to 
portions of cost reporting periods occurring on or after such date.

                    Subchapter C--Ambulance Services

SEC. 4431. PAYMENTS FOR AMBULANCE SERVICES.

    (a) Interim Reductions.--
            (1) Payments determined on reasonable cost basis.--Section 
        1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at the 
        end the following new subparagraph:
            ``(U) In determining the reasonable cost of ambulance 
        services (as described in subsection (s)(7)) provided during a 
        fiscal year (beginning with fiscal year 1998 and ending with 
        fiscal year 2002), the Secretary shall not recognize the costs 
        per trip in excess of costs recognized as reasonable for 
        ambulance services provided on a per trip basis during the 
        previous fiscal year after application of this subparagraph, 
        increased by the percentage increase in the consumer price 
        index for all urban consumers (U.S. city average) as estimated 
        by the Secretary for the 12-month period ending with the 
        midpoint of the fiscal year involved reduced (in the case of 
        each of fiscal years 1998 and 1999) by 1 percentage point.''.
            (2) Payments determined on reasonable charge basis.--
        Section 1842(b) (42 U.S.C. 1395u(b)) is amended by adding at 
        the end the following new paragraph:
    ``(19) For purposes of section 1833(a)(1), the reasonable charge 
for ambulance services (as described in section 1861(s)(7)) provided 
during a fiscal year (beginning with fiscal year 1998 and ending with 
fiscal year 2002) may not exceed the reasonable charge for such 
services provided during the previous fiscal year after the application 
of this subparagraph, increased by the percentage increase in the 
consumer price index for all urban consumers (U.S. city average) as 
estimated by the Secretary for the 12-month period ending with the 
midpoint of the year involved reduced (in the case of each of fiscal 
years 1998 and 1999) by 1 percentage point.''.
    (b) Establishment of Prospective Fee Schedule.--
            (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by section 
        4619(b)(1), is amended--
                    (A) by striking ``and (P)'' and inserting ``(P)''; 
                and
                    (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with respect to 
                ambulance service, the amounts paid shall be 80 percent 
                of the lesser of the actual charge for the services or 
                the amount determined by a fee schedule established by 
                the Secretary under section 1834(l);''.
            (2) Establishment of schedule.--Section 1834 (42 U.S.C. 
        1395m), as amended by section 4421(a)(2), is amended by adding 
        at the end the following new subsection:
    ``(l) Establishment of Fee Schedule for Ambulance Services.--
            ``(1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services under this part 
        through a negotiated rulemaking process described in title 5, 
        United States Code, and in accordance with the requirements of 
        this subsection.
            ``(2) Considerations.--In establishing such fee schedule 
        the Secretary shall--
                    ``(A) establish mechanisms to control increases in 
                expenditures for ambulance services under this part;
                    ``(B) establish definitions for ambulance services 
                which link payments to the type of services provided;
                    ``(C) consider appropriate regional and operational 
                differences;
                    ``(D) consider adjustments to payment rates to 
                account for inflation and other relevant factors; and
                    ``(E) phase in the application of the payment rates 
                under the fee schedule in an efficient and fair manner.
            ``(3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                    ``(A) ensure that the aggregate amount of payments 
                made for ambulance services under this part during 2000 
                does not exceed the aggregate amount of payments which 
                would have been made for such services under this part 
                during such year if the amendments made by section 4431 
                of the Balanced Budget Act of 1997 had not been made; 
                and
                    ``(B) set the payment amounts provided under the 
                fee schedule for services furnished in 2001 and each 
                subsequent year at amounts equal to the payment amounts 
                under the fee schedule for service furnished during the 
                previous year, increased by the percentage increase in 
                the consumer price index for all urban consumers (U.S. 
                city average) for the 12-month period ending with June 
                of the previous year.
            ``(4) Consultation.--In establishing the fee schedule for 
        ambulance services under this subsection, the Secretary shall 
        consult with various national organizations representing 
        individuals and entities who furnish and regulate ambulance 
        services and share with such organizations relevant data in 
        establishing such schedule.
            ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee schedule for 
        ambulance services under this subsection, including matters 
        described in paragraph (2).
            ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        ambulance services for which payment is made under this 
        subsection in the same manner as they apply to services 
        provided by a practitioner described in section 
        1842(b)(18)(C).''.
            (3) Effective date.--The amendments made by this section 
        apply to ambulance services furnished on or after January 1, 
        2000.
    (c) Authorizing Payment for Paramedic Intercept Service Providers 
in Rural Communities.--In promulgating regulations to carry out section 
1861(s)(7) of the Social Security Act (42 U.S.C. 1395x(s)(7)) with 
respect to the coverage of ambulance service, the Secretary of Health 
and Human Services may include coverage of advanced life support 
services (in this subsection referred to as ``ALS intercept services'') 
provided by a paramedic intercept service provider in a rural area if 
the following conditions are met:
            (1) The ALS intercept services are provided under a 
        contract with one or more volunteer ambulance services and are 
        medically necessary based on the health condition of the 
        individual being transported.
            (2) The volunteer ambulance service involved--
                    (A) is certified as qualified to provide ambulance 
                service for purposes of such section,
                    (B) provides only basic life support services at 
                the time of the intercept, and
                    (C) is prohibited by State law from billing for any 
                services.
            (3) The entity supplying the ALS intercept services--
                    (A) is certified as qualified to provide such 
                services under the medicare program under title XVIII 
                of the Social Security Act, and
                    (B) bills all recipients who receive ALS intercept 
                services from the entity, regardless of whether or not 
                such recipients are medicare beneficiaries.

SEC. 4432. DEMONSTRATION OF COVERAGE OF AMBULANCE SERVICES UNDER 
              MEDICARE THROUGH CONTRACTS WITH UNITS OF LOCAL 
              GOVERNMENT.

    (a) Demonstration Project Contracts with Local Governments.--The 
Secretary of Health and Human Services shall establish up to 3 
demonstration projects under which, at the request of a county or 
parish, the Secretary enters into a contract with the county or parish 
under which--
            (1) the county or parish furnishes (or arranges for the 
        furnishing) of ambulance services for which payment may be made 
        under part B of title XVIII of the Social Security Act for 
        individuals residing in the county or parish who are enrolled 
        under such part, except that the county or parish may not enter 
        into the contract unless the contract covers at least 80 
        percent of the individuals residing in the county or parish who 
        are enrolled under such part;
            (2) any individual or entity furnishing ambulance services 
        under the contract meets the requirements otherwise applicable 
        to individuals and entities furnishing such services under such 
        part; and
            (3) for each month during which the contract is in effect, 
        the Secretary makes a capitated payment to the county or parish 
        in accordance with subsection (b).
The projects may extend over a period of not to exceed 3 years each.
    (b) Amount of Payment.--
            (1) In general.--The amount of the monthly payment made for 
        months occurring during a calendar year to a county or parish 
        under a demonstration project contract under subsection (a) 
        shall be equal to the product of--
                    (A) the Secretary's estimate of the number of 
                individuals covered under the contract for the month; 
                and
                    (B) \1/12\ of the capitated payment rate for the 
                year established under paragraph (2).
            (2) Capitated payment rate defined.--In this subsection, 
        the ``capitated payment rate'' applicable to a contract under 
        this subsection for a calendar year is equal to 95 percent of--
                    (A) for the first calendar year for which the 
                contract is in effect, the average annual per capita 
                payment made under part B of title XVIII of the Social 
                Security Act with respect to ambulance services 
                furnished to such individuals during the 3 most recent 
                calendar years for which data on the amount of such 
                payment is available; and
                    (B) for a subsequent year, the amount provided 
                under this paragraph for the previous year increased by 
                the percentage increase in the consumer price index for 
                all urban consumers (U.S. city average) for the 12-
                month period ending with June of the previous year.
    (c) Other Terms of Contract.--The Secretary and the county or 
parish may include in a contract under this section such other terms as 
the parties consider appropriate, including--
            (1) covering individuals residing in additional counties or 
        parishes (under arrangements entered into between such counties 
        or parishes and the county or parish involved);
            (2) permitting the county or parish to transport 
        individuals to non-hospital providers if such providers are 
        able to furnish quality services at a lower cost than hospital 
        providers; or
            (3) implementing such other innovations as the county or 
        parish may propose to improve the quality of ambulance services 
        and control the costs of such services.
    (d) Contract Payments in Lieu of Other Benefits.--Payments under a 
contract to a county or parish under this section shall be instead of 
the amounts which (in the absence of the contract) would otherwise be 
payable under part B of title XVIII of the Social Security Act for the 
services covered under the contract which are furnished to individuals 
who reside in the county or parish.
    (e) Report on Effects of Capitated Contracts.--
            (1) Study.--The Secretary shall evaluate the demonstration 
        projects conducted under this section. Such evaluation shall 
        include an analysis of the quality and cost-effectiveness of 
        ambulance services furnished under the projects.
            (2) Report.--Not later than January 1, 2000, the Secretary 
        shall submit a report to Congress on the study conducted under 
        paragraph (1), and shall include in the report such 
        recommendations as the Secretary considers appropriate, 
        including recommendations regarding modifications to the 
        methodology used to determine the amount of payments made under 
        such contracts and extending or expanding such projects.

                 CHAPTER 3--PAYMENT UNDER PARTS A AND B

SEC. 4441. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 4011, is amended by adding at the end the following new 
section:

             ``prospective payment for home health services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 1999, for payments for home health services in 
accordance with a prospective payment system established by the 
Secretary under this section.
    ``(b) System of Prospective Payment for Home Health Services.--
            ``(1) In general.--The Secretary shall establish under this 
        subsection a prospective payment system for payment for all 
        costs of home health services. Under the system under this 
        subsection 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 this section, including medical supplies, 
        shall be paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the services 
        involved. In implementing the system, the Secretary may provide 
        for a transition (of not longer than 4 years) during which a 
        portion of such payment is based on agency-specific costs, but 
        only if such transition does not result in aggregate payments 
        under this title that exceed the aggregate payments that would 
        be made if such a transition did not occur.
            ``(2) Unit of payment.--In defining a prospective payment 
        amount under the system under this subsection, the Secretary 
        shall consider an appropriate unit of service and the number, 
        type, and duration of visits provided within that unit, 
        potential changes in the mix of services provided within that 
        unit and their cost, and a general system design that provides 
        for continued access to quality services.
            ``(3) Payment basis.--
                    ``(A) Initial basis.--
                            ``(i) In general.--Under such system the 
                        Secretary shall provide for computation of a 
                        standard prospective payment amount (or 
                        amounts). Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2000 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect but if the reduction in limits 
                        described in clause (ii) had been in effect. 
                        Such amount shall be standardized in a manner 
                        that eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a budget 
                        neutral manner consistent with the case mix and 
                        wage level adjustments provided under paragraph 
                        (4)(A). Under the system, the Secretary may 
                        recognize regional differences or differences 
                        based upon whether or not the services or 
                        agency are in an urbanized area.
                            ``(ii) Reduction.--The reduction described 
                        in this clause is a reduction by 15 percent in 
                        the cost limits and per beneficiary limits 
                        described in section 1861(v)(1)(L), as those 
                        limits are in effect on September 30, 1999.
                    ``(B) Annual update.--
                            ``(i) In general.--The standard prospective 
                        payment amount (or amounts) shall be adjusted 
                        for each fiscal year (beginning with fiscal 
                        year 2001) in a prospective manner specified by 
                        the Secretary by the home health market basket 
                        percentage increase applicable to the fiscal 
                        year involved.
                            ``(ii) Home health market basket percentage 
                        increase.--For purposes of this subsection, the 
                        term `home health market basket percentage 
                        increase' means, with respect to a fiscal year, 
                        a percentage (estimated by the Secretary before 
                        the beginning of the fiscal year) determined 
                        and applied with respect to the mix of goods 
                        and services included in home health services 
                        in the same manner as the market basket 
                        percentage increase under section 
                        1886(b)(3)(B)(iii) is determined and applied to 
                        the mix of goods and services comprising 
                        inpatient hospital services for the fiscal 
                        year.
                    ``(C) Adjustment for outliers.--The Secretary shall 
                reduce the standard prospective payment amount (or 
                amounts) under this paragraph applicable to home health 
                services furnished during a period by such proportion 
                as will result in an aggregate reduction in payments 
                for the period equal to the aggregate increase in 
                payments resulting from the application of paragraph 
                (5) (relating to outliers).
            ``(4) Payment computation.--
                    ``(A) In general.--The payment amount for a unit of 
                home health services shall be the applicable standard 
                prospective payment amount adjusted as follows:
                            ``(i) Case mix adjustment.--The amount 
                        shall be adjusted by an appropriate case mix 
                        adjustment factor (established under 
                        subparagraph (B)).
                            ``(ii) Area wage adjustment.--The portion 
                        of such amount that the Secretary estimates to 
                        be attributable to wages and wage-related costs 
                        shall be adjusted for geographic differences in 
                        such costs by an area wage adjustment factor 
                        (established under subparagraph (C)) for the 
                        area in which the services are furnished or 
                        such other area as the Secretary may specify.
                    ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish appropriate 
                case mix adjustment factors for home health services in 
                a manner that explains a significant amount of the 
                variation in cost among different units of services.
                    ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area wage 
                adjustment factors that reflect the relative level of 
                wages and wage-related costs applicable to the 
                furnishing of home health services in a geographic area 
                compared to the national average applicable level. Such 
                factors may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
            ``(5) Outliers.--The Secretary may provide for an addition 
        or adjustment to the payment amount otherwise made in the case 
        of outliers because of unusual variations in the type or amount 
        of medically necessary care. The total amount of the additional 
        payments or payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of the total 
        payments projected or estimated to be made based on the 
        prospective payment system under this subsection in that year.
            ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services from, 
        another home health agency within the period covered by the 
        prospective payment amount, the payment shall be prorated 
        between the home health agencies involved.
    ``(c) Requirements for Payment Information.--With respect to home 
health services furnished on or after October 1, 1998, no claim for 
such a service may be paid under this title unless--
            ``(1) the claim has the unique identifier (provided under 
        section 1842(r)) for the physician who prescribed the services 
        or made the certification described in section 1814(a)(2) or 
        1835(a)(2)(A); and
            ``(2) in the case of a service visit described in paragraph 
        (1), (2), (3), or (4) of section 1861(m), the claim has 
        information (coded in an appropriate manner) on the length of 
        time of the service visit, as measured in 15 minute increments.
    ``(d) Limitation on Review.--There shall be no administrative or 
judicial review under section 1869, 1878, or otherwise of--
            ``(1) the establishment of a transition period under 
        subsection (b)(1);
            ``(2) the definition and application of payment units under 
        subsection (b)(2);
            ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including the 
        reduction described in clause (ii) of such subsection);
            ``(4) the adjustment for outliers under subsection 
        (b)(3)(C);
            ``(5) case mix and area wage adjustments under subsection 
        (b)(4);
            ``(6) any adjustments for outliers under subsection (b)(5); 
        and
            ``(7) the amounts or types of exceptions or adjustments 
        under subsection (b)(7).''.
    (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--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 subparagraph (D).
    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)) is amended in the matter preceding paragraph (1) by 
        striking ``and 1886'' and inserting ``1886, and 1895''.
            (2) Treatment of items and services paid under part b.--
                    (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                            (i) by amending subparagraph (A) to read as 
                        follows:
                    ``(A) with respect to home health services (other 
                than a covered osteoporosis drug) (as defined in 
                section 1861(kk)), the amount determined under the 
                prospective payment system under section 1895;'';
                            (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                            (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                            (iv) by adding at the end the following new 
                        subparagraph:
                    ``(G) with respect to items and services described 
                in section 1861(s)(10)(A), the lesser of--
                            ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                            ``(ii) the customary charges with respect 
                        to such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                    (B) Requiring payment for all items and services to 
                be made to agency.--
                            (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)), as 
                        amended by section 4401(b)(2), is amended--
                                    (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                    (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (F) in the case of home health 
                                services furnished to an individual who 
                                (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or when any other contracting 
                                or consulting arrangement, or 
                                otherwise).''.
                            (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as amended 
                        by section 4401(b), is amended by striking 
                        ``and section 1842(b)(6)(E)'' and inserting ``, 
                        section 1842(b)(6)(E), and section 
                        1842(b)(6)(F)''.
                    (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by sections 4401(b) and 
                4421(b), is amended--
                            (i) by striking ``or'' at the end of 
                        paragraph (17);
                            (ii) by striking the period at the end of 
                        paragraph (18) and inserting ``; or''; and
                            (iii) inserting after paragraph (18) the 
                        following new paragraph:
            ``(19) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
    (d) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to cost reporting periods beginning on 
or after October 1, 1999.

             Subtitle G--Provisions Relating to Part B Only

                    CHAPTER 1--PHYSICIANS' SERVICES

SEC. 4601. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) is 
amended--
            (1) by redesignating subparagraph (C) as subparagraph (D), 
        and
            (2) by inserting after subparagraph (B) the following:
                    ``(C) Special rules for 1998.--The single 
                conversion factor for 1998 under this subsection shall 
                be the conversion factor for primary care services for 
                1997, increased by the Secretary's estimate of the 
                weighted average of the three separate updates that 
                would otherwise occur were it not for the enactment of 
                chapter 1 of subtitle G of title X of the Balanced 
                Budget Act of 1997.''.
    (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) is 
amended--
            (1) by striking ``(or factors)'' each place it appears in 
        subsection (d)(1)(A) and (d)(1)(D)(ii) (as redesignated by 
        subsection (a)(1)),
            (2) in subsection (d)(1)(A), by striking ``or updates'',
            (3) in subsection (d)(1)(D) (as redesignated by subsection 
        (a)(1)), by striking ``(or updates)'' each place it appears, 
        and
            (4) in subsection (i)(1)(C), by striking ``conversion 
        factors'' and inserting ``the conversion factor''.

SEC. 4602. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
              UNDER SUSTAINABLE GROWTH RATE.

    (a) Update.--
            (1) 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 otherwise provided by 
                law, 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 1999 is equal to the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage increase in the MEI (as defined 
                        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.--For purposes of 
                subparagraph (A)(ii), 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 (as determined under subparagraph (C)) 
                        during the period beginning July 1, 1997, and 
                        ending on June 30 of the year involved, and 
                        (II) the sum of the amount of actual 
                        expenditures for physicians' services furnished 
                        during the period beginning July 1, 1997, and 
                        ending on June 30 of the preceding year; 
                        divided by
                            ``(ii) the actual expenditures for 
                        physicians' services for the 12-month period 
                        ending on June 30 of the preceding year, 
                        increased by the sustainable growth rate under 
                        subsection (f) for the fiscal year which begins 
                        during such 12-month period.
                    ``(C) Determination of allowed expenditures.--For 
                purposes of this paragraph, the allowed expenditures 
                for physicians' services for the 12-month period ending 
                with June 30 of--
                            ``(i) 1997 is equal to the actual 
                        expenditures for physicians' services furnished 
                        during such 12-month period, as estimated by 
                        the Secretary; or
                            ``(ii) a subsequent year is equal to the 
                        allowed expenditures for physicians' services 
                        for the previous year, increased by the 
                        sustainable growth rate under subsection (f) 
                        for the fiscal year which begins during such 
                        12-month period.
                    ``(D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of the 
                update adjustment factor determined under subparagraph 
                (B) for a year, the update in the conversion factor 
                under this paragraph for the year may not be--
                            ``(i) greater than 100 times the following 
                        amount: (1.03 + (MEI percentage/100)) -1; or
                            ``(ii) less than 100 times the following 
                        amount: (0.93 + (MEI percentage/100)) -1,
                where `MEI percentage' means the Secretary's estimate 
                of the percentage increase in the MEI (as defined in 
                section 1842(i)(3)) for the year involved.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to the update for years beginning with 1999.
    (b) Elimination of Report.--Section 1848(d) (42 U.S.C. 1395w-4(d)) 
is amended by striking paragraph (2).

SEC. 4603. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
              GROWTH RATE.

    (a) 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.--The sustainable growth 
        rate for all physicians' services for a fiscal year (beginning 
        with fiscal year 1998) shall be equal to the product of--
                    ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided by 100) 
                in the fees for all physicians' services in the fiscal 
                year involved,
                    ``(B) 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 MedicarePlus plan enrollees) from the previous 
                fiscal year to the fiscal year involved,
                    ``(C) 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, and
                    ``(D) 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 and regulations, 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)(3),
        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 
                tests 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 a MedicarePlus plan 
                enrollee.
                    ``(B) MedicarePlus plan enrollee.--The term 
                `MedicarePlus plan enrollee' means, with respect to a 
                fiscal year, an individual enrolled under this part who 
                has elected to receive benefits under this title for 
                the fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual who is 
                receiving benefits under this part through enrollment 
                with an eligible organization with a risk-sharing 
                contract under section 1876.''.
    (b) Conforming Amendments.--Section 1848(f) (42 U.S.C. 1395w-4(f)) 
is amended--
            (1) in the heading, by striking ``Volume Performance 
        Standard Rates of Increase'' and inserting ``Sustainable Growth 
        Rate''; and
            (2) in paragraph (1)--
                    (A) in the heading, by striking ``volume 
                performance standard rates of increase'' and inserting 
                ``sustainable growth rate'',
                    (B) by striking subparagraphs (A) and (B); and
                    (C) in paragraph (1)(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 1999), 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, 
                        1999, the sustainable growth rate for fiscal 
                        year 1999''.

SEC. 4604. PAYMENT RULES FOR ANESTHESIA SERVICES.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)), as 
amended by section 4601, is amended--
                    (A) in subparagraph (C), striking ``The single'' 
                and inserting ``Except as provided in subparagraph (D), 
                the single'';
                    (B) by redesignating subparagraph (D) as 
                subparagraph (E); and
                    (C) by inserting after subparagraph (C) the 
                following new subparagraph:
                    ``(D) Special rules for anesthesia services.--The 
                separate conversion factor for anesthesia services for 
                a year shall be equal to 46 percent of the single 
                conversion factor established for other physicians' 
                services, except as adjusted for changes in work, 
                practice expense, or malpractice relative value units. 
                ''.
    (b) Classification of Anesthesia Services.--The first sentence of 
section 1848(j)(1) (42 U.S.C. 1395w-4(j)(1)) is amended--
            (1) by striking ``and including anesthesia services''; and
            (2) by inserting before the period the following: 
        ``(including anesthesia services)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 1998.

SEC. 4605. IMPLEMENTATION OF RESOURCE-BASED PHYSICIAN PRACTICE EXPENSE.

    (a) 1-Year Delay in Implementation.--Section 1848(c) (42 U.S.C. 
1395w-4(c)) is amended--
            (1) in paragraph (2)(C)(ii), in the matter before subclause 
        (I) and after subclause (II), by striking ``1998'' and 
        inserting ``1999'' each place it appears; and
            (2) in paragraph (3)(C)(ii), by striking ``1998'' and 
        inserting ``1999''.
    (b) Phased-in Implementation.--
            (1) In general.--Section 1848(c)(2)(C)(ii) (42 U.S.C. 
        1395w-4(c)(2)(C)(ii)) is further amended--
                    (A) by striking the comma at the end of clause (ii) 
                and inserting a period and the following:
                        ``For 1999, such number of units shall be 
                        determined based 75 percent on such product and 
                        based 25 percent on the relative practice 
                        expense resources involved in furnishing the 
                        service. For 2000, such number of units shall 
                        be determined based 50 percent on such product 
                        and based 50 percent on such relative practice 
                        expense resources. For 2001, such number of 
                        units shall be determined based 25 percent on 
                        such product and based 75 percent on such 
                        relative practice expense resources. For a 
                        subsequent year, such number of units shall be 
                        determined based entirely on such relative 
                        practice expense resources.''.
            (2) Conforming amendment.--Section 1848(c)(3)(C)(ii) (42 
        U.S.C. 1395w-4(c)(3)(C)(ii)), as amended by subsection (a)(2), 
        is amended by striking ``1999'' and inserting ``2002''.
    (c) Requirements for Developing New Resource-Based Practice Expense 
Relative Value Units.--
            (1) Development.--For purposes of section 1848(c)(2)(C) of 
        the Social Security Act, the Secretary of Health and Human 
        Services shall develop new resource-based relative value units. 
        In developing such units the Secretary shall--
                    (A) utilize, to the maximum extent practicable, 
                generally accepted accounting principles and standards 
                which (i) recognize all staff, equipment, supplies, and 
                expenses, not just those which can be tied to specific 
                procedures, and (ii) use actual data on equipment 
                utilization and other key assumptions, such as the 
                proportion of costs which are direct versus indirect;
                    (B) study whether hospital cost reduction efforts 
                and changing practice patterns may have increased 
                physician practice costs under part B of the medicare 
                program;
                    (C) consider potential adverse effects on patient 
                access under the medicare program; and
                    (D) consult with organizations representing 
                physicians regarding methodology and data to be used, 
                including data for impact projections, in order to 
                ensure that sufficient input has been received by the 
                affected physician community.
            (2) Report.--The Secretary shall transmit a report by March 
        1, 1998, on the development of resource-based relative value 
        units under paragraph (1) to the Committee on Ways and Means 
        and the Committee on Commerce of the House of Representatives 
        and the Committee on Finance of the Senate. The report shall 
        include a presentation of data to be used in developing the 
        value units and an explanation of the methodology.
            (3) Notice of proposed rulemaking.--The Secretary shall 
        publish a notice of proposed rulemaking with the new resource-
        based relative value units on or before May 1, 1998, and shall 
        allow for a 90-day public comment period.
            (4) Items included.--The proposed new rule shall include 
        the following:
                    (A) Detailed impact projections which compare new 
                proposed payment amounts on data on actual physician 
                practice expenses.
                    (B) Impact projections for specialties and 
                subspecialties, geographic payment localities, urban 
                versus rural localities, and academic versus 
                nonacademic medical staffs.
                    (C) Impact projections on access to care for 
                medicare patients and physician employment of clinical 
                and administrative staff.

SEC. 4606. DISSEMINATION OF INFORMATION ON HIGH PER DISCHARGE RELATIVE 
              VALUES FOR IN-HOSPITAL PHYSICIANS' SERVICES.

    (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
            (1) In general.--For 1999 and 2001 the Secretary of Health 
        and Human Services shall determine for each hospital--
                    (A) the hospital-specific per discharge relative 
                value under subsection (b); and
                    (B) whether the hospital-specific relative value is 
                projected to be excessive (as determined based on such 
                value represented as a percentage of the median of 
                hospital-specific per discharge relative values 
                determined under subsection (b)).
            (2) Notice to medical staffs and carriers.--The Secretary 
        shall notify the medical executive committee of each hospital 
        identifies under paragraph (1)(B) as having an excessive 
        hospital-specific relative value, of the determinations made 
        with respect to the medical staff under paragraph (1).
    (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
            (1) In general.--For purposes of this section, the 
        hospital-specific per discharge relative value for the medical 
        staff of a hospital (other than a teaching hospital) for a 
        year, shall be equal to the average per discharge relative 
        value (as determined under section 1848(c)(2) of the Social 
        Security Act) for physicians' services furnished to inpatients 
        of the hospital by the hospital's medical staff (excluding 
        interns and residents) during the second year preceding that 
        calendar year, adjusted for variations in case-mix and 
        disproportionate share status among hospitals (as determined by 
        the Secretary under paragraph (3)).
            (2) Special rule for teaching hospitals.--The hospital-
        specific relative value projected for a teaching hospital in a 
        year shall be equal to the sum of--
                    (A) the average per discharge relative value (as 
                determined under section 1848(c)(2) of such Act) for 
                physicians' services furnished to inpatients of the 
                hospital by the hospital's medical staff (excluding 
                interns and residents) during the second year preceding 
                that calendar year, and
                    (B) the equivalent per discharge relative value (as 
                determined under such section) for physicians' services 
                furnished to inpatients of the hospital by interns and 
                residents of the hospital during the second year 
                preceding that calendar year, adjusted for variations 
                in case-mix, disproportionate share status, and 
                teaching status among hospitals (as determined by the 
                Secretary under paragraph (3)).
        The Secretary shall determine the equivalent relative value 
        unit per discharge for interns and residents based on the best 
        available data and may make such adjustment in the aggregate.
            (3) Adjustment for teaching and disproportionate share 
        hospitals.--The Secretary shall adjust the allowable per 
        discharge relative values otherwise determined under this 
        subsection to take into account the needs of teaching hospitals 
        and hospitals receiving additional payments under subparagraphs 
        (F) and (G) of section 1886(d)(5) of the Social Security Act. 
        The adjustment for teaching status or disproportionate share 
        shall not be less than zero.
    (c) Definitions.--For purposes of this section:
            (1) Hospital.--The term ``hospital'' means a subsection (d) 
        hospital as defined in section 1886(d) of the Social Security 
        Act (42 U.S.C. 1395ww(d)).
            (2) 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 the bylaws, rules, and 
                        regulations, the individual has clinical 
                        privileges granted by the hospital's governing 
                        body, and
                            (iii) under the clinical privileges, the 
                        individual may provide physicians'' services 
                        independently within the scope of the 
                        individual's clinical privileges, or
                    (B) if the physician provides at least one service 
                to an individual entitled to benefits under this title 
                in that hospital.
            (3) Physicians' services.--The term ``physicians'' 
        services'' means the services described in section 1848(j)(3) 
        of the Social Security Act (42 U.S.C. 1395w-4(j)(3)).
            (4) Rural area; urban area.--The terms ``rural area'' and 
        ``urban area'' have the meaning given those terms under section 
        1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)).
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (6) Teaching hospital.--The term ``teaching hospital'' 
        means a hospital which has a teaching program approved as 
        specified in section 1861(b)(6) of the Social Security Act (42 
        U.S.C. 1395x(b)(6)).

SEC. 4607. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

    (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) is 
amended by striking ``demonstrated by X-ray to exist''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after January 1, 1998.
    (c) Utilization Guidelines.--The Secretary of Health and Human 
Services shall develop and implement utilization guidelines relating to 
the coverage of chiropractic services under part B of title XVIII of 
the Social Security Act in cases in which a subluxation has not been 
demonstrated by X-ray to exist.

SEC. 4608. TEMPORARY COVERAGE RESTORATION FOR PORTABLE 
              ELECTROCARDIOGRAM TRANSPORTATION.

    (a) In General.--Effective for electrocardiogram tests performed 
during 1998, the Secretary of Health and Human Services shall restore 
separate payment, under part B of title XVIII of the Social Security 
Act, for the transportation of electrocardiogram equipment (HCPCS code 
R0076) based upon the status code and relative value units established 
for such service as of December 31, 1996.
    (b) Report.--By not later than July 1, 1998, the Comptroller 
General shall submit to Congress a report on the appropriateness of 
continuing such payment.

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

SEC. 4611. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
            (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, 1996, and 1997'', 
                        and
                            (ii) by striking the period at the end and 
                        inserting a semicolon; and
                    (C) by adding at the end the following:
                    ``(C) for each of the years 1998 through 2002, 0 
                percentage points; and
                    ``(D) for a subsequent year, the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. urban average) for the 12-month period 
                ending with June of the previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                    (A) by striking ``, and'' at the end of clause 
                (iii) and inserting a semicolon;
                    (B) in clause (iv), by striking ``a subsequent 
                year'' and inserting ``1996 and 1997'', and
                    (C) by adding at the end the following new clauses:
                            ``(v) for each of the years 1998 through 
                        2002, 1 percent, and
                            ``(vi) for a subsequent year, the 
                        percentage increase in the consumer price index 
                        for all urban consumers (United States city 
                        average) for the 12-month period ending with 
                        June of the previous year;''.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, Supplies, 
and Equipment.--In determining the amount of payment under part B of 
title XVIII of the Social Security Act with respect to parenteral and 
enteral nutrients, supplies, and equipment during each of the years 
1998 through 2002, the charges determined to be reasonable with respect 
to such nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, supplies, 
and equipment during 1995.

SEC. 4612. 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, 1996, and 1997'', and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new clauses:
                            ``(v) in each of the years 1998 through 
                        2002, is 80 percent of the national limited 
                        monthly payment rate computed under 
                        subparagraph (B) for the item for the year; and
                            ``(vi) in a subsequent year, is the 
                        national limited monthly payment rate computed 
                        under subparagraph (B) for the item for the 
                        year.''.

SEC. 4613. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended by inserting ``and 1998 through 
2002'' after ``1995''.
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 1998,'' 
                after ``1995,'', and
                    (B) by striking the period at the end and inserting 
                ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1997, is equal to 72 percent of 
        such median.''.

SEC. 4614. SIMPLIFICATION IN ADMINISTRATION OF LABORATORY TESTS.

    (a) Selection of Regional Carriers.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as the ``Secretary'') shall--
                    (A) divide the United States into no more than 5 
                regions, and
                    (B) designate a single carrier for each such 
                region,
        for the purpose of payment of claims under part B of title 
        XVIII of the Social Security Act with respect to clinical 
        diagnostic laboratory tests (other than for tests performed in 
        physician offices) furnished on or after such date (not later 
        than January 1, 1999) as the Secretary specifies.
            (2) Designation.--In designating such carriers, the 
        Secretary shall consider, among other criteria--
                    (A) a carrier's timeliness, quality, and experience 
                in claims processing, and
                    (B) a carrier's capacity to conduct electronic data 
                interchange with laboratories and data matches with 
                other carriers.
            (3) Single data resource.--The Secretary may select one of 
        the designated carriers to serve as a central statistical 
        resource for all claims information relating to such clinical 
        diagnostic laboratory tests handled by all the designated 
        carriers under such part.
            (4) Allocation of claims.--The allocation of claims for 
        clinical diagnostic laboratory tests to particular designated 
        carriers shall be based on whether a carrier serves the 
        geographic area where the laboratory specimen was collected or 
        other method specified by the Secretary.
    (b) Adoption of Uniform Policies for Clinical Laboratory Tests.--
            (1) In general.--Not later than July 1, 1998, the Secretary 
        shall first adopt, consistent with paragraph (2), uniform 
        coverage, administration, and payment policies for clinical 
        diagnostic laboratory tests under part B of title XVIII of the 
        Social Security Act, using a negotiated rulemaking process 
        under subchapter III of chapter 5 of title 5, United States 
        Code.
            (2) Considerations in design of uniform policies.--The 
        policies under paragraph (1) shall be designed to promote 
        uniformity and program integrity and reduce administrative 
        burdens with respect to clinical diagnostic laboratory tests 
        payable under such part in connection with the following:
                    (A) Beneficiary information required to be 
                submitted with each claim or order for laboratory 
                tests.
                    (B) Physicians' obligations regarding documentation 
                requirements and recordkeeping.
                    (C) Procedures for filing claims and for providing 
                remittances by electronic media.
                    (D) The documentation of medical necessity.
                    (E) Limitation on frequency of coverage for the 
                same tests performed on the same individual.
            (3) Changes in carrier requirements pending adoption of 
        uniform policy.--During the period that begins on the date of 
        the enactment of this Act and ends on the date the Secretary 
        first implements uniform policies pursuant to regulations 
        promulgated under this subsection, a carrier under such part 
        may implement changes relating to requirements for the 
        submission of a claim for clinical diagnostic laboratory tests.
            (4) Use of interim regional policies.--After the date the 
        Secretary first implements such uniform policies, the Secretary 
        shall permit any carrier to develop and implement interim 
        policies of the type described in paragraph (1), in accordance 
        with guidelines established by the Secretary, in cases in which 
        a uniform national policy has not been established under this 
        subsection and there is a demonstrated need for a policy to 
        respond to aberrant utilization or provision of unnecessary 
        services. Except as the Secretary specifically permits, no 
        policy shall be implemented under this paragraph for a period 
        of longer than 2 years.
            (5) Interim national policies.--After the date the 
        Secretary first designates regional carriers under subsection 
        (a), the Secretary shall establish a process under which 
        designated carriers can collectively develop and implement 
        interim national standards of the type described in paragraph 
        (1). No such policy shall be implemented under this paragraph 
        for a period of longer than 2 years.
            (6) Biennial review process.--Not less often than once 
        every 2 years, the Secretary shall solicit and review comments 
        regarding changes in the uniform policies established under 
        this subsection. As part of such biennial review process, the 
        Secretary shall specifically review and consider whether to 
        incorporate or supersede interim, regional, or national 
        policies developed under paragraph (4) or (5). Based upon such 
        review, the Secretary may provide for appropriate changes in 
        the uniform policies previously adopted under this subsection.
            (7) Notice.-- Before a carrier implements a change or 
        policy under paragraph (3), (4), or (5), the carrier shall 
        provide for advance notice to interested parties and a 45-day 
        period in which such parties may submit comments on the 
        proposed change.
    (c) Inclusion of Laboratory Representative on Carrier Advisory 
Committees.--The Secretary shall direct that any advisory committee 
established by such a carrier, to advise with respect to coverage, 
administration or payment policies under part B of title XVIII of the 
Social Security Act, shall include an individual to represent the 
interest and views of independent clinical laboratories and such other 
laboratories as the Secretary deems appropriate. Such individual shall 
be selected by such committee from among nominations submitted by 
national and local organizations that represent independent clinical 
laboratories.

SEC. 4615. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended by 
striking all that follows ``shall be increased'' and inserting the 
following: ``as follows:
            ``(i) For fiscal years 1996 and 1997, by the percentage 
        increase in the consumer price index for all urban consumers 
        (U.S. city average) as estimated by the Secretary for the 12-
        month period ending with the midpoint of the year involved.
            ``(ii) For each of fiscal years 1998 through 2002 by such 
        percentage increase minus 2.0 percentage points.
            ``(iii) For each succeeding fiscal year by such percentage 
        increase.''.

SEC. 4616. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

    (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
    ``(o) If a physician's, supplier's, or any other person's bill or 
request for payment for services includes a charge for a drug or 
biological for which payment may be made under this part and the drug 
or biological is not paid on a cost or prospective payment basis as 
otherwise provided in this part, the amount payable for the drug or 
biological is equal to 95 percent of the average wholesale price.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
drugs and biologicals furnished on or after January 1, 1998.

SEC. 4617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
              REGIMEN.

    (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended, is amended by inserting after subparagraph (S) the following 
new subparagraph:
            ``(T) an oral drug (which is approved by the Federal Food 
        and Drug Administration) prescribed for use as an acute anti-
        emetic used as part of an anticancer chemotherapeutic regimen 
        if the drug is administered by a physician (or as prescribed by 
        a physician)--
                    ``(i) for use immediately before, immediately 
                after, or at the time of the administration of the 
                anticancer chemotherapeutic agent; and
                    ``(ii) as a full replacement for the anti-emetic 
                therapy which would otherwise be administered 
                intravenously.''.
    (b) Payment Levels.--Section 1834 (42 U.S.C. 1395m), as amended by 
sections 4421(a)(2) and 4431(b)(2), is amended by adding at the end the 
following new subsection:
    ``(m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
            ``(1) Limitation on per dose payment basis.--Subject to 
        paragraph (2), the per dose payment basis under this part for 
        oral anti-nausea drugs (as defined in paragraph (3)) 
        administered during a year shall not exceed 90 percent of the 
        average per dose payment basis for the equivalent intravenous 
        anti-emetics administered during the year, as computed based on 
        the payment basis applied during 1996.
            ``(2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, oral anti-
        nausea drugs so that coverage of such drugs under this part 
        does not result in any increase in aggregate payments per 
        capita under this part above the levels of such payments per 
        capita that would otherwise have been made if there were no 
        coverage for such drugs under this part.
            ``(3) Oral anti-nausea drugs defined.--For purposes of this 
        subsection, the term `oral anti-nausea drugs' means drugs for 
        which coverage is provided under this part pursuant to section 
        1861(s)(2)(P).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 4618. RURAL HEALTH CLINIC SERVICES.

    (a) Per-Visit Payment Limits for Provider-Based Clinics.--
            (1) Extension of limit.--
                    (A) In general.--The matter in section 1833(f) (42 
                U.S.C. 1395l(f)) preceding paragraph (1) is amended by 
                striking ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than such 
                clinics in rural hospitals with less than 50 beds)''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services furnished after 
                1997.
            (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
        1395l(f)(1)) is amended by inserting ``per visit'' after 
        ``$46''.
    (b) Assurance of Quality Services.--
            (1) In general.--Subparagraph (I) of the first sentence of 
        section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to read 
        as follows:
                    ``(I) has a quality assessment and performance 
                improvement program, and appropriate procedures for 
                review of utilization of clinic services, as the 
                Secretary may specify,''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on January 1, 1998.
    (c) Waiver of Certain Staffing Requirements Limited to Clinics in 
Program.--
            (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the period at 
        the end the following: ``, or if the facility has not yet been 
        determined to meet the requirements (including subparagraph (J) 
        of the first sentence of paragraph (2)) of a rural health 
        clinic''.
            (2) Effective date.--The amendment made by paragraph (1) 
        applies to waiver requests made after 1997.
    (d) Refinement of Shortage Area Requirements.--
            (1) Designation reviewed triennially.--Section 1861(aa)(2) 
        (42 U.S.C. 1395x(aa)(2)) is amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking ``and that is designated'' and 
                inserting ``and that, within the previous three-year 
                period, has been designated''; and
                    (B) by striking ``or that is designated'' and 
                inserting ``or designated''.
            (2) Area must have shortage of health care practitioners.--
        Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
        paragraph (1), is further amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking the comma after ``personal health 
                services''; and
                    (B) by inserting ``and in which there are 
                insufficient numbers of needed health care 
                practitioners (as determined by the Secretary),'' after 
                ``Bureau of the Census)''.
            (3) Previously qualifying clinics grandfathered only to 
        prevent shortage.--Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) 
        is amended in the third sentence by inserting before the period 
        ``if it is determined, in accordance with criteria established 
        by the Secretary in regulations, to be essential to the 
        delivery of primary care services that would otherwise be 
        unavailable in the geographic area served by the clinic''.
            (4) Effective dates; implementing regulations.--
                    (A) In general.--Except as otherwise provided, the 
                amendments made by the preceding paragraphs take effect 
                on January 1 of the first calendar year beginning at 
                least one month after enactment of this Act.
                    (B) Current rural health clinics.--The amendments 
                made by the preceding paragraphs take effect, with 
                respect to entities that are rural health clinics under 
                title XVIII of the Social Security Act on the date of 
                enactment of this Act, on January 1 of the second 
                calendar year following the calendar year specified in 
                subparagraph (A).
                    (C) Grandfathered clinics.--
                            (i) In general.--The amendment made by 
                        paragraph (3) shall take effect on the 
                        effective date of regulations issued by the 
                        Secretary under clause (ii).
                            (ii) Regulations.--The Secretary shall 
                        issue final regulations implementing paragraph 
                        (3) that shall take effect no later than 
                        January 1 of the third calendar year beginning 
                        at least one month after enactment of this Act.

SEC. 4619. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS AND 
              CLINICAL NURSE SPECIALISTS.

    (a) Removal of Restrictions on Settings.--
            (1) In general.--Clause (ii) of section 1861(s)(2)(K) (42 
        U.S.C. 1395x(s)(2)(K)) is amended to read as follows:
            ``(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection (r)(1)) and 
        which are performed by a nurse practitioner or clinical nurse 
        specialist (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) which the nurse 
        practitioner or clinical nurse specialist is legally authorized 
        to perform by the State in which the services are performed, 
        and such services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if 
        furnished incident to a physician's professional service, but 
        only if no facility or other provider charges or is paid any 
        amounts with respect to the furnishing of such services;''.
            (2) Conforming amendments.--(A) Section 1861(s)(2)(K) of 
        such Act (42 U.S.C. 1395x(s)(2)(K)) is further amended--
                    (i) in clause (i), by inserting ``and such services 
                and supplies furnished as incident to such services as 
                would be covered under subparagraph (A) if furnished 
                incident to a physician's professional service; and'' 
                after ``are performed,''; and
                    (ii) by striking clauses (iii) and (iv).
            (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is amended 
        by striking ``clauses (i) or (iii) of subsection (s)(2)(K)'' 
        and inserting ``subsection (s)(2)(K)''.
            (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended 
        by striking ``section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)'' 
        and inserting ``section 1861(s)(2)(K)''.
            (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 1861(s)(2)(K)''.
            (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 10401(a), is amended 
        by striking ``through (iii)'' and inserting ``and (ii)''.
    (b) Increased Payment.--
            (1) Fee schedule amount.--Clause (O) of section 1833(a)(1) 
        (42 U.S.C. 1395l(a)(1)) is amended to read as follows: ``(O) 
        with respect to services described in section 1861(s)(2)(K)(ii) 
        (relating to nurse practitioner or clinical nurse specialist 
        services), the amounts paid shall be equal to 80 percent of (i) 
        the lesser of the actual charge or 85 percent of the fee 
        schedule amount provided under section 1848, or (ii) in the 
        case of services as an assistant at surgery, the lesser of the 
        actual charge or 85 percent of the amount that would otherwise 
        be recognized if performed by a physician who is serving as an 
        assistant at surgery; and''.
            (2) Conforming amendments.--(A) Section 1833(r) (42 U.S.C. 
        1395l(r)) is amended--
                    (i) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse practitioner or 
                clinical nurse specialist services provided in a rural 
                area)'' and inserting ``section 1861(s)(2)(K)(ii) 
                (relating to nurse practitioner or clinical nurse 
                specialist services)'';
                    (ii) by striking paragraph (2);
                    (iii) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                    (iv) by redesignating paragraph (3) as paragraph 
                (2).
            (B) Section 1842(b)(12)(A) (42 U.S.C. 1395u(b)(12)(A)) is 
        amended, in the matter preceding clause (i), by striking 
        ``clauses (i), (ii), or (iv) of section 1861(s)(2)(K) (relating 
        to a physician assistants and nurse practitioners)'' and 
        inserting ``section 1861(s)(2)(K)(i) (relating to physician 
        assistants)''.
    (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--
            (1) In general.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 
        1395k(a)(2)(B)(iv)) is amended by striking ``provided in a 
        rural area (as defined in section 1886(d)(2)(D))'' and 
        inserting ``but only if no facility or other provider charges 
        or is paid any amounts with respect to the furnishing of such 
        services''.
            (2) Conforming amendment.--Section 1842(b)(6)(C) (42 U.S.C. 
        1395u(b)(6)(C)) is amended--
                    (A) by striking ``clauses (i), (ii), or (iv)'' and 
                inserting ``clause (i)''; and
                    (B) by striking ``or nurse practitioner''.
    (d) Definition of Clinical Nurse Specialist Clarified.--Section 
1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
            (1) by inserting ``(A)'' after ``(5)'';
            (2) by striking ``The term `physician assist-ant''' and all 
        that follows through ``who performs'' and inserting ``The term 
        `physician assistant' and the term `nurse practitioner' mean, 
        for purposes of this title, a physician assistant or nurse 
        practitioner who performs''; and
            (3) by adding at the end the following new subparagraph:
    ``(B) The term `clinical nurse specialist' means, for purposes of 
this title, an individual who--
            ``(i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse specialist 
        services are performed; and
            ``(ii) holds a master's degree in a defined clinical area 
        of nursing from an accredited educational institution.''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 4620. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

    (a) Removal of Restriction on Settings.--Section 1861(s)(2)(K)(i) 
(42 U.S.C. 1395x(s)(2)(K)(i)) is amended--
            (1) by striking ``(I) in a hospital'' and all that follows 
        through ``shortage area,'', and
            (2) by adding at the end the following: ``but only if no 
        facility or other provider charges or is paid any amounts with 
        respect to the furnishing of such services,''.
    (b) Increased Payment.--Paragraph (12) of section 1842(b) (42 
U.S.C. 1395u(b)), as amended by section 4619(b)(2)(B), is amended to 
read as follows:
    ``(12) With respect to services described in section 
1861(s)(2)(K)(i)--
            ``(A) payment under this part may only be made on an 
        assignment-related basis; and
            ``(B) the amounts paid under this part shall be equal to 80 
        percent of (i) the lesser of the actual charge or 85 percent of 
        the fee schedule amount provided under section 1848 for the 
        same service provided by a physician who is not a specialist; 
        or (ii) in the case of services as an assistant at surgery, the 
        lesser of the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a physician who 
        is serving as an assistant at surgery.''.
    (c) Removal of Restriction on Employment Relationship.--Section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by adding at the end the 
following new sentence: ``For purposes of clause (C) of the first 
sentence of this paragraph, an employment relationship may include any 
independent contractor arrangement, and employer status shall be 
determined in accordance with the law of the State in which the 
services described in such clause are performed.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 4621. RENAL DIALYSIS-RELATED SERVICES.

    (a) Auditing of Cost Reports.--The Secretary shall audit a sample 
of cost reports of renal dialysis providers for 1995 and for each third 
year thereafter.
    (b) Implementation of Quality Standards.--The Secretary of Health 
and Human Services shall develop and implement, by not later than 
January 1, 1999, a method to measure and report quality of renal 
dialysis services provided under the medicare program under title XVIII 
of the Social Security Act in order to reduce payments for 
inappropriate or low quality care.

SEC. 4622. PAYMENT FOR COCHLEAR IMPLANTS AS CUSTOMIZED DURABLE MEDICAL 
              EQUIPMENT.

    (a) In General.--Section 1834(h)(1)(E) (42 U.S.C. 1395m(h)(1)(E)) 
is amended by adding at the end the following: ``Payment for cochlear 
implants shall be made in accordance with subsection (a)(4), and, in 
applying such subsection to cochlear implants, carriers shall take into 
consideration technological innovations and data on charges to the 
extent that such charges reflect such innovations.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to implants implanted on or after January 1, 1998.

                       CHAPTER 3--PART B PREMIUM

SEC. 4631. 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, during September of each year, shall 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.--
            (1) Section 1839.--Section 1839 (42 U.S.C. 1395r) is 
        amended--
                    (A) in subsection (a)(2), by striking ``(b) and 
                (e)'' and inserting ``(b), (c), and (f)'',
                    (B) in the last sentence of subsection (a)(3)--
                            (i) by inserting ``rate'' after 
                        ``premium'', and
                            (ii) by striking ``and the derivation of 
                        the dollar amounts specified in this 
                        paragraph'',
                    (C) by striking subsection (e), and
                    (D) by redesignating subsection (g) as subsection 
                (e) and inserting that subsection after subsection (d).
            (2) Section 1844.--Subparagraphs (A)(i) and (B)(i) of 
        section 1844(a)(1) (42 U.S.C. 1395w(a)(1)) are each amended by 
        striking ``or 1839(e), as the case may be''.

            Subtitle H--Provisions Relating to Parts A and B

       CHAPTER 1--PROVISIONS RELATING TO MEDICARE SECONDARY PAYER

SEC. 4701. PERMANENT EXTENSION AND REVISION OF CERTAIN SECONDARY PAYER 
              PROVISIONS.

    (a) Application to Disabled Individuals in Large Group Health 
Plans.--
            (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                    (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'',
                    (B) by striking clause (iii), and
                    (C) by redesignating clause (iv) as clause (iii).
            (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
    (b) Individuals With End Stage Renal Disease.--
            (1) In general.--Section 1862(b)(1)(C) (42 U.S.C. 
        1395y(b)(1)(C)) is amended--
                    (A) in the first sentence, by striking ``12-month'' 
                each place it appears and inserting ``30-month'', and
                    (B) by striking the second sentence.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to items and services furnished on or after the 
        date of the enactment of this Act and with respect to periods 
        beginning on or after the date that is 18 months prior to such 
        date.
    (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).

SEC. 4702. CLARIFICATION OF TIME AND FILING LIMITATIONS.

    (a) Extension of Claims Filing Period.--Section 1862(b)(2)(B) (42 
U.S.C. 1395y(b)(2)(B)) is amended by adding at the end the following 
new clause:
                            ``(v) Claims-filing period.--
                        Notwithstanding any other time limits that may 
                        exist for filing a claim under an employer 
                        group health plan, the United States may seek 
                        to recover conditional payments in accordance 
                        with this subparagraph where the request for 
                        payment is submitted to the entity required or 
                        responsible under this subsection to pay with 
                        respect to the item or service (or any portion 
                        thereof) under a primary plan within the 3-year 
                        period beginning on the date on which the item 
                        or service was furnished.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to items and services furnished after 1990. The previous sentence shall 
not be construed as permitting any waiver of the 3-year-period 
requirement (imposed by such amendment) in the case of items and 
services furnished more than 3 years before the date of the enactment 
of this Act.

SEC. 4703. PERMITTING RECOVERY AGAINST THIRD PARTY ADMINISTRATORS.

    (a) Permitting Recovery Against Third Party Administrators of 
Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
1395y(b)(2)(B)(ii)) is amended--
            (1) by striking ``under this subsection to pay'' and 
        inserting ``(directly, as a third-party administrator, or 
        otherwise) to make payment'', and
            (2) by adding at the end the following: ``The United States 
        may not recover from a third-party administrator under this 
        clause in cases where the third-party administrator would not 
        be able to recover the amount at issue from the employer or 
        group health plan for whom it provides administrative services 
        due to the insolvency or bankruptcy of the employer or plan.''.
    (b) Clarification of Beneficiary Liability.--Section 1862(b)(1) (42 
U.S.C. 1395y(b)(1)) is amended by adding at the end the following new 
subparagraph:
                    ``(F) Limitation on beneficiary liability.--An 
                individual who is entitled to benefits under this title 
                and is furnished an item or service for which such 
                benefits are incorrectly paid is not liable for 
                repayment of such benefits under this paragraph unless 
                payment of such benefits was made to the individual.''.
    (c) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after the date of the enactment of 
this Act.

                    CHAPTER 2--HOME HEALTH SERVICES

SEC. 4711. RECAPTURING 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) (42 U.S.C. 1395x(v)(1)(L)) is amended 
by adding at the end the following:
    ``(iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the Secretary 
shall not take into account any changes in the home health market 
basket, as determined by the Secretary, with respect to cost reporting 
periods which began on or after July 1, 1994, and before July 1, 
1996.''.
    (b) No Exceptions Permitted Based on Amendment.--The Secretary of 
Health and Human Services shall not consider the amendment made by 
subsection (a) in making any exemptions and exceptions pursuant to 
section 1861(v)(1)(L)(ii) of the Social Security Act (42 U.S.C. 
1395x(v)(1)(L)(ii)).

SEC. 4712. 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 moving the indentation of subclauses (I) through 
        (III) 2-ems to the left;
            (2) in subclause (I), by inserting ``of the mean of the 
        labor-related and nonlabor per visit costs for freestanding 
        home health agencies'' before the comma at the end;
            (3) in subclause (II), by striking ``, or'' and inserting 
        ``of such mean,'';
            (4) in subclause (III)--
                    (A) by inserting ``and before October 1, 1997,'' 
                after ``July 1, 1987,'', and
                    (B) by striking the comma at the end and inserting 
                ``of such mean, or''; and
            (5) by striking the matter following subclause (III) and 
        inserting the following:
            ``(IV) October 1, 1997, 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 inserting ``, or on or after July 1, 
1997, and before October 1, 1997'' after ``July 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)), as amended by section 4711(a), is amended by inserting 
adding at the end the following new clauses:
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
shall provide for an interim system of limits. Payment shall not exceed 
the costs determined under the preceding provisions of this 
subparagraph or, if lower, the product of--
            ``(I) an agency-specific per beneficiary annual limitation 
        calculated based 75 percent on the reasonable costs (including 
        nonroutine medical supplies) for the agency's 12-month cost 
        reporting period ending during 1994, and based 25 percent on 
        the standardized regional average of such costs for the 
        agency's region for cost reporting periods ending during 1994, 
        such costs updated by the home health market basket index; and
            ``(II) the agency's unduplicated census count of patients 
        (entitled to benefits under this title) for the cost reporting 
        period subject to the limitation.
    ``(vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the following 
rules 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 median of 
        these limits (or the Secretary's best estimates thereof) 
        applied to other home health agencies as determined by the 
        Secretary. A home health agency that has altered its corporate 
        structure or name shall not be considered a new provider for 
        this purpose.
            ``(II) For beneficiaries who use services furnished by more 
        than one home health agency, the per beneficiary limitations 
        shall be prorated among the agencies.''.
    (d) Development of Case Mix System.--The Secretary of Health and 
Human Services shall expand research on a prospective payment system 
for home health agencies under the medicare program that ties 
prospective payments to a unit of service, including an intensive 
effort to develop a reliable case mix adjuster that explains a 
significant amount of the variances in costs.
    (e) Submission of Data for Case Mix System.--Effective for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
of Health and Human Services may require all home health agencies to 
submit additional information that the Secretary considers necessary 
for the development of a reliable case mix system.

SEC. 4713. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

    (a) In General.--Section 1861(m) (42 U.S.C. 1395x(m)) is amended by 
adding at the end the following: ``For purposes of paragraphs (1) and 
(4), the term `part-time or intermittent services' means skilled 
nursing and home health aide services furnished any number of days per 
week as long as they are furnished (combined) less than 8 hours each 
day and 28 or fewer hours each week (or, subject to review on a case-
by-case basis as to the need for care, less than 8 hours each day and 
35 or fewer hours per week). For purposes of sections 1814(a)(2)(C) and 
1835(a)(2)(A), `intermittent' means skilled nursing care that is either 
provided or needed on fewer than 7 days each week, or less than 8 hours 
of each day for periods of 21 days or less (with extensions in 
exceptional circumstances when the need for additional care is finite 
and predictable).''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after October 1, 1997.

SEC. 4714. STUDY ON DEFINITION OF HOMEBOUND.

    (a) Study.--The Secretary of Health and Human Services shall 
conduct a study of the criteria that should be applied, and the method 
of applying such criteria, in the determination of whether an 
individual is homebound for purposes of qualifying for receipt of 
benefits for home health services under the medicare program. Such 
criteria shall include the extent and circumstances under which a 
person may be absent from the home but nonetheless qualify.
    (b) Report.--Not later than October 1, 1998, the Secretary shall 
submit a report to the Congress on the study conducted under subsection 
(a). The report shall include specific recommendations on such criteria 
and methods.

SEC. 4715. 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) Payment on Basis of Location of Service.--A home health 
agency shall submit claims for payment for 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 
cost reporting periods beginning on or after October 1, 1997.

SEC. 4716. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS,

    (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 4103(c), is amended--
            (1) by striking ``and'' at the end of subparagraph (G),
            (2) by striking the semicolon at the end of subparagraph 
        (H) and inserting ``, and'', and
            (3) by inserting after subparagraph (H) the following new 
        subparagraph:
            ``(I) the frequency and duration of home health services 
        which are in excess of normative guidelines that the Secretary 
        shall establish by regulation;''.
    (b) Notification.--The Secretary of Health and Human Services may 
establish a process for notifying a physician in cases in which the 
number of home health service visits furnished under the medicare 
program pursuant to a prescription or certification of the physician 
significantly exceeds such threshold (or thresholds) as the Secretary 
specifies. The Secretary may adjust such threshold to reflect 
demonstrated differences in the need for home health services among 
different beneficiaries.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after October 1, 1997.

SEC. 4717. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

    (a) In General.--Sections 1814(a)(2)(C) and 1835(a)(2)(A) (42 
U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) are each amended by inserting 
``(other than solely venipuncture for the purpose of obtaining a blood 
sample)'' after ``skilled nursing care''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
home health services furnished after the 6-month period beginning after 
the date of enactment of this Act.

SEC. 4718. MAKING PART B PRIMARY PAYOR FOR CERTAIN HOME HEALTH 
              SERVICES.

    (a) In General.--Section 1833(d) (42 U.S.C. 1395l(d)) is amended--
            (1) by striking ``(d) No'' and inserting ``(d)(1) Subject 
        to paragraph (2), no'', and
            (2) by adding at the end the following new paragraph:
    ``(2) Payment shall be made under this part (rather than under part 
A), for an individual entitled to benefits under part A, for home 
health services, other than the first 100 visits of post-hospital home 
health services furnished to an individual.''.
    (b) Post-hospital Home Health Services.--Section 1861 (42 U.S.C. 
1395x) is amended by adding at the end the following:
    ``(ss) Post-Hospital Home Health Services.--The term `post-hospital 
home health services' means home health services furnished to an 
individual under a plan of treatment established when the individual 
was an inpatient of a hospital or rural primary care hospital for not 
less than 3 consecutive days before discharge, or during a covered 
post-hospital extended care stay, if home health services are initiated 
for the individual within 30 days after discharge from the hospital, 
rural primary care hospital or extended care facility.''.
    (c) Payments Under Part B.--Subparagraph (A) of section 1833(a)(2) 
(42 U.S.C. 1395l(a)(2)) is amended to read as follows:
                    ``(A) with respect to home health services (other 
                than a covered osteoporosis drug (as defined in section 
                1861(kk)), and to items and services described in 
                section 1861(s)(10)(A), the amounts determined under 
                section 1861(v)(1)(L) or section 1893, or, if the 
                services are furnished by a public provider of 
                services, or by another provider which demonstrates to 
                the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge, or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
    (d) Phase-In of Additional Part B Costs In Determination of Part B 
Monthly Premium.--Section 1839(a) (42 U.S.C. 1395r(a)) is amended--
            (1) in paragraph (3) in last the sentence inserted by 
        section 4631(a) of this title, by inserting ``(except as 
        provided in paragraph (5)(B))'' before the period, and
            (2) by adding after paragraph (4) the following:
    ``(5)(A) The Secretary shall, at the time of determining the 
monthly actuarial rate under paragraph (1) for 1998 through 2003, shall 
determine a transitional monthly actuarial rate for enrollees age 65 
and over in the same manner as such rate is determined under paragraph 
(1), except that there shall be excluded from such determination an 
estimate of any benefits and administrative costs attributable to home 
health services for which payment would have been made under part A 
during the year but for paragraph (2) of section 1833(d).
    ``(B) The monthly premium for each individual enrolled under this 
part for each month for a year (beginning with 1998 and ending with 
2003) shall be equal to 50 percent of the monthly actuarial rate 
determined under subparagraph (A) increased by the following proportion 
of the difference between such premium and the monthly premium 
otherwise determined under paragraph (3) (without regard to this 
paragraph):
            ``(i) For a month in 1998, \1/7\.
            ``(ii) For a month in 1999, \2/7\.
            ``(iii) For a month in 2000, \3/7\.
            ``(iv) For a month in 2001, \4/7\.
            ``(v) For a month in 2002, \5/7\.
            ``(vi) For a month in 2003, \6/7\.''.
    (e) Maintaining Appeal Rights for Home Health Services.--Section 
1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by inserting ``(or 
$100 in the case of home health services)'' after ``$500''.
    (f) Report.--Not later than October 1, 1999, the Secretary of 
Health and Human Services shall submit a report to the Committees on 
Commerce and Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate on the impact on home health 
utilization and admissions to hospitals and skilled nursing facilities 
of the amendment made by subsection (b). The Secretary shall further 
reexamine and submit a report to such Committees on this impact 1 year 
after the full implementation of the prospective payment system for 
home health services into the medicare program, effected under the 
amendments made by section 4441.
    (g) Effective Date.--The amendments made by this section apply to 
services furnished on or after October 1, 1997.

          CHAPTER 3--BABY BOOM GENERATION MEDICARE COMMISSION

SEC. 4721. BIPARTISAN COMMISSION ON THE EFFECT OF THE BABY BOOM 
              GENERATION ON THE MEDICARE PROGRAM.

    (a) Establishment.--There is established a commission to be known 
as the Bipartisan Commission on the Effect of the Baby Boom Generation 
on the Medicare Program (in this section referred to as the 
``Commission'').
    (b) Duties.--
            (1) In general.--The Commission shall--
                    (A) examine the financial impact on the medicare 
                program of the significant increase in the number of 
                medicare eligible individuals which will occur 
                beginning approximately during 2010 and lasting for 
                approximately 25 years, and
                    (B) make specific recommendations to the Congress 
                respecting a comprehensive approach to preserve the 
                medicare program for the period during which such 
                individuals are eligible for medicare.
            (2) Considerations in making recommendations.--In making 
        its recommendations, the Commission shall consider the 
        following:
                    (A) The amount and sources of Federal funds to 
                finance the medicare program, including the potential 
                use of innovative financing methods.
                    (B) Methods used by other nations to respond to 
                comparable demographic patterns in eligibility for 
                health care benefits for elderly and disabled 
                individuals.
                    (C) Modifying age-based eligibility to correspond 
                to changes in age-based eligibility under the OASDI 
                program.
                    (D) Trends in employment-related health care for 
                retirees, including the use of medical savings accounts 
                and similar financing devices.
                    (E) The role medicare should play in addressing the 
                needs of persons with chronic illness.
    (c) Membership.--
            (1) Appointment.--The Commission shall be composed of 15 
        voting members as follows:
                    (A) The Majority Leader of the Senate shall 
                appoint, after consultation with the minority leader of 
                the Senate, 6 members, of whom not more than 4 may be 
                of the same political party.
                    (B) The Speaker of the House of Representatives 
                shall appoint, after consultation with the minority 
                leader of the House of Representatives, 6 members, of 
                whom not more than 4 may be of the same political 
                party.
                    (C) The 3 ex officio members of the Board of 
                Trustees of the Federal Hospital Insurance Trust Fund 
                and of the Federal Supplementary Medical Insurance 
                Trust Fund who are Cabinet level officials.
            (2) Chairman and vice chairman.--As the first item of 
        business at the Commission's first meeting (described in 
        paragraph (5)(B)), the Commission shall elect a Chairman and 
        Vice Chairman from among its members. The individuals elected 
        as Chairman and Vice Chairman may not be of the same political 
        party and may not have been appointed to the Commission by the 
        same appointing authority.
            (3) Vacancies.--Any vacancy in the membership of the 
        Commission shall be filled in the manner in which the original 
        appointment was made and shall not affect the power of the 
        remaining members to execute the duties of the Commission.
            (4) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (f).
            (5) Meetings.--
                    (A) The Commission shall meet at the call of its 
                Chairman or a majority of its members.
                    (B) The Commission shall hold its first meeting not 
                later than February 1, 1998.
            (6) Compensation and reimbursement of expenses.--Members of 
        the Commission are not entitled to receive compensation for 
        service on the Commission. Members may be reimbursed for 
        travel, subsistence, and other necessary expenses incurred in 
        carrying out the duties of the Commission.
    (d) Advisory Panel.--
            (1) In general.--The Chairman, in consultation with the 
        Vice Chairman, may establish a panel (in this section referred 
        to as the ``Advisory Panel'') consisting of health care 
        experts, consumers, providers, and others to advise and assist 
        the members of the Commission in carrying out the duties 
        described in subsection (b). The panel shall have only those 
        powers that the Chairman, in consultation with the Vice 
        Chairman, determines are necessary and appropriate to assist 
        the Commission in carrying out such duties.
            (2) Compensation.--Members of the Advisory Panel are not 
        entitled to receive compensation for service on the Advisory 
        Panel. Subject to the approval of the chairman of the 
        Commission, members may be reimbursed for travel, subsistence, 
        and other necessary expenses incurred in carrying out the 
        duties of the Advisory Panel.
    (e) Staff and Consultants.--
            (1) Staff.--The Commission may appoint and determine the 
        compensation of such staff as may be necessary to carry out the 
        duties of the Commission. Such appointments and compensation 
        may be made without regard to the provisions of title 5, United 
        States Code, that govern appointments in the competitive 
        services, and the provisions of chapter 51 and subchapter III 
        of chapter 53 of such title that relate to classifications and 
        the General Schedule pay rates.
            (2) Consultants.--The Commission may procure such temporary 
        and intermittent services of consultants under section 3109(b) 
        of title 5, United States Code, as the Commission determines to 
        be necessary to carry out the duties of the Commission.
    (f) Powers.--
            (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
            (2) Studies by gao.--Upon the request of the Commission, 
        the Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
            (3) Cost estimates by congressional budget office.--
                    (A) Upon the request of the Commission, the 
                Director of the Congressional Budget Office shall 
                provide to the Commission such cost estimates as the 
                Commission determines to be necessary to carry out its 
                duties.
                    (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
            (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
            (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
            (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
            (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
            (8) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission on a reimbursable basis such 
        administrative support services as the Commission may request.
            (9) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
    (g) Report.--Not later than May 1, 1999, the Commission shall 
submit to Congress a report containing its findings and recommendations 
regarding how to protect and preserve the medicare program in a 
financially solvent manner until 2030 (or, if later, throughout the 
period of projected solvency of the Federal Old-Age and Survivors 
Insurance Trust Fund). The report shall include detailed 
recommendations for appropriate legislative initiatives respecting how 
to accomplish this objective.
    (h) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report required in subsection (g).
    (i) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. 60 percent of such 
appropriation shall be payable from the Federal Hospital Insurance 
Trust Fund, and 40 percent of such appropriation shall be payable from 
the Federal Supplementary Medical Insurance Trust Fund under title 
XVIII of the Social Security Act (42 U.S.C. 1395i, 1395t).

  CHAPTER 4--PROVISIONS RELATING TO DIRECT GRADUATE MEDICAL EDUCATION

SEC. 4731. LIMITATION ON PAYMENT BASED ON NUMBER OF RESIDENTS AND 
              IMPLEMENTATION OF ROLLING AVERAGE FTE COUNT.

    Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by adding 
after subparagraph (E) 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, 1997, the total number of full-time 
                equivalent residents before application of weighting 
                factors (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 
                most recent cost reporting period ending on or before 
                December 31, 1996.
                    ``(G) Counting interns and residents for fy 1998 
                and subsequent years.--
                            ``(i) FY 1998.--For the hospital's first 
                        cost reporting period beginning during fiscal 
                        year 1998, subject to the limit described in 
                        subparagraph (F), the total number of full-time 
                        equivalent residents, for determining the 
                        hospital's graduate medical education payment, 
                        shall equal the average of the full-time 
                        equivalent resident counts for the cost 
                        reporting period and the preceding cost 
                        reporting period.
                            ``(ii) Subsequent years.--For each 
                        subsequent cost reporting period, subject to 
                        the limit described in subparagraph (F), the 
                        total number of full-time equivalent residents, 
                        for determining the hospital's graduate medical 
                        education payment, shall equal the average of 
                        the actual full-time equivalent resident counts 
                        for the cost reporting period and preceding two 
                        cost reporting periods.
                            ``(iii) Adjustment for short periods.--If a 
                        hospital's cost reporting period beginning on 
                        or after October 1, 1997, is not equal to 
                        twelve months, the Secretary shall make 
                        appropriate modifications to ensure that the 
                        average full-time equivalent resident counts 
                        pursuant to clause (ii) are based on the 
                        equivalent of full 12-month cost reporting 
                        periods.
                            ``(iv) Exclusion of residents in 
                        dentistry.--Residents in an approved medical 
                        residency training program in dentistry shall 
                        not be counted for purposes of this 
                        subparagraph and subparagraph (F).''.

SEC. 4732. PHASED-IN LIMITATION ON HOSPITAL OVERHEAD AND SUPERVISORY 
              PHYSICIAN COMPONENT OF DIRECT MEDICAL EDUCATION COSTS.

    (a) In General.--Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is 
amended--
            (1) in subparagraph (B), by inserting ``subject to 
        subparagraph (D),'' after ``subparagraph (A)'', and
            (2) by adding at the end the following:
                    ``(D) Phased-in limitation on hospital overhead and 
                supervisory physician component.--
                            ``(i) In general.--In the case of a 
                        hospital for which the overhead GME amount (as 
                        defined in clause (ii)) for the base period 
                        exceeds an amount equal to the 75th percentile 
                        of the overhead GME amounts in such period for 
                        all hospitals (weighted to reflect the full-
                        time equivalent resident counts for all 
                        approved medical residency training programs), 
                        subject to clause (iv), the hospital's approved 
                        FTE resident amount (for periods beginning on 
                        or after October 1, 1997) shall be reduced from 
                        the amount otherwise applicable (as previously 
                        reduced under this subparagraph) by an overhead 
                        reduction amount. The overhead reduction amount 
                        is equal to the lesser of--
                                    ``(I) 20 percent of the reference 
                                reduction amount (described in clause 
                                (iii)) for the period, or
                                    ``(II) 15 percent of the hospital's 
                                overhead GME amount for the period (as 
                                otherwise determined before the 
                                reduction provided under this 
                                subparagraph for the period involved).
                            ``(ii) Overhead gme amount.--For purposes 
                        of this subparagraph, the term `overhead GME 
                        amount' means, for a hospital for a period, the 
                        product of--
                                    ``(I) the percentage of the 
                                hospital's approved FTE resident amount 
                                for the base period that is not 
                                attributable to resident salaries and 
                                fringe benefits, and
                                    ``(II) the hospital's approved FTE 
                                resident amount for the period 
                                involved.
                            ``(iii) Reference reduction amount.--
                                    ``(I) In general.--The reference 
                                reduction amount described in this 
                                clause for a hospital for a cost 
                                reporting period is the base difference 
                                (described in subclause (II)) updated, 
                                in a compounded manner for each period 
                                from the base period to the period 
                                involved, by the update applied for 
                                such period to the hospital's approved 
                                FTE resident amount.
                                    ``(II) Base difference.--The base 
                                difference described in this subclause 
                                for a hospital is the amount by which 
                                the hospital's overhead GME amount in 
                                the base period exceeded the 75th 
                                percentile of such amounts (as 
                                described in clause (i)).
                            ``(iv) Maximum reduction to 75th 
                        percentile.--In no case shall the reduction 
                        under this subparagraph effected for a hospital 
                        for a period (below the amount that would 
                        otherwise apply for the period if this 
                        subparagraph did not apply for any period) 
                        exceed the reference reduction amount for the 
                        hospital for the period.
                            ``(v) Base period.--For purposes of this 
                        subparagraph, the term `base period' means the 
                        cost reporting period beginning in fiscal year 
                        1984 or the period used to establish the 
                        hospital's approved FTE resident amount for 
                        hospitals that did not have approved residency 
                        training programs in fiscal year 1984.
                            ``(vi) Rules for hospitals initiating 
                        residency training programs.--The Secretary 
                        shall establish rules for the application of 
                        this subparagraph in the case of a hospital 
                        that initiates medical residency training 
                        programs during or after the base period.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to per resident payment amounts attributable to periods beginning 
on or after October 1, 1997.

SEC. 4733. PERMITTING PAYMENT TO NON-HOSPITAL PROVIDERS.

    (a) In General.-- Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following:
    ``(k) Payment to Non-Hospital Providers.--
            ``(1) Report.--The Secretary shall submit to Congress, not 
        later than 18 months after the date of the enactment of this 
        subsection, a proposal for payment to qualified non-hospital 
        providers for their direct costs of medical education, if those 
        costs are incurred in the operation of an approved medical 
        residency training program described in subsection (h). Such 
        proposal shall specify the amounts, form, and manner in which 
        such payments will be made and the portion of such payments 
        that will be made from each of the trust funds under this 
        title.
            ``(2) Effectiveness.--Except as otherwise provided in law, 
        the Secretary may implement such proposal for residency years 
        beginning not earlier than 6 months after the date of submittal 
        of the report under paragraph (1).
            ``(3) Qualified non-hospital providers.--For purposes of 
        this subsection, the term `qualified non-hospital provider' 
        means--
                    ``(A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                    ``(B) a rural health clinic, as defined in section 
                1861(aa)(2); and
                    ``(C) such other providers (other than hospitals) 
                as the Secretary determines to be appropriate.''.
    (b) Prohibition on Double Payments; Budget Neutrality Adjustment.--
Section 1886(h)(3)(B) (42 U.S.C. 1395ww(h)(3)(B)) is amended by adding 
at the end the following:
                ``The Secretary shall reduce the aggregate approved 
                amount to the extent payment is made under subsection 
                (k) for residents included in the hospital's count of 
                full-time equivalent residents and, in the case of 
                residents not included in any such count, the Secretary 
                shall provide for such a reduction in aggregate 
                approved amounts under this subsection as will assure 
                that the application of subsection (k) does not result 
                in any increase in expenditures under this title in 
                excess of those that would have occurred if subsection 
                (k) were not applicable.''.

SEC. 4734. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
              NUMBER OF RESIDENTS.

    Section 1886(h) (42 U.S.C. 1395ww(h)) is further amended by adding 
at the end the following new paragraph:
            ``(6) Incentive payment under plans for voluntary reduction 
        in number of residents.--
                    ``(A) In general.--In the case of a voluntary 
                residency reduction plan for which an application is 
                approved under subparagraph (B), the qualifying entity 
                submitting the plan shall be paid an applicable hold 
                harmless percentage (as specified in subparagraph (E)) 
                of the sum of--
                            ``(i) amount (if any) by which--
                                    ``(I) the amount of payment which 
                                would have been made under this 
                                subsection if there had been a 5 
                                percent reduction in the number of 
                                full-time equivalent residents in the 
                                approved medical education training 
                                programs of the qualifying entity as of 
                                June 30, 1997, exceeds
                                    ``(II) the amount of payment which 
                                is made under this subsection, taking 
                                into account the reduction in such 
                                number effected under the reduction 
                                plan; and
                            ``(ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for hospitals 
                        participating in the qualifying entity) that is 
                        attributable to the reduction in number of 
                        residents effected under the plan below 95 
                        percent of the number of full-time equivalent 
                        residents in such programs of such entity as of 
                        June 30, 1997.
                    ``(B) Approval of plan applications.--The Secretary 
                may not approve the application of an qualifying entity 
                unless--
                            ``(i) the application is submitted in a 
                        form and manner specified by the Secretary and 
                        by not later than March 1, 2000,
                            ``(ii) the application provides for the 
                        operation of a plan for the reduction in the 
                        number of full-time equivalent residents in the 
                        approved medical residency training programs of 
                        the entity consistent with the requirements of 
                        subparagraph (D);
                            ``(iii) the entity elects in the 
                        application whether such reduction will occur 
                        over--
                                    ``(I) a period of not longer than 5 
                                residency training years, or
                                    ``(II) a period of 6 residency 
                                training years,
                        except that a qualifying entity described in 
                        subparagraph (C)(i)(III) may not make the 
                        election described in subclause (II); and
                            ``(iv) the Secretary determines that the 
                        application and the entity and such plan meet 
                        such other requirements as the Secretary 
                        specifies in regulations.
                    ``(C) Qualifying entity.--
                            ``(i) In general.--For purposes of this 
                        paragraph, any of the following may be a 
                        qualifying entity:
                                    ``(I) Individual hospitals 
                                operating one or more approved medical 
                                residency training programs.
                                    ``(II) Subject to clause (ii), two 
                                or more hospitals that operate such 
                                programs and apply for treatment under 
                                this paragraph as a single qualifying 
                                entity.
                                    ``(III) Subject to clause (iii), a 
                                qualifying consortium (as described in 
                                section 4735 of the Balanced Budget Act 
                                of 1997).
                            ``(ii) Additional requirement for joint 
                        programs.--In the case of an application by a 
                        qualifying entity described in clause (i)(II), 
                        the Secretary may not approve the application 
                        unless the application represents that the 
                        qualifying entity either--
                                    ``(I) in the case of an entity that 
                                meets the requirements of clause (v) of 
                                subparagraph (D) will not reduce the 
                                number of full-time equivalent 
                                residents in primary care during the 
                                period of the plan, or
                                    ``(II) in the case of another 
                                entity will not reduce the proportion 
                                of its residents in primary care (to 
                                the total number of residents) below 
                                such proportion as in effect as of the 
                                applicable time described in 
                                subparagraph (D)(vi).
                            ``(iii) Additional requirement for 
                        consortia.--In the case of an application by a 
                        qualifying entity described in clause (i)(III), 
                        the Secretary may not approve the application 
                        unless the application represents that the 
                        qualifying entity will not reduce the 
                        proportion of its residents in primary care (to 
                        the total number of residents) below such 
                        proportion as in effect as of the applicable 
                        time described in subparagraph (D)(vi).
                    ``(D) Residency reduction requirements.--
                            ``(i) Individual hospital applicants.--In 
                        the case of a qualifying entity described in 
                        subparagraph (C)(i)(I), the number of full-time 
                        equivalent residents in all the approved 
                        medical residency training programs operated by 
                        or through the entity shall be reduced as 
                        follows:
                                    ``(I) If base number of residents 
                                exceeds 750 residents, by a number 
                                equal to at least 20 percent of such 
                                base number.
                                    ``(II) Subject to subclause (IV), 
                                if base number of residents exceeds 
                                500, but is less than 750, residents, 
                                by 150 residents.
                                    ``(III) Subject to subclause (IV), 
                                if base number of residents does not 
                                exceed 500 residents, by a number equal 
                                to at least 25 percent of such base 
                                number.
                                    ``(IV) In the case of a qualifying 
                                entity which is described in clause (v) 
                                and which elects treatment under this 
                                subclause, by a number equal to at 
                                least 20 percent of such base number.
                            ``(ii) Joint applicants.--In the case of a 
                        qualifying entity described in subparagraph 
                        (C)(i)(II), the number of full-time equivalent 
                        residents in all the approved medical residency 
                        training programs operated by or through the 
                        entity shall be reduced as follows:
                                    ``(I) Subject to subclause (II), by 
                                a number equal to at least 25 percent 
                                of such base number.
                                    ``(II) In the case of a qualifying 
                                entity which is described in clause (v) 
                                and which elects treatment under this 
                                subclause, by a number equal to at 
                                least 20 percent of such base number.
                            ``(iii) Consortia.--In the case of a 
                        qualifying entity described in subparagraph 
                        (C)(i)(III), the number of full-time equivalent 
                        residents in all the approved medical residency 
                        training programs operated by or through the 
                        entity shall be reduced by a number equal to at 
                        least 20 percent of such base number.
                            ``(iv) Manner of reduction.--The reductions 
                        specified under the preceding provisions of 
                        this subparagraph for a qualifying entity shall 
                        be below the base number of residents for that 
                        entity and shall be fully effective not later 
                        than--
                                    ``(I) the 5th residency training 
                                year in which the application under 
                                subparagraph (B) is effective, in the 
                                case of an entity making the election 
                                described in subparagraph (B)(iii)(I), 
                                or
                                    ``(II) the 6th such residency 
                                training year, in the case of an entity 
                                making the election described in 
                                subparagraph (B)(iii)(II).
                            ``(v) Entities providing assurance of 
                        maintenance of primary care residents.--An 
                        entity is described in this clause if--
                                    ``(I) the base number of residents 
                                for the entity is less than 750;
                                    ``(II) the number of full-time 
                                equivalent residents in primary care 
                                included in the base number of 
                                residents for the entity is at least 10 
                                percent of such base number; and
                                    ``(III) the entity represents in 
                                its application under subparagraph (B) 
                                that there will be no reduction under 
                                the plan in the number of full-time 
                                equivalent residents in primary care.
                        If a qualifying entity fails to comply with the 
                        representation described in subclause (III), 
                        the entity shall be subject to repayment of all 
                        amounts paid under this paragraph, in 
                        accordance with procedures established to carry 
                        out subparagraph (F).
                            ``(vi) Base number of residents defined.--
                        For purposes of this paragraph, the term `base 
                        number of residents' means, with respect to a 
                        qualifying entity operating approved medical 
                        residency training programs, the number of 
                        full-time equivalent residents in such programs 
                        (before application of weighting factors) of 
                        the entity as of the most recent cost reporting 
                        period ending before June 30, 1997, or, if 
                        less, for any subsequent cost reporting period 
                        that ends before the date the entity makes 
                        application under this paragraph.
                    ``(E) Applicable hold harmless percentage.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the `applicable hold harmless 
                        percentage' is the percentages specified in 
                        clause (ii) or clause (iii), as elected by the 
                        qualifying entity in the application submitted 
                        under subparagraph (B).
                            ``(ii) 5-year reduction plan.--In the case 
                        of an entity making the election described in 
                        subparagraph (B)(iii)(I), the percentages 
                        specified in this clause are, for the--
                                    ``(I) first and second residency 
                                training years in which the reduction 
                                plan is in effect, 100 percent,
                                    ``(II) third such year, 75 percent,
                                    ``(III) fourth such year, 50 
                                percent, and
                                    ``(IV) fifth such year, 25 percent.
                            ``(iii) 6-year reduction plan.--In the case 
                        of an entity making the election described in 
                        subparagraph (B)(iii)(II), the percentages 
                        specified in this clause are, for the--
                                    ``(I) first residency training year 
                                in which the reduction plan is in 
                                effect, 100 percent,
                                    ``(II) second such year, 95 
                                percent,
                                    ``(III) third such year, 85 
                                percent,
                                    ``(IV) fourth such year, 70 
                                percent,
                                    ``(V) fifth such year, 50 percent, 
                                and
                                    ``(VI) sixth such year, 25 percent.
                    ``(F) Penalty for increase in number of residents 
                in subsequent years.--If payments are made under this 
                paragraph to a qualifying entity, if the entity (or any 
                hospital operating as part of the entity) increases the 
                number of full-time equivalent residents above the 
                number of such residents permitted under the reduction 
                plan as of the completion of the plan, then, as 
                specified by the Secretary, the entity is liable for 
                repayment to the Secretary of the total amounts paid 
                under this paragraph to the entity.
                    ``(G) Treatment of rotating residents.--In applying 
                this paragraph, the Secretary shall establish rules 
                regarding the counting of residents who are assigned to 
                institutions the medical residency training programs in 
                which are not covered under approved applications under 
                this paragraph.''.
    (b) Relation to Demonstration Projects and Authority.--
            (1) Section 1886(h)(6) of the Social Security Act, added by 
        subsection (a), shall not apply to any residency training 
        program with respect to which a demonstration project described 
        in paragraph (3) has been approved by the Health Care Financing 
        Administration as of May 27, 1997. The Secretary of Health and 
        Human Services shall take such actions as may be necessary to 
        assure that (in the manner described in subparagraph (A) of 
        such section) in no case shall payments be made under such a 
        project with respect to the first 5 percent reduction in the 
        base number of full-time equivalent residents otherwise used 
        under the project.
            (2) Effective May 27, 1997, the Secretary of Health and 
        Human Services is not authorized to approve any demonstration 
        project described in paragraph (3) for any residency training 
        year beginning before July 1, 2006.
            (3) A demonstration project described in this paragraph is 
        a project that provides for additional payments under title 
        XVIII of the Social Security Act in connection with reduction 
        in the number of residents in a medical residency training 
        program.
    (c) Interim, Final Regulations.--In order to carry out the 
amendment made by subsection (a) in a timely manner, the Secretary of 
Health and Human Services may first promulgate regulations, that take 
effect on an interim basis, after notice and pending opportunity for 
public comment, by not later than 6 months after the date of the 
enactment of this Act.

SEC. 4735. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

    (a) In General.--The Secretary of Health and Human Services (in 
this section referred to as the Secretary) shall establish a 
demonstration project under which, instead of making payments to 
teaching hospitals pursuant to section 1886(h) of the Social Security 
Act, the Secretary shall make payments under this section to each 
consortium that meets the requirements of subsection (b).
    (b) Qualifying Consortia.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
            (1) The consortium consists of an approved medical 
        residency training program in a teaching hospital and one or 
        more of the following entities:
                    (A) A school of allopathic medicine or osteopathic 
                medicine.
                    (B) Another teaching hospital, which may be a 
                children's hospital.
                    (C) Another approved medical residency training 
                program.
                    (D) A Federally qualified health center.
                    (E) A medical group practice.
                    (F) A managed care entity.
                    (G) An entity furnishing outpatient services.
                    (I) Such other entity as the Secretary determines 
                to be appropriate.
            (2) The members of the consortium have agreed to 
        participate in the programs of graduate medical education that 
        are operated by the entities in the consortium.
            (3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
            (4) The consortium meets such additional requirements as 
        the Secretary may establish.
    (c) Amount and Source of Payment.--The total of payments to a 
qualifying consortium for a fiscal year pursuant to subsection (a) 
shall not exceed the amount that would have been paid under section 
1886(h) of the Social Security Act for the teaching hospital (or 
hospitals) in the consortium. Such payments shall be made in such 
proportion from each of the trust funds established under title XVIII 
of such Act as the Secretary specifies.

SEC. 4736. RECOMMENDATIONS ON LONG-TERM PAYMENT POLICIES REGARDING 
              FINANCING TEACHING HOSPITALS AND GRADUATE MEDICAL 
              EDUCATION.

    (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and in this 
section referred to as the ``Commission'') shall examine and develop 
recommendations on whether and to what extent medicare payment policies 
and other Federal policies regarding teaching hospitals and graduate 
medical education should be reformed. Such recommendations shall 
include recommendations regarding each of the following:
            (1) The financing of graduate medical education, including 
        consideration of alternative broad-based sources of funding for 
        such education and models for the distribution of payments 
        under any all-payer financing mechanism.
            (2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such hospitals 
        as competition among health care entities increases. Matters 
        considered under this paragraph shall include consideration of 
        the effects on teaching hospitals of the method of financing 
        used for the MedicarePlus program under part C of title XVIII 
        of the Social Security Act.
            (3) Possible methodologies for making payments for graduate 
        medical education and the selection of entities to receive such 
        payments. Matters considered under this paragraph shall 
        include--
                    (A) issues regarding children's hospitals and 
                approved medical residency training programs in 
                pediatrics, and
                    (B) whether and to what extent payments are being 
                made (or should be made) for training in the various 
                nonphysician health professions, including social 
                workers and psychologists.
            (4) Federal policies regarding international medical 
        graduates.
            (5) The dependence of schools of medicine on service-
        generated income.
            (6) Whether and to what extent the needs of the United 
        States regarding the supply of physicians, in the aggregate and 
        in different specialties, will change during the 10-year period 
        beginning on October 1, 1997, and whether and to what extent 
        any such changes will have significant financial effects on 
        teaching hospitals.
            (7) Methods for promoting an appropriate number, mix, and 
        geographical distribution of health professionals.
    (c) Consultation.--In conducting the study under subsection (a), 
the Commission shall consult with the Council on Graduate Medical 
Education and individuals with expertise in the area of graduate 
medical education, including--
            (1) deans from allopathic and osteopathic schools of 
        medicine;
            (2) chief executive officers (or equivalent administrative 
        heads) from academic health centers, integrated health care 
        systems, approved medical residency training programs, and 
        teaching hospitals that sponsor approved medical residency 
        training programs;
            (3) chairs of departments or divisions from allopathic and 
        osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery;
            (4) individuals with leadership experience from 
        representative fields of non-physician health professionals;
            (5) individuals with substantial experience in the study of 
        issues regarding the composition of the health care workforce 
        of the United States; and
            (6) individuals with expertise on the financing of health 
        care.
    (d) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to the Congress a report 
providing its recommendations under this section and the reasons and 
justifications for such recommendations.

SEC. 4737. MEDICARE SPECIAL REIMBURSEMENT RULE FOR CERTAIN COMBINED 
              RESIDENCY PROGRAMS.

    (a) In General.--Section 1886(h)(5)(G) (42 U.S.C. 1395ww(h)(5)(G)) 
is amended--
            (1) in clause (i), by striking ``and (iii)'' and inserting 
        ``, (iii), and (iv)''; and
            (2) by adding at the end the following:
                            ``(iv) Special rule for certain combined 
                        residency programs.--(I) In the case of a 
                        resident enrolled in a combined medical 
                        residency training program in which all of the 
                        individual programs (that are combined) are for 
                        training a primary care resident (as defined in 
                        subparagraph (H)), the period of board 
                        eligibility shall be the minimum number of 
                        years of formal training required to satisfy 
                        the requirements for initial board eligibility 
                        in the longest of the individual programs plus 
                        one additional year.
                            ``(II) A resident enrolled in a combined 
                        medical residency training program that 
                        includes an obstetrics and gynecology program 
                        shall qualify for the period of board 
                        eligibility under subclause (I) if the other 
                        programs such resident combines with such 
                        obstetrics and gynecology program are for 
                        training a primary care resident.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
combined medical residency programs for residency years beginning on or 
after July 1, 1998.

                      CHAPTER 5--OTHER PROVISIONS

SEC. 4741. 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 specific hospitals or other entities for 
furnishing services related to surgical procedures, and for furnishing 
services (unrelated to surgical procedures) to hospital inpatients that 
the Secretary determines to be appropriate. The services may include 
any services covered under this title that the Secretary determines to 
be appropriate, including post-hospital services.
    ``(b) Quality Standards.--
            ``(1) In general.--Only entities that meet quality 
        standards established by the Secretary shall be eligible to 
        contract under this section. Contracting entities shall 
        implement a quality improvement plan approved by the Secretary.
            ``(2) Participation decision based on quality.--Subject to 
        subsection (c), the Secretary shall consider quality as the 
        primary factor in selecting hospitals or other entities to 
        enter into contracts under this section.
    ``(c) Payment.--Payment under this section shall be made on the 
basis of negotiated all-inclusive rates. The amount of payment made by 
the Secretary to an entity under this title for services covered under 
a contract shall not exceed the aggregate amount of the payments that 
the Secretary would have otherwise made for the services.
    ``(d) Contract Period.--A contract period shall be 3 years (subject 
to renewal), so long as the entity continues to meet quality and other 
contractual standards.
    ``(e) Incentives for Use of Centers.--Entities under a contract 
under this section may furnish additional services (at no cost to an 
individual entitled to benefits under this title) or waive cost-
sharing, subject to the approval of the Secretary.
    ``(f) Limit on Number of Centers.--The Secretary shall limit the 
number of centers in a geographic area to the number needed to meet 
projected demand for contracted services.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after October 1, 1997.

SEC. 4742. MEDICARE PART B SPECIAL ENROLLMENT PERIOD AND WAIVER OF PART 
              B LATE ENROLLMENT PENALTY AND MEDIGAP SPECIAL OPEN 
              ENROLLMENT PERIOD FOR CERTAIN MILITARY RETIREES AND 
              DEPENDENTS.

    (a) Medicare Part B Special Enrollment Period; Waiver of Part B 
Penalty for Late Enrollment.--
            (1) In general.--In the case of any eligible individual (as 
        defined in subsection (c)), the Secretary of Health and Human 
        Services shall provide for a special enrollment period during 
        which the individual may enroll under part B of title XVIII of 
        the Social Security Act. Such period shall be for a period of 6 
        months and shall begin with the first month that begins at 
        least 45 days after the date of the enactment of this Act.
            (2) Coverage period.--In the case of an eligible individual 
        who enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.
            (3) Waiver of part b late enrollment penalty.--In the case 
        of an eligible individual who enrolls during the special 
        enrollment period provided under paragraph (1), there shall be 
        no increase pursuant to section 1839(b) of the Social Security 
        Act in the monthly premium under part B of title XVIII of such 
        Act.
    (b) Medigap Special Open Enrollment Period.--Notwithstanding any 
other provision of law, an issuer of a medicare supplemental policy (as 
defined in section 1882(g) of the Social Security Act)--
            (1) may not deny or condition the issuance or effectiveness 
        of a medicare supplemental policy that has a benefit package 
        classified as ``A'', ``B'', ``C'', or ``F'' under the standards 
        established under section 1882(p)(2) of the Social Security Act 
        (42 U.S.C. 1395rr(p)(2)); and
            (2) may not discriminate in the pricing of the policy on 
        the basis of the individual's health status, medical condition 
        (including both physical and mental illnesses), claims 
        experience, receipt of health care, medical history, genetic 
        information, evidence of insurability (including conditions 
        arising out of acts of domestic violence), or disability;
in the case of an eligible individual who seeks to enroll (and is 
enrolled) during the 6-month period described in subsection (a)(1).
    (c) Eligible Individual Defined.--In this section, the term 
``eligible individual'' means an individual--
            (1) who, as of the date of the enactment of this Act, has 
        attained 65 years of age and was eligible to enroll under part 
        B of title XVIII of the Social Security Act, and
            (2) who at the time the individual first satisfied 
        paragraph (1) or (2) of section 1836 of the Social Security 
        Act--
                    (A) was a covered beneficiary (as defined in 
                section 1072(5) of title 10, United States Code), and
                    (B) did not elect to enroll (or to be deemed 
                enrolled) under section 1837 of the Social Security Act 
                during the individual's initial enrollment period.
The Secretary of Health and Human Services shall consult with the 
Secretary of Defense in the identification of eligible individuals.

SEC. 4743. COMPETITIVE BIDDING FOR CERTAIN ITEMS AND SERVICES.

    (a) Establishment of Demonstration.--Not later than 1 year after 
the date of the enactment of this Act, the Secretary of Health and 
Human Services shall establish and operate over a 2-year period a 
demonstration project in 2 geographic regions selected by the Secretary 
under which (notwithstanding any provision of title XVIII of the Social 
Security Act to the contrary) the amount of payment made under the 
medicare program for a selected item or service furnished in the region 
shall be equal to the price determined pursuant to a competitive 
bidding process which meets the requirements of subsection (b).
    (b) Requirements for Competitive Bidding Process.--The competitive 
bidding process used under the demonstration project under this section 
shall meet such requirements as the Secretary may impose to ensure the 
cost-effective delivery to medicare beneficiaries in the project region 
of items and services of high quality.
    (c) Determination of Selected Items or Services.--The Secretary 
shall select items and services to be subject to the demonstration 
project under this section if the Secretary determines that the use of 
competitive bidding with respect to the item or service under the 
project will be appropriate and cost-effective. In determining the 
items or services to be selected, the Secretary shall consult with an 
advisory taskforce which includes representatives of providers and 
suppliers of items and services (including small business providers and 
suppliers) in each geographic region in which the project will be 
effective.

                  Subtitle I--Medical Liability Reform

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 4801. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

    (a) Applicability.--This subtitle governs any health care liability 
action brought in any State or Federal court, except that this subtitle 
shall not apply to an action for damages arising from a vaccine-related 
injury or death to the extent that title XXI of the Public Health 
Service Act applies to the action.
    (b) Preemption.--This subtitle shall preempt any State or 
applicable Federal law to the extent such law is inconsistent with the 
limitations contained in this subtitle. This subtitle shall not preempt 
any State or applicable Federal law that provides for defenses or 
places limitations on a person's liability in addition to those 
contained in this subtitle or otherwise imposes greater restrictions 
than those provided in this subtitle.
    (c) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in subsection (b) shall be construed to--
            (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
            (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
            (3) affect the applicability of any provision of chapter 97 
        of title 28, United States Code;
            (4) preempt State choice-of-law rules with respect to 
        claims brought by a foreign nation or a citizen of a foreign 
        nation; or
            (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
    (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
    (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 4802. DEFINITIONS.

    As used in this subtitle:
            (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
            (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
            (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
            (4) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established, except that such measure or degree of proof is 
        more than that required under preponderance of the evidence but 
        less than that required for proof beyond a reasonable doubt.
            (5) Collateral source payments.--The term ``collateral 
        source payments'' means any amount paid or reasonably likely to 
        be paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                    (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                    (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                    (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                    (D) any other publicly or privately funded program.
            (6) Device.--The term ``device'' has the same meaning given 
        such term in section 201(h) of the Federal Food, Drug, and 
        Cosmetic Act (21 U.S.C. 321(h)).
            (7) Drug.--The term ``drug'' has the same meaning given 
        such term in section 201(g)(1) of the Federal Food, Drug, and 
        Cosmetic Act (21 U.S.C. 321(g)(1)).
            (8) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from harm (including the loss of 
        earnings or other benefits related to employment, medical 
        expense loss, replacement services loss, loss due to death, 
        burial costs, and loss of business or employment 
        opportunities), to the extent recovery for such loss is allowed 
        under applicable State or Federal law.
            (9) Harm.--The term ``harm'' means--
                    (A) any physical injury, illness, or death of the 
                claimant, or
                    (B) any mental anguish or emotional injury to the 
                claimant caused by or causing the claimant physical 
                injury or illness.
            (10) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health plan (including any person or entity acting under a 
        contract or arrangement to provide or administer any health 
        benefit), or the manufacturer, distributor, supplier, marketer, 
        promoter, or seller of a medical product, in which the claimant 
        alleges a health care liability claim.
            (11) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that harm was caused by the provision of (or the failure to 
        provide) health care services or the use of a medical product, 
        regardless of the theory of liability on which the claim is 
        based.
            (12) Health care provider.--The term ``health care 
        provider'' means any individual, organization, or institution 
        that is engaged in the delivery of health care services in a 
        State and that is required by the laws or regulations of the 
        State to be licensed or certified by the State to engage in the 
        delivery of such services in the State.
            (13) Manufacturer.--The term ``manufacturer'' means--
                    (A) any person who is engaged in a business to 
                produce, create, make, or construct any product (or 
                component part of a product) and who (i) designs or 
                formulates the product (or component part of the 
                product), or (ii) has engaged another person to design 
                or formulate the product (or component part of the 
                product);
                    (B) a product seller, but only with respect to 
                those aspects of a product (or component part of a 
                product) which are created or affected when, before 
                placing the product in the stream of commerce, the 
                product seller produces, creates, makes or constructs 
                and designs, or formulates, or has engaged another 
                person to design or formulate, an aspect of the product 
                (or component part of the product) made by another 
                person; or
                    (C) any product seller not described in 
                subparagraph (B) which holds itself out as a 
                manufacturer to the user of the product.
            (14) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        society and companionship, injury to reputation, humiliation, 
        and other subjective, nonpecuniary losses.
            (15) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
            (16) Product seller.--
                    (A) In general.--The term ``product seller'' means 
                a person who in the course of a business conducted for 
                that purpose--
                            (i) sells, distributes, rents, leases, 
                        prepares, blends, packages, labels, or 
                        otherwise is involved in placing a product in 
                        the stream of commerce; or
                            (ii) installs, repairs, refurbishes, 
                        reconditions, or maintains the harm-causing 
                        aspect of the product.
                    (B) Exclusion.--The term ``product seller'' does 
                not include--
                            (i) a seller or lessor of real property;
                            (ii) a provider of professional services in 
                        any case in which the sale or use of a product 
                        is incidental to the transaction and the 
                        essence of the transaction is the furnishing of 
                        judgment, skill, or services; or
                            (iii) any person who--
                                    (I) acts in only a financial 
                                capacity with respect to the sale of a 
                                product; or
                                    (II) leases a product under a lease 
                                arrangement in which the lessor does 
                                not initially select the leased product 
                                and does not during the lease term 
                                ordinarily control the daily operations 
                                and maintenance of the product.
            (17) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
            (18) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, the Trust Territories of the Pacific Islands, 
        and any other territory or possession of the United States or 
        any political subdivision of any of the foregoing.

SEC. 4803. EFFECTIVE DATE.

    This subtitle will apply to any health care liability action 
brought in a Federal or State court and to any health care liability 
claim subject to an alternative dispute resolution system, that is 
initiated on or after the date of enactment of this subtitle.

     CHAPTER 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 4811. STATUTE OF LIMITATIONS.

    (a) General Rule.--Except as provided in subsection (b), a health 
care liability action may be filed not later than 2 years after the 
date on which the claimant discovered or, in the exercise of reasonable 
care, should have discovered--
            (1) the harm that is the subject of the action; and
            (2) the cause of the harm.
    (b) Exception.--A person with a legal disability (as determined 
under applicable law) may file a health care liability action not later 
than 2 years after the date on which the person ceases to have the 
legal disability.
    (c) Transitional Provision Relating to Extension of Period for 
Bringing Certain Actions.--If any provision of subsection (a) or (b) 
shortens the period during which a health care liability action could 
be otherwise brought pursuant to another provision of law, the claimant 
may, notwithstanding subsections (a) and (b), bring the health care 
liability action not later than 2 years after the date of enactment of 
this Act.

SEC. 4812. CALCULATION AND PAYMENT OF DAMAGES.

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

SEC. 4813. ALTERNATIVE DISPUTE RESOLUTION.

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

           TITLE V--COMMITTEE ON EDUCATION AND THE WORKFORCE

                      Subtitle A--TANF Block Grant

SEC. 5001. WELFARE-TO-WORK GRANTS.

    (a) Grants to States.--Section 403(a) of the Social Security Act 
(42 U.S.C. 603(a)) is amended by adding at the end the following:
            ``(5) Welfare-to-work grants.--
                    ``(A) Formula grants.--
                            ``(i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary a grant 
                        for each fiscal year specified in subparagraph 
                        (H) of this paragraph for which the State is a 
                        welfare-to-work State, in an amount that does 
                        not exceed the lesser of--
                                    ``(I) 2 times the total of the 
                                expenditures by the State (excluding 
                                qualified State expenditures (as 
                                defined in section 409(a)(7)(B)(i)) and 
                                expenditures described in section 
                                409(a)(7)(B)(iv)) during the fiscal 
                                year for activities described in 
                                subpargraph (C)(i) of this paragraph; 
                                or
                                    ``(II) the allotment of the State 
                                under clause (iii) of this subparagraph 
                                for the fiscal year.
                            ``(ii) Welfare-to-work state.--A State 
                        shall be considered a welfare-to-work State for 
                        a fiscal year for purposes of this subparagraph 
                        if the Secretary, after consultation (and the 
                        sharing of any plan or amendment thereto 
                        submitted under this clause) with the Secretary 
                        of Health and Human Services and the Secretary 
                        of Housing and Urban Development, determines 
                        that the State meets the following 
                        requirements:
                                    ``(I) The State has submitted to 
                                the Secretary (in the form of an 
                                addendum to the State plan submitted 
                                under section 402) a plan which--
                                            ``(aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State will 
                                        use any funds provided under 
                                        this subparagraph during the 
                                        fiscal year;
                                            ``(bb) specifies the 
                                        formula to be used pursuant to 
                                        clause (vi) to distribute funds 
                                        in the State, and describes the 
                                        process by which the formula 
                                        was developed; and
                                            ``(cc) contains evidence 
                                        that the plan was developed 
                                        through a collaborative process 
                                        that, at a minimum, included 
                                        sub-State areas.
                                    ``(II) The State has provided the 
                                Secretary with an estimate of the 
                                amount that the State intends to expend 
                                during the fiscal year (excluding 
                                expenditures described in section 
                                409(a)(7)(B)(iv)) for activities 
                                described in subparagraph (C)(i) of 
                                this paragraph.
                                    ``(III) The State has agreed to 
                                negotiate in good faith with the 
                                Secretary of Health and Human Services 
                                with respect to the substance of any 
                                evaluation under section 413(j), and to 
                                cooperate with the conduct of any such 
                                evaluation.
                                    ``(IV) The State is an eligible 
                                State for the fiscal year.
                            ``(iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-work 
                        State for a fiscal year shall be the available 
                        amount for the fiscal year multiplied by the 
                        State percentage for the fiscal year.
                            ``(iv) Available amount.--As used in clause 
                        (iii), the term `available amount' means, for a 
                        fiscal year, 95 percent of--
                                    ``(I) the amount specified in 
                                subparagraph (H) for the fiscal year; 
                                minus
                                    ``(II) the total of the amounts 
                                reserved pursuant to subparagraphs (F) 
                                and (G) for the fiscal year.
                                    ``(v) State percentage.--As used in 
                                clause (iii), the term `State 
                                percentage' means, with respect to a 
                                fiscal year, \1/2\ of the sum of--
                                            ``(aa) the percentage 
                                        represented by the number of 
                                        individuals in the State whose 
                                        income is less than the poverty 
                                        line divided by the number of 
                                        such individuals in the United 
                                        States; and
                                            ``(bb) the percentage 
                                        represented by the number of 
                                        individuals who are adult 
                                        recipients of assistance under 
                                        the State program funded under 
                                        this part divided by the number 
                                        of individuals in the United 
                                        States who are adult recipients 
                                        of assistance under any State 
                                        program funded under this part.
                            ``(vi) Distribution of funds within 
                        states.--
                                    ``(I) In general.--A State to which 
                                a grant is made under this subparagraph 
                                shall distribute not less than 85 
                                percent of the grant funds among the 
                                service delivery areas in the State, in 
                                accordance with a formula which--
                                            ``(aa) determines the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number (if any) by which 
                                        the number of individuals 
                                        residing in the service 
                                        delivery area with an income 
                                        that is less than the poverty 
                                        line exceeds 5 percent of the 
                                        population of the service 
                                        delivery area, relative to such 
                                        number for the other service 
                                        delivery areas in the State, 
                                        and accords a weight of not 
                                        less than 50 percent to this 
                                        factor;
                                            ``(bb) may determine the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number of adults residing 
                                        in the service delivery area 
                                        who are recipients of 
                                        assistance under the State 
                                        program funded under this part 
                                        (whether in effect before or 
                                        after the amendments made by 
                                        section 103(a) of the Personal 
                                        Responsibility and Work 
                                        Opportunity Reconciliation Act 
                                        first applied to the State) for 
                                        at least 30 months (whether or 
                                        not consecutive) relative to 
                                        the number of such adults 
                                        residing in the other service 
                                        delivery areas in the State; 
                                        and
                                            ``(cc) may determine the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number of unemployed 
                                        individuals residing in the 
                                        service delivery area relative 
                                        to the number of such 
                                        individuals residing in the 
                                        other service delivery areas in 
                                        the State.
                                    ``(II) Special rule.--
                                Notwithstanding subclause (I), if the 
                                formula used pursuant to subclause (I) 
                                would result in the distribution of 
                                less than $100,000 during a fiscal year 
                                for the benefit of a service delivery 
                                area, then in lieu of distributing such 
                                sum in accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause (III) 
                                during the fiscal year.
                                    ``(III) Projects to help long-term 
                                recipients of assistance into the work 
                                force.--The Governor of a State to 
                                which a grant is made under this 
                                subparagraph may distribute not more 
                                than 15 percent of the grant funds 
                                (plus any amount required to be 
                                distributed under this subclause by 
                                reason of subclause (II)) to projects 
                                that appear likely to help long-term 
                                recipients of assistance under the 
                                State program funded under this part 
                                (whether in effect before or after the 
                                amendments made by section 103(a) of 
                                the Personal Responsibility and Work 
                                Opportunity Reconciliation Act first 
                                applied to the State) enter the work 
                                force.
                            ``(vii) Administration.--
                                    ``(I) In general.--A grant made 
                                under this subparagraph to a State 
                                shall be administered by the State 
                                agency that is administering, or 
                                supervising the administration of, the 
                                State program funded under this part, 
                                or by another State agency designated 
                                by the Governor of the State.
                                    ``(II) Spending by private industry 
                                councils.--The private industry council 
                                for a service delivery area shall have 
                                sole authority, in coordination with 
                                the chief elected official (as 
                                described in section 103(c) of the Job 
                                Training Partnership Act) of the 
                                service delivery area, to expend the 
                                amounts provided for a service delivery 
                                area under subparagraph (vi)(I).
                    ``(B) Demonstration projects.--
                            ``(i) In general.--The Secretary, in 
                        consultation with the Secretary of Health and 
                        Human Services and the Secretary of Housing and 
                        Urban Development, shall make grants in 
                        accordance with this subparagraph among 
                        eligible applicants based on the likelihood 
                        that the applicant can successfully make long-
                        term placements of individuals into the work 
                        force.
                            ``(ii) Eligible applicants.--As used in 
                        clause (i), the term `eligible applicant' means 
                        a private industry council or a political 
                        subdivision of a State.
                            ``(iii) Determination of grant amount.--In 
                        determining the amount of a grant to be made 
                        under this subparagraph for a demonstration 
                        project proposed by an applicant, the Secretary 
                        shall provide the applicant with an amount 
                        sufficient to ensure that the project has a 
                        reasonable opportunity to be successful, taking 
                        into account the number of long-term recipients 
                        of assistance under a State program funded 
                        under this part, the level of unemployment, the 
                        job opportunities and job growth, the poverty 
                        rate, and such other factors as the Secretary 
                        deems appropriate, in the area to be served by 
                        the project.
                            ``(iv) Funding.--For grants under this 
                        subparagraph for each fiscal year specified in 
                        subparagraph (H), there shall be available to 
                        the Secretary an amount equal to the sum of--
                                    ``(I) 5 percent of--
                                            ``(aa) the amount specified 
                                        in subparagraph (H) for the 
                                        fiscal year; minus
                                            ``(bb) the total of the 
                                        amounts reserved pursuant to 
                                        subparagraphs (F) and (G) for 
                                        the fiscal year;
                                    ``(II) any amount available for 
                                grants under this paragraph for the 
                                immediately preceding fiscal year that 
                                has not been obligated;
                                    ``(III) any amount reserved 
                                pursuant to subparagraph (F) for the 
                                immediately preceding fiscal year that 
                                has not been obligated; and
                                    ``(IV) any available amount (as 
                                defined in subparagraph (A)(iv)) for 
                                the immediately preceding fiscal year 
                                that has not been obligated by a State 
                                or sub-State entity.
                        Amounts made available pursuant to this clause 
                        are authorized to remain available until the 
                        end of fiscal year 2001.
                    ``(C) Limitations on use of funds.--
                            ``(i) Allowable activities.--An entity to 
                        which funds are provided under this paragraph 
                        may use the funds to move into the work force 
                        recipients of assistance under the program 
                        funded under this part of the State in which 
                        the entity is located, by means of any of the 
                        following:
                                    ``(I) Job creation through public 
                                or private sector employment wage 
                                subsidies.
                                    ``(II) On-the-job training.
                                    ``(III) Contracts with job 
                                placement companies or public job 
                                placement programs.
                                    ``(IV) Job vouchers.
                                    ``(V) Job retention or support 
                                services if such services are not 
                                otherwise available.
                            ``(ii) Required beneficiaries.--An entity 
                        that operates a project with funds provided 
                        under this paragraph shall expend at least 90 
                        percent of all funds provided to the project 
                        for the benefit of recipients of assistance 
                        under the program funded under this part of the 
                        State in which the entity is located who meet 
                        the requirements of any of the following 
                        subclauses:
                                    ``(I) The individual has received 
                                assistance under the State program 
                                funded under this part (whether in 
                                effect before or after the amendments 
                                made by section 103 of the Personal 
                                Responsibility and Work Opportunity 
                                Reconciliation Act of 1996 first apply 
                                to the State) for at least 30 months 
                                (whether or not consecutive).
                                    ``(II) At least 2 of the following 
                                apply to the recipient:
                                            ``(aa) The individual has 
                                        not completed secondary school 
                                        or obtained a certificate of 
                                        general equivalency, and has 
                                        low skills in reading and 
                                        mathematics.
                                            ``(bb) The individual 
                                        requires substance abuse 
                                        treatment for employment.
                                            ``(cc) The individual has a 
                                        poor work history.
                                The Secretary shall prescribe such 
                                regulations as may be necessary to 
                                interpret this subclause.
                                    ``(III) Within 12 months, the 
                                individual will become ineligible for 
                                assistance under the State program 
                                funded under this part by reason of a 
                                durational limit on such assistance, 
                                without regard to any exemption 
                                provided pursuant to section 
                                408(a)(7)(C) that may apply to the 
                                individual.
                            ``(iii) Limitation on applicability of 
                        section 404.--The rules of section 404, other 
                        than subsections (b), (f), and (h) of section 
                        404, shall not apply to a grant made under this 
                        paragraph.
                            ``(iv) Prohibition against provision of 
                        services by private industry council.--A 
                        private industry council may not directly 
                        provide services using funds provided under 
                        this paragraph.
                            ``(v) Prohibition against use of grant 
                        funds for any other fund matching 
                        requirement.--An entity to which funds are 
                        provided under this paragraph shall not use any 
                        part of the funds to fulfill any obligation of 
                        any State, political subdivision, or private 
                        industry council to contribute funds under 
                        other Federal law.
                            ``(vi) Deadline for expenditure.--An entity 
                        to which funds are provided under this 
                        paragraph shall remit to the Secretary any part 
                        of the funds that are not expended within 3 
                        years after the date the funds are so provided.
                    ``(D) Individuals with income less than the poverty 
                line.--For purposes of this paragraph, the number of 
                individuals with an income that is less than the 
                poverty line shall be determined based on the 
                methodology used by the Bureau of the Census to produce 
                and publish intercensal poverty data for 1993 for 
                States and counties.
                    ``(E) Definitions.--As used in this paragraph:
                            ``(i) Private industry council.--The term 
                        `private industry council' means, with respect 
                        to a service delivery area, the private 
                        industry council (or successor entity) 
                        established for the service delivery area 
                        pursuant to the Job Training Partnership Act.
                            ``(ii) Secretary.--The term `Secretary' 
                        means the Secretary of Labor, except as 
                        otherwise expressly provided.
                            ``(iii) Service delivery area.--The term 
                        `service delivery area' shall have the meaning 
                        given such term for purposes of the Job 
                        Training Partnership Act (or successor area).
                    ``(F) Funding for indian tribes.--1 percent of the 
                amount specified in subparagraph (H) for each fiscal 
                year shall be reserved for grants to Indian tribes 
                under section 412(a)(3).
                    ``(G) Evaluations.--0.5 percent of the amount 
                specified in subparagraph (H) for each fiscal year 
                shall be reserved for use by the Secretary of Health 
                and Human Services to carry out section 413(j).
                    ``(H) Funding.--The amount specified in this 
                subparagraph is--
                            ``(i) $750,000,000 for fiscal year 1998;
                            ``(ii) $1,250,000,000 for fiscal year 1999; 
                        and
                            ``(iii) $1,000,000,000 for fiscal year 
                        2000.
                    ``(I) Budget scoring.--Notwithstanding section 
                457(b)(2) of the Balanced Budget and Emergency Deficit 
                Control Act of 1985, the baseline shall assume that no 
                grant shall be made under this paragraph or under 
                section 412(a)(3) after fiscal year 2001.''.
    (b) Grants to Territories.--Section 1108(a) of such Act (42 U.S.C. 
1308(a)) is amended by inserting ``(except section 403(a)(5))'' after 
``title IV''.
    (c) Grants to Indian Tribes.--Section 412(a) of such Act (42 U.S.C. 
612(a)) is amended by adding at the end the following:
            ``(3) Welfare-to-work grants.--
                    ``(A) In general.--The Secretary shall make a grant 
                in accordance with this paragraph to an Indian tribe 
                for each fiscal year specified in section 403(a)(5)(H) 
                for which the Indian tribe is a welfare-to-work tribe, 
                in such amount as the Secretary deems appropriate, 
                subject to subparagraph (B) of this paragraph.
                    ``(B) Welfare-to-work tribe.--An Indian tribe shall 
                be considered a welfare-to-work tribe for a fiscal year 
                for purposes of this paragraph if the Indian tribe 
                meets the following requirements:
                            ``(i) The Indian tribe has submitted to the 
                        Secretary (in the form of an addendum to the 
                        tribal family assistance plan, if any, of the 
                        Indian tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the Indian 
                        tribe will use any funds provided under this 
                        paragraph during the fiscal year.
                            ``(ii) The Indian tribe has provided the 
                        Secretary with an estimate of the amount that 
                        the Indian tribe intends to expend during the 
                        fiscal year (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) for 
                        activities described in section 
                        403(a)(5)(C)(i).
                            ``(iii) The Indian tribe has agreed to 
                        negotiate in good faith with the Secretary of 
                        Health and Human Services with respect to the 
                        substance of any evaluation under section 
                        413(j), and to cooperate with the conduct of 
                        any such evaluation.
                    ``(C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to Indian 
                tribes under this paragraph in the same manner in which 
                such section applies to funds provided under section 
                403(a)(5).''.
    (d) Funds Received From Grants to be Disregarded in Applying 
Durational Limit on Assistance.--Section 408(a)(7) of such Act (42 
U.S.C. 608(a)(7)) is amended by adding at the end the following:
                    ``(G) Inapplicability to welfare-to-work grants and 
                assistance.--For purposes of subparagraph (A) of this 
                paragraph, a grant made under section 403(a)(5) shall 
                not be considered a grant made under section 403, and 
                assistance from funds provided under section 403(a)(5) 
                shall not be considered assistance.''.
    (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) is 
amended by adding at the end the following:
    ``(j) Evaluation of Welfare-To-Work Programs.--The Secretary--
            ``(1) shall, in consultation with the Secretary of Labor, 
        develop a plan to evaluate how grants made under sections 
        403(a)(5) and 412(a)(3) have been used; and
            ``(2) may evaluate the use of such grants by such grantees 
        as the Secretary deems appropriate, in accordance with an 
        agreement entered into with the grantees after good-faith 
        negotiations.''.

SEC. 5002. NONDISPLACEMENT.

    Section 407(f) of the Social Security Act (42 U.S.C. 607(f)) is 
amended to read as follows:
    ``(f) Nondisplacement in Work Activities.--
            ``(1) Prohibitions.--
                    ``(A) General prohibition.--A participant in a work 
                activity pursuant to section 403(a)(5) or this section 
                shall not displace (including a partial displacement, 
                such as a reduction in the hours of nonovertime work, 
                wages, or employment benefits) any individual who, as 
                of the date of the participation, is an employee.
                    ``(B) Prohibition on impairment of contracts.--A 
                work activity shall not impair an existing contract for 
                services or collective bargaining agreement, and a work 
                activity that would be inconsistent with the terms of a 
                collective bargaining agreement shall not be undertaken 
                without the written concurrence of the labor 
                organization and employer concerned.
                    ``(C) Other prohibitions.--A participant in a work 
                activity shall not be employed in a job--
                            ``(i) when any other individual is on 
                        layoff from the same or any substantially 
                        equivalent job;
                            ``(ii) when the employer has terminated the 
                        employment of any regular employee or otherwise 
                        reduced the workforce of the employer with the 
                        intention of filling the vacancy so created 
                        with the participant; or
                            ``(iii) which is created in a promotional 
                        line that will infringe in any way upon the 
                        promotional opportunities of employed 
                        individuals.
            ``(2) Health and safety.--Health and safety standards 
        established under Federal and State law otherwise applicable to 
        working conditions of employees shall be equally applicable to 
        working conditions of participants engaged in a work activity. 
        To the extent that a State workers' compensation law applies, 
        workers' compensation shall be provided to participants on the 
        same basis as the compensation is provided to other individuals 
        in the State in similar employment.
            ``(3) Nondiscrimination.--In addition to the protections 
        provided under the provisions of law specified in section 
        408(c), an individual may not be discriminated against with 
        respect to participation in work activities by reason of 
        gender.
            ``(4) Grievance procedure.--
                    ``(A) In general.--Each State to which a grant is 
                made under section 403 shall establish and maintain a 
                procedure for grievances or complaints alleging 
                violations of paragraph (1), (2), or (3) from 
                participants and other interested or affected parties. 
                The procedure shall include an opportunity for a 
                hearing and be completed within 60 days after the 
                grievance or complaint is filed.
                    ``(B) Investigation.--
                            ``(i) In general.--The Secretary of Labor 
                        shall investigate an allegation of a violation 
                        of paragraph (1), (2), or (3) if--
                                    ``(I) a decision relating to the 
                                violation is not reached within 60 days 
                                after the date of the filing of the 
                                grievance or complaint, and either 
                                party appeals to the Secretary of 
                                Labor; or
                                    ``(II) a decision relating to the 
                                violation is reached within the 60-day 
                                period, and the party to which the 
                                decision is adverse appeals the 
                                decision to the Secretary of Labor.
                            ``(ii) Additional requirement.--The 
                        Secretary of Labor shall make a final 
                        determination relating to an appeal made under 
                        clause (i) no later than 120 days after 
                        receiving the appeal.
                    ``(C) Remedies.--Remedies for violation of 
                paragraph (1), (2), or (3) shall be limited to--
                            ``(i) suspension or termination of payments 
                        under section 403;
                            ``(ii) prohibition of placement of a 
                        participant with an employer that has violated 
                        paragraph (1), (2), or (3);
                            ``(iii) where applicable, reinstatement of 
                        an employee, payment of lost wages and 
                        benefits, and reestablishment of other relevant 
                        terms, conditions and privileges of employment; 
                        and
                            ``(iv) where appropriate, other equitable 
                        relief.''.

SEC. 5003. CLARIFICATION OF LIMITATION ON NUMBER OF PERSONS WHO MAY BE 
              TREATED AS ENGAGED IN WORK BY REASON OF PARTICIPATION IN 
              EDUCATIONAL ACTIVITIES.

    (a) In General.--Section 407(c)(2)(D) of the Social Security Act 
(42 U.S.C. 607(c)(2)(D)) is amended to read as follows:
                    ``(D) Limitation on number of persons who may be 
                treated as engaged in work by reason of participation 
                in educational activities.--For purposes of determining 
                monthly participation rates under paragraphs (1)(B)(i) 
                and (2)(B) of subsection (b), not more than 20 percent 
                of the number of individuals in all families and in 2-
                parent families, respectively, in a State who are 
                treated as engaged in work for a month may consist of 
                individuals who are determined to be engaged in work 
                for the month by reason of participation in vocational 
                educational training, or deemed to be engaged in work 
                for the month by reason of subparagraph (C) of this 
                paragraph.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 5004. COMPENSATION; MAXIMUM REQUIRED HOURS OF WORK ACTIVITIES.

    (a) In General.--Section 407 of the Social Security Act (42 U.S.C. 
607) is amended by adding at the end the following:
    ``(j) Compensation.--A State to which a grant is made under section 
403 may not require a recipient of assistance under the State program 
funded under this part to participate in a work activity described in 
paragraph (1), (2), or (3) of subsection (d) unless the recipient is 
compensated at the same rates, including periodic increases, as 
trainees or employees who are similarly situated in similar occupations 
by the same employer and who have similar training, experience and 
skills, and such rates shall be in accordance with applicable law.
    ``(k) Limitation on Number of Hours Per Month That a Recipient of 
Assistance May Be Required to Participate in On-The-Job Training, and 
with a Public Agency or Nonprofit Organization.--
            ``(1) In general.--A State to which a grant is made under 
        section 403 may not require a recipient of assistance under the 
        State program funded under this part to be assigned to on-the-
        job training, and to a work experience or community service 
        position with a public agency or nonprofit organization during 
        a month for more than the allowable number of hours determined 
        for the month under paragraph (2).
            ``(2) Allowable number of hours.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                allowable number of hours determined for a month under 
                this paragraph is--
                            ``(i) the value of the includible benefits 
                        provided by the State to the recipient during 
                        the month; divided by
                            ``(ii) the minimum wage rate in effect 
                        during the month under section 6 of the Fair 
                        Labor Standards Act of 1938.
                    ``(B) State option to take account of certain work 
                activities.--
                            ``(i) In general.--In determining the 
                        allowable number of hours for a month for a 
                        sufficiently employed recipient, the State may 
                        subtract from the allowable number of hours 
                        calculated under subparagraph (A) the number of 
                        hours during the month for which the recipient 
                        participates in a work activity described in 
                        paragraph (6), (8), (9), or (11) of subsection 
                        (d).
                            ``(ii) Sufficiently employed recipient.--As 
                        used in clause (i), the term `sufficiently 
                        employed recipient' means, with respect to a 
                        month, a recipient who is employed during the 
                        month for a number of hours that is not less 
                        than--
                                    ``(I) the sum of the dollar value 
                                of any assistance provided to the 
                                recipient during the month under the 
                                State program funded under this part, 
                                and the dollar value equivalent of any 
                                benefits provided to the recipient 
                                during the month under the food stamp 
                                program under the Food Stamp Act of 
                                1977; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938.
            ``(3) Definition of value of the includible benefits.--As 
        used in paragraph (2)(A), the term `value of the includible 
        benefits' means, with respect to a recipient--
                    ``(A) the dollar value of any assistance under the 
                State program funded under this part;
                    ``(B) the dollar value equivalent of any benefits 
                under the food stamp program under the Food Stamp Act 
                of 1977;
                    ``(C) at the option of the State, the dollar value 
                of benefits under the State plan approved under title 
                XIX, as determined in accordance with paragraph (4);
                    ``(D) at the option of the State, the dollar value 
                of child care assistance; and
                    ``(E) at the option of the State, the dollar value 
                of housing benefits.
            ``(4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the dollar value 
        of the insurance coverage provided under title XIX to a family 
        of each size, which may take account of geographical variations 
        or other factors identified by the Secretary.
            ``(5) Treatment of recipients assigned to certain positions 
        with a public agency or nonprofit organization.--A recipient of 
        assistance under a State program funded under this part who is 
        engaged in work experience or community service with a public 
        agency or nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit organization.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 5005. PENALTY FOR FAILURE OF STATE TO REDUCE ASSISTANCE FOR 
              RECIPIENTS REFUSING WITHOUT GOOD CAUSE TO WORK.

    (a) In General.--Section 409(a) of the Social Security Act (42 
U.S.C. 609(a)) is amended by adding at the end the following:
            ``(13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                    ``(A) In general.--If the Secretary determines that 
                a State to which a grant is made under section 403 in a 
                fiscal year has violated section 407(e) during the 
                fiscal year, the Secretary shall reduce the grant 
                payable to the State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount equal 
                to not less than 1 percent and not more than 5 percent 
                of the State family assistance grant.
                    ``(B) Penalty based on severity of failure.--The 
                Secretary shall impose reductions under subparagraph 
                (A) with respect to a fiscal year based on the degree 
                of noncompliance.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

                 Subtitle B--Higher Education Programs

SEC. 5101. MANAGEMENT AND RECOVERY OF RESERVES.

    (a) Amendment.--Section 422 of the Higher Education Act of 1965 (20 
U.S.C. 1072) is amended by adding after subsection (g) the following 
new subsection:
    ``(h) Recall of Reserves; Limitations on Use of Reserve Funds and 
Assets.--(1) Notwithstanding any other provision of law, the Secretary 
shall, except as otherwise provided in this subsection, recall 
$1,000,000,000 from the reserve funds held by guaranty agencies on 
September 1, 2002.
    ``(2) Funds recalled by the Secretary under this subsection shall 
be deposited in the Treasury.
    ``(3) The Secretary shall require each guaranty agency to return 
reserve funds under paragraph (1) based on such agency's required share 
of recalled reserve funds held by guaranty agencies as of September 30, 
1996. For purposes of this paragraph, a guaranty agency's required 
share of recalled reserve funds shall be determined as follows:
            ``(A) The Secretary shall compute each agency's reserve 
        ratio by dividing (i) the amount held in such agency's reserve 
        funds as of September 30, 1996 (but reflecting later accounting 
        or auditing adjustments approved by the Secretary), by (ii) the 
        original principal amount of all loans for which such agency 
        has an outstanding insurance obligation as of such date.
            ``(B) If the reserve ratio of any agency as computed under 
        subparagraph (A) exceeds 2.0 percent, the agency's required 
        share shall include so much of the amounts held in such 
        agency's reserve fund as exceed a reserve ratio of 2.0 percent.
            ``(C) If any additional amount is required to be recalled 
        under paragraph (1) (after deducting the total of the required 
        shares calculated under subparagraph (B)), the agencies' 
        required shares shall include additional amounts--
                    ``(i) determined by imposing on each such agency an 
                equal percentage reduction in the amount of each 
                agency's reserve fund remaining after deduction of the 
                amount recalled under subparagraph (B); and
                    ``(ii) the total of which equals the additional 
                amount that is required to be recalled under paragraph 
                (1) (after deducting the total of the required shares 
                calculated under subparagraph (B)).
    ``(4) Within 90 days after the beginning of each of fiscal years 
1998 through 2002, each guaranty agency shall transfer a portion of 
each agency's required share determined under paragraph (3) to a 
restricted account established by the guaranty agency that is of a type 
selected by the guaranty agency with the approval of the Secretary. 
Funds transferred to such restricted accounts shall be invested in 
obligations issued or guaranteed by the United States or in other 
similarly low-risk securities. A guaranty agency shall not use the 
funds in such a restricted account for any purpose without the express 
written permission of the Secretary, except that a guaranty agency may 
use the earnings from such restricted account to assist in meeting the 
agency's operational expenses under this part. In each of fiscal years 
1998 through 2002, each agency shall transfer its required share to 
such restricted account in 5 equal annual installments, except that--
            ``(A) a guarantee agency that has a reserve ratio (as 
        computed under subparagraph (3)(A)) equal to or less than 1.10 
        percent may transfer its required share to such account in 4 
        equal installments beginning in fiscal year 1999; and
            ``(B) a guarantee agency may transfer such required share 
        to such account in accordance with such other payment schedules 
        as are approved by the Secretary.
    ``(5) If, on September 1, 2002, the total amount in the restricted 
accounts described in paragraph (4) is less than the amount the 
Secretary is required to recall under paragraph (1), the Secretary may 
require the return of the amount of the shortage from other reserve 
funds held by guaranty agencies under procedures established by the 
Secretary.
    ``(6) The Secretary may take such reasonable measures, and require 
such information, as may be necessary to ensure that guaranty agencies 
comply with the requirements of this subsection. Notwithstanding any 
other provision of this part, if the Secretary determines that a 
guaranty agency is not in compliance with the requirements of this 
subsection, such agency may not receive any other funds under this part 
until the Secretary determines that such agency is in compliance.
    ``(7) The Secretary shall not have any authority to direct a 
guaranty agency to return reserve funds under subsection (g)(1)(A) 
during the period from the date of enactment of this subsection through 
September 30, 2002, and any reserve funds otherwise returned under 
subsection (g)(1) during such period shall be treated as amounts 
recalled under this subsection and shall not be available under 
subsection (g)(4).
    ``(8) For purposes of this subsection, the term `reserve funds' 
when used with respect to a guaranty agency--
            ``(A) includes any cash reserve funds held by the guaranty 
        agency, or held by, or under the control of, any other entity; 
        and
            ``(B) does not include buildings, equipment, or other 
        nonliquid assets.''.
    (b) Conforming Amendment.--Section 428(c)(9)(A) of the Higher 
Education Act of 1965 (20 U.S.C. 1078(c)(9)(A)) is amended--
            (1) in the first sentence, by striking ``for the fiscal 
        year of the agency that begins in 1993''; and
            (2) by striking the third sentence.

SEC. 5102. REPEAL OF DIRECT LOAN ORIGINATION FEES TO INSTITUTIONS OF 
              HIGHER EDUCATION.

    Section 452 of the Higher Education Act of 1965 (20 U.S.C. 1087b) 
is amended--
            (1) by striking subsection (b); and
            (2) by redesignating subsections (c) and (d) as subsections 
        (b) and (c), respectively.

SEC. 5103. FUNDS FOR ADMINISTRATIVE EXPENSES.

    Subsection (a) of section 458 of the Higher Education Act of 1965 
(20 U.S.C. 1087h(a)) is amended to read as follows:
    ``(a) In General.--(1) Each fiscal year, there shall be available 
to the Secretary from funds not otherwise appropriated, funds to be 
obligated for--
            ``(A) administrative costs under this part and part B, 
        including the costs of the direct student loan programs under 
        this part, and
            ``(B) administrative cost allowances payable to guaranty 
        agencies under part B and calculated in accordance with 
        paragraph (2),
not to exceed (from such funds not otherwise appropriated) $532,000,000 
in fiscal year 1998, $610,000,000 in fiscal year 1999, $705,000,000 in 
fiscal year 2000, $750,000,000 in fiscal year 2001, and $750,000,000 in 
fiscal year 2002. Administrative cost allowances under subparagraph (B) 
of this paragraph shall be paid quarterly and used in accordance with 
section 428(f). The Secretary may carry over funds available under this 
section to a subsequent fiscal year.
    ``(2) Administrative cost allowances payable to guaranty agencies 
under paragraph (1)(B) shall be calculated on the basis of 0.85 percent 
of the total principal amount of loans upon which insurance is issued 
on or after the date of enactment of the Balanced Budget Act of 1997, 
except that such allowances shall not exceed--
            ``(A) $170,000,000 for each of the fiscal years 1998 and 
        1999; or
            ``(B) $150,000,000 for each of the fiscal years 2000, 2001, 
        and 2002.''.

SEC. 5104. SECRETARY'S EQUITABLE SHARE OF COLLECTIONS ON CONSOLIDATED 
              DEFAULTED LOANS.

    Section 428(c)(6)(A) of the Higher Education Act of 1965 (20 U.S.C. 
1078(c)(6)(A)) is amended--
            (1) in the matter preceding clause (i), by striking ``made 
        by the borrower'' and inserting ``made by or on behalf of the 
        borrower, including payments made to discharge loans made under 
        this title to obtain a consolidation loan pursuant to this part 
        or part D,''; and
            (2) in clause (ii), by striking ``(ii) an amount equal to 
        27 percent of such payments (subject to subparagraph (D) of 
        this paragraph) for costs related'' and inserting the 
        following:
            ``(ii) an amount equal to 27 percent of such payments for 
        covered costs, except that the amount determined under this 
        clause for such covered costs shall be (I) 18.5 percent of such 
        payments for defaulted loans consolidated pursuant to this part 
        or part D on or after July 1, 1997; and (II) 18.5 percent of 
        such payments for defaulted loans consolidated pursuant to this 
        part or part D on or after the date of enactment of the Higher 
        Education Amendments of 1992 with respect to any guaranty 
        agency that has, after such date, made deductions from such 
        payments under this clause (ii) in an amount equal to 18.5 
        percent of such payments.
For purposes of clause (ii) of this subparagraph, the term `covered 
costs' means costs related''.

SEC. 5105. EXTENSION OF STUDENT AID PROGRAMS.

    Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et 
seq.) is amended--
            (1) in section 424(a), by striking ``1998.'' and ``2002.'' 
        and inserting ``2002.'' and ``2006.'', respectively;
            (2) in section 428(a)(5), by striking ``1998,'' and 
        ``2002.'' and inserting ``2002,'' and ``2006.'', respectively; 
        and
            (3) in section 428C(e), by striking ``1998.'' and inserting 
        ``2002.''.

      Subtitle C--Repeal of Smith-Hughes Vocational Education Act

SEC. 5201. REPEAL OF SMITH-HUGHES VOCATIONAL EDUCATION ACT.

    The Act of February 23, 1917 (39 Stat. 929; 20 U.S.C. 11) (commonly 
known as the ``Smith-Hughes Vocational Education Act'') is repealed.

   Subtitle D--Expansion of Portability and Health Insurance Coverage

SEC. 5301. SHORT TITLE OF SUBTITLE.

    This subtitle may be cited as the ``Expansion of Portability and 
Health Insurance Coverage Act of 1997''.

SEC. 5302. RULES GOVERNING ASSOCIATION HEALTH PLANS.

    (a) In General.--Subtitle B of title I of the Employee Retirement 
Income Security Act of 1974 is amended by adding after part 7 the 
following new part:

           ``Part 8--Rules Governing Association Health Plans

``SEC. 801. ASSOCIATION HEALTH PLANS.

    ``(a) In General.--For purposes of this part, the term `association 
health plan' means a group health plan--
            ``(1) whose sponsor is (or is deemed under this part to be) 
        described in subsection (b), and
            ``(2) under which at least one option of health insurance 
        coverage offered by a health insurance issuer (which may 
        include, among other options, managed care options, point of 
        service options, and preferred provider options) is provided to 
        participants and beneficiaries.
    ``(b) Sponsorship.--The sponsor of a group health plan is described 
in this subsection if such sponsor--
            ``(1) is organized and maintained in good faith, with a 
        constitution and bylaws specifically stating its purpose and 
        providing for periodic meetings on at least an annual basis, as 
        a trade association, an industry association (including a rural 
        electric cooperative association or a rural telephone 
        cooperative association), a professional association, or a 
        chamber of commerce (or similar business group, including a 
        corporation or similar organization that operates on a 
        cooperative basis (within the meaning of section 1381 of the 
        Internal Revenue Code of 1986)), for substantial purposes other 
        than that of obtaining or providing medical care,
            ``(2) is established as a permanent entity which receives 
        the active support of its members and collects from its members 
        on a periodic basis dues or payments necessary to maintain 
        eligibility for membership in the sponsor, and
            ``(3) does not condition such dues or payments or coverage 
        under the plan on the basis of health status-related factors 
        with respect to the employees of its members (or affiliated 
        members), or the dependents of such employees, and does not 
        condition such dues or payments on the basis of group health 
        plan participation.
Any sponsor consisting of an association of entities which meet the 
requirements of paragraphs (1) and (2) shall be deemed to be a sponsor 
described in this subsection.

``SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

    ``(a) In General.--The Secretary shall prescribe by regulation a 
procedure under which, subject to subsection (b), the Secretary shall 
certify association health plans which apply for certification as 
meeting the requirements of this part.
    ``(b) Standards.--Under the procedure prescribed pursuant to 
subsection (a), the Secretary shall certify an association health plan 
as meeting the requirements of this part only if the Secretary is 
satisfied that--
            ``(1) such certification--
                    ``(A) is administratively feasible,
                    ``(B) is not adverse to the interests of the 
                individuals covered under the plan, and
                    ``(C) is protective of the rights and benefits of 
                the individuals covered under the plan, and
            ``(2) the applicable requirements of this part are met (or, 
        upon the date on which the plan is to commence operations, will 
        be met) with respect to the plan.
    ``(c) Requirements Applicable to Certified Plans.--An association 
health plan with respect to which certification under this part is in 
effect shall meet the applicable requirements of this part, effective 
on the date of certification (or, if later, on the date on which the 
plan is to commence operations).
    ``(d) Requirements for Continued Certification.--The Secretary may 
provide by regulation for continued certification under this part, 
including requirements relating to any commencement, by an association 
health plan which has been certified under this part, of a benefit 
option which does not consist of health insurance coverage.
    ``(e) Class Certification for Fully-Insured Plans.--The Secretary 
shall establish a class certification procedure for association health 
plans under which all benefits consist of health insurance coverage. 
Under such procedure, the Secretary shall provide for the granting of 
certification under this part to the plans in each class of such 
association health plans upon appropriate filing under such procedure 
in connection with plans in such class and payment of the prescribed 
fee under section 807(a).

``SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

    ``(a) Sponsor.--The requirements of this subsection are met with 
respect to an association health plan if--
            ``(1) the sponsor (together with its immediate predecessor, 
        if any) has met (or is deemed under this part to have met) for 
        a continuous period of not less than 3 years ending with the 
        date of the application for certification under this part, the 
        requirements of paragraphs (1) and (2) of section 801(b), and
            ``(2) the sponsor meets (or is deemed under this part to 
        meet) the requirements of section 801(b)(3).
    ``(b) Board of Trustees.--The requirements of this subsection are 
met with respect to an association health plan if the following 
requirements are met:
            ``(1) Fiscal control.--The plan is operated, pursuant to a 
        trust agreement, by a board of trustees which has complete 
        fiscal control over the plan and which is responsible for all 
        operations of the plan.
            ``(2) Rules of operation and financial controls.--The board 
        of trustees has in effect rules of operation and financial 
        controls, based on a 3-year plan of operation, adequate to 
        carry out the terms of the plan and to meet all requirements of 
        this title applicable to the plan.
            ``(3) Rules governing relationship to participating 
        employers and to contractors.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the members of the board of trustees 
                are individuals selected from individuals who are the 
                owners, officers, directors, or employees of the 
                participating employers or who are partners in the 
                participating employers and actively participate in the 
                business.
                    ``(B) Limitation.--
                            ``(i) General rule.--Except as provided in 
                        clauses (ii) and (iii), no such member is an 
                        owner, officer, director, or employee of, or 
                        partner in, a contract administrator or other 
                        service provider to the plan.
                            ``(ii) Limited exception for providers of 
                        services solely on behalf of the sponsor.--
                        Officers or employees of a sponsor which is a 
                        service provider (other than a contract 
                        administrator) to the plan may be members of 
                        the board if they constitute not more than 25 
                        percent of the membership of the board and they 
                        do not provide services to the plan other than 
                        on behalf of the sponsor.
                            ``(iii) Treatment of providers of medical 
                        care.--In the case of a sponsor which is an 
                        association whose membership consists primarily 
                        of providers of medical care, clause (i) shall 
                        not apply in the case of any service provider 
                        described in subparagraph (A) who is a provider 
                        of medical care under the plan.
                    ``(C) Sole authority.--The board has sole authority 
                to approve applications for participation in the plan 
                and to contract with a service provider to administer 
                the day-to-day affairs of the plan.
    ``(c) Treatment of Franchise Networks.--In the case of a group 
health plan which is established and maintained by a franchiser for a 
franchise network consisting of its franchisees--
            ``(1) the requirements of subsection (a) and section 
        801(a)(1) shall be deemed met if such requirements would 
        otherwise be met if the franchiser were deemed to be the 
        sponsor referred to in section 801(b), such network were deemed 
        to be an association described in section 801(b), and each 
        franchisee were deemed to be a member (of the association and 
        the sponsor) referred to in section 801(b), and
            ``(2) the requirements of section 804(a)(1) shall be deemed 
        met.
    ``(d) Certain Collectively Bargained Plans.--
            ``(1) In general.--In the case of a group health plan 
        described in paragraph (2)--
                    ``(A) the requirements of subsection (a) and 
                section 801(a)(1) shall be deemed met,
                    ``(B) the joint board of trustees shall be deemed a 
                board of trustees with respect to which the 
                requirements of subsection (b) are met, and
                    ``(C) the requirements of section 804 shall be 
                deemed met.
            ``(2) Requirements.--A group health plan is described in 
        this paragraph if--
                    ``(A) the plan is a multiemployer plan,
                    ``(B) the plan is in existence on April 1, 1997, 
                and would be described in section 3(40)(A)(i) but 
                solely for the failure to meet the requirements of 
                section 3(40)(C)(ii) or (to the extent provided in 
                regulations of the Secretary) solely for the failure to 
                meet the requirements of subparagraph (D) of section 
                3(40), or
                    ``(C)(i) the plan is in existence on April 1, 1997, 
                has been in existence as of such date for at least 3 
                years, meets the requirements of paragraphs (2) and (3) 
                of section 801(b), and would be described in section 
                3(40)(A)(i) but solely for the failure to meet the 
                requirements of subparagraph (C)(i) or (C)(ii), and
                    ``(ii) individuals who are members of the plan 
                sponsor--
                            ``(I) participate by elections in the 
                        organizational governance of the plan sponsor,
                            ``(II) are eligible for appointment as 
                        trustee of the plan or for participation in the 
                        appointment of trustees of the plan, and
                            ``(III) if covered under the plan, have 
                        full rights under the plan of a participant in 
                        an employee welfare benefit plan.
    ``(e) Certain Plans Not Meeting Single Employer Requirement.--
            ``(1) In general.--In any case in which the majority of the 
        employees covered under a group health plan are employees of a 
        single employer (within the meaning of clauses (i) and (ii) of 
        section 3(40)(B)), if all other employees covered under the 
        plan are employed by employers who are related to such single 
        employer--
                    ``(A) the requirements of subsection (a) and 
                section 801(a)(1) shall not apply if such single 
                employer is the sponsor of the plan, and
                    ``(B) the requirements of subsection (b) shall be 
                deemed met if the board of trustees is the named 
                fiduciary in connection with the plan.
            ``(2) Related employers.--For purposes of paragraph (1), 
        employers are `related' if there is among all such employers a 
        common ownership interest or a substantial commonality of 
        business operations based on common suppliers or customers.

``SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

    ``(a) Covered Employers and Individuals.--The requirements of this 
subsection are met with respect to an association health plan if, under 
the terms of the plan--
            ``(1) all participating employers must be members or 
        affiliated members of the sponsor, except that, in the case of 
        a sponsor which is a professional association or other 
        individual-based association, if at least one of the officers, 
        directors, or employees of an employer, or at least one of the 
        individuals who are partners in an employer and who actively 
        participates in the business, is a member or affiliated member 
        of the sponsor, participating employers may also include such 
        employer, and
            ``(2) all individuals commencing coverage under the plan 
        after certification under this part must be--
                    ``(A) active or retired owners (including self-
                employed individuals), officers, directors, or 
                employees of, or partners in, participating employers, 
                or
                    ``(B) the beneficiaries of individuals described in 
                subparagraph (A).
    ``(b) Coverage of Previously Uninsured Employees.--The requirements 
of this subsection are met with respect to an association health plan 
if, under the terms of the plan, no affiliated member of the sponsor 
may be offered coverage under the plan as a participating employer 
unless--
            ``(1) the affiliated member was an affiliated member on the 
        date of certification under this part, or
            ``(2) during the 12-month period preceding the date of the 
        offering of such coverage, the affiliated member has not 
        maintained or contributed to a group health plan with respect 
        to any of its employees who would otherwise be eligible to 
        participate in such association health plan.
    ``(c) Individual Market Unaffected.--The requirements of this 
subsection are met with respect to an association health plan if, under 
the terms of the plan, no participating employer may provide health 
insurance coverage in the individual market for any employee not 
covered under the plan which is similar to the coverage 
contemporaneously provided to employees of the employer under the plan, 
if such exclusion of the employee from coverage under the plan is based 
on a health status-related factor with respect to the employee and such 
employee would, but for such exclusion on such basis, be eligible for 
coverage under the plan.
    ``(d) Prohibition of Discrimination Against Employers and Employees 
Eligible to Participate.--The requirements of this subsection are met 
with respect to an association health plan if--
            ``(1) under the terms of the plan, no employer meeting the 
        preceding requirements of this section is excluded as a 
        participating employer, unless--
                    ``(A) participation or contribution requirements of 
                the type referred to in section 2711 of the Public 
                Health Service Act are not met with respect to the 
                excluded employer, or
                    ``(B) the excluded employer does not satisfy a 
                required minimum level of employment uniformly 
                applicable to participating employers,
            ``(2) the applicable requirements of sections 701, 702, and 
        703 are met with respect to the plan, and
            ``(3) applicable benefit options under the plan are 
        actively marketed to all eligible participating employers.

``SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION 
              RATES, AND BENEFIT OPTIONS.

    ``(a) In General.--The requirements of this section are met with 
respect to an association health plan if the following requirements are 
met:
            ``(1) Contents of governing instruments.--The instruments 
        governing the plan include a written instrument, meeting the 
        requirements of an instrument required under section 402(a)(1), 
        which--
                    ``(A) provides that the board of trustees serves as 
                the named fiduciary required for plans under section 
                402(a)(1) and serves in the capacity of a plan 
                administrator (referred to in section 3(16)(A)),
                    ``(B) provides that the sponsor of the plan is to 
                serve as plan sponsor (referred to in section 
                3(16)(B)), and
                    ``(C) incorporates the requirements of section 806.
            ``(2) Contribution rates must be nondiscriminatory.--
                    ``(A) The contribution rates for any participating 
                employer do not vary significantly on the basis of the 
                claims experience of such employer and do not vary on 
                the basis of the type of business or industry in which 
                such employer is engaged.
                    ``(B) Nothing in this title or any other provision 
                of law shall be construed to preclude an association 
                health plan, or a health insurance issuer offering 
                health insurance coverage in connection with an 
                association health plan, from setting contribution 
                rates based on the claims experience of the plan, to 
                the extent contribution rates under the plan meet the 
                requirements of section 702(b).
            ``(3) Floor for number of covered individuals with respect 
        to certain plans.--If any benefit option under the plan does 
        not consist of health insurance coverage, the plan has as of 
        the beginning of the plan year not fewer than 1,000 
        participants and beneficiaries.
            ``(4) Regulatory requirements.--Such other requirements as 
        the Secretary may prescribe by regulation as necessary to carry 
        out the purposes of this part.
    ``(b) Ability of Association Health Plans to Design Benefit 
Options.--Nothing in this part or any provision of State law (as 
defined in section 514(c)(1)) shall be construed to preclude an 
association health plan, or a health insurance issuer offering health 
insurance coverage in connection with an association health plan, from 
exercising its sole discretion in selecting the specific items and 
services consisting of medical care to be included as benefits under 
such plan or coverage, except in the case of any law to the extent that 
it (1) prohibits an exclusion of a specific disease from such coverage, 
or (2) is not preempted under section 731(a)(1) with respect to matters 
governed by section 711 or 712.

``SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR 
              PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH 
              INSURANCE COVERAGE.

    ``(a) In General.--The requirements of this section are met with 
respect to an association health plan if--
            ``(1) the benefits under the plan consist solely of health 
        insurance coverage, or
            ``(2) if the plan provides any additional benefit options 
        which do not consist of health insurance coverage, the plan--
                    ``(A) establishes and maintains reserves with 
                respect to such additional benefit options, in amounts 
                recommended by the qualified actuary, consisting of--
                            ``(i) a reserve sufficient for unearned 
                        contributions,
                            ``(ii) a reserve sufficient for benefit 
                        liabilities which have been incurred, which 
                        have not been satisfied, and for which risk of 
                        loss has not yet been transferred, and for 
                        expected administrative costs with respect to 
                        such benefit liabilities,
                            ``(iii) a reserve sufficient for any other 
                        obligations of the plan, and
                            ``(iv) a reserve sufficient for a margin of 
                        error and other fluctuations, taking into 
                        account the specific circumstances of the plan,
                and
                    ``(B) establishes and maintains aggregate excess/
                stop loss insurance and solvency indemnification, with 
                respect to such additional benefit options for which 
                risk of loss has not yet been transferred, as follows:
                            ``(i) The plan shall secure aggregate 
                        excess/stop loss insurance for the plan with an 
                        attachment point which is not greater than 125 
                        percent of expected gross annual claims. The 
                        Secretary may by regulation provide for upward 
                        adjustments in the amount of such percentage in 
                        specified circumstances in which the plan 
                        specifically provides for and maintains 
                        reserves in excess of the amounts required 
                        under subparagraph (A).
                            ``(ii) The plan shall secure a means of 
                        indemnification for any claims which the plan 
                        is unable to satisfy by reason of a termination 
                        pursuant to section 809(b) (relating to 
                        mandatory termination).
Any regulations prescribed by the Secretary pursuant to paragraph 
(2)(B)(i) may allow for such adjustments in the required levels of 
excess/stop loss insurance as the qualified actuary may recommend, 
taking into account the specific circumstances of the plan.
    ``(b) Minimum Surplus in Addition to Claims Reserves.--The 
requirements of this subsection are met if the plan establishes and 
maintains surplus in an amount at least equal to the excess of--
            ``(1) the greater of--
                    ``(A) 25 percent of expected incurred claims and 
                expenses for the plan year, or
                    ``(B) $400,000,
        over
            ``(2) the amount required under subsection (a)(2)(A)(ii).
    ``(c) Additional Requirements.--In the case of any association 
health plan described in subsection (a)(2), the Secretary may provide 
such additional requirements relating to reserves and excess/stop loss 
insurance as the Secretary considers appropriate. Such requirements may 
be provided, by regulation or otherwise, with respect to any such plan 
or any class of such plans.
    ``(d) Adjustments for Excess/Stop Loss Insurance.--The Secretary 
may provide for adjustments to the levels of reserves otherwise 
required under subsections (a) and (b) with respect to any plan or 
class of plans to take into account excess/stop loss insurance provided 
with respect to such plan or plans.
    ``(e) Alternative Means of Compliance.--The Secretary may permit an 
association health plan described in subsection (a)(2) to substitute, 
for all or part of the requirements of this section, such security, 
guarantee, hold-harmless arrangement, or other financial arrangement as 
the Secretary determines to be adequate to enable the plan to fully 
meet all its financial obligations on a timely basis and is otherwise 
no less protective of the interests of participants and beneficiaries 
than the requirements for which it is substituted. The Secretary may 
take into account, for purposes of this subsection, evidence provided 
by the plan or sponsor which demonstrates an assumption of liability 
with respect to the plan. Such evidence may be in the form of a 
contract of indemnification, lien, bonding, insurance, letter of 
credit, recourse under applicable terms of the plan in the form of 
assessments of participating employers, security, or other financial 
arrangement.
    ``(f) Excess/Stop Loss Insurance.--For purposes of this section, 
the term `excess/stop loss insurance' means, in connection with an 
association health plan, a contract under which an insurer (meeting 
such minimum standards as may be prescribed in regulations of the 
Secretary) provides for payment to the plan with respect to claims 
under the plan in excess of an amount or amounts specified in such 
contract.

``SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

    ``(a) Filing Fee.--Under the procedure prescribed pursuant to 
section 802(a), an association health plan shall pay to the Secretary 
at the time of filing an application for certification under this part 
a filing fee in the amount of $5,000, which shall be available, to the 
extent provided in appropriation Acts, to the Secretary for the sole 
purpose of administering the certification procedures applicable with 
respect to association health plans.
    ``(b) Information To Be Included in Application for 
Certification.--An application for certification under this part meets 
the requirements of this section only if it includes, in a manner and 
form prescribed in regulations of the Secretary, at least the following 
information:
            ``(1) Identifying information.--The names and addresses 
        of--
                    ``(A) the sponsor, and
                    ``(B) the members of the board of trustees of the 
                plan.
            ``(2) States in which plan intends to do business.--The 
        States in which participants and beneficiaries under the plan 
        are to be located and the number of them expected to be located 
        in each such State.
            ``(3) Bonding requirements.--Evidence provided by the board 
        of trustees that the bonding requirements of section 412 will 
        be met as of the date of the application or (if later) 
        commencement of operations.
            ``(4) Plan documents.--A copy of the documents governing 
        the plan (including any bylaws and trust agreements), the 
        summary plan description, and other material describing the 
        benefits that will be provided to participants and 
        beneficiaries under the plan.
            ``(5) Agreements with service providers.--A copy of any 
        agreements between the plan and contract administrators and 
        other service providers.
            ``(6) Funding report.--In the case of association health 
        plans providing benefits options in addition to health 
        insurance coverage, a report setting forth information with 
        respect to such additional benefit options determined as of a 
        date within the 120-day period ending with the date of the 
        application, including the following:
                    ``(A) Reserves.--A statement, certified by the 
                board of trustees of the plan, and a statement of 
                actuarial opinion, signed by a qualified actuary, that 
                all applicable requirements of section 806 are or will 
                be met in accordance with regulations which the 
                Secretary shall prescribe.
                    ``(B) Adequacy of contribution rates.--A statement 
                of actuarial opinion, signed by a qualified actuary, 
                which sets forth a description of the extent to which 
                contribution rates are adequate to provide for the 
                payment of all obligations and the maintenance of 
                required reserves under the plan for the 12-month 
                period beginning with such date within such 120-day 
                period, taking into account the expected coverage and 
                experience of the plan. If the contribution rates are 
                not fully adequate, the statement of actuarial opinion 
                shall indicate the extent to which the rates are 
                inadequate and the changes needed to ensure adequacy.
                    ``(C) Current and projected value of assets and 
                liabilities.--A statement of actuarial opinion signed 
                by a qualified actuary, which sets forth the current 
                value of the assets and liabilities accumulated under 
                the plan and a projection of the assets, liabilities, 
                income, and expenses of the plan for the 12-month 
                period referred to in subparagraph (B). The income 
                statement shall identify separately the plan's 
                administrative expenses and claims.
                    ``(D) Costs of coverage to be charged and other 
                expenses.--A statement of the costs of coverage to be 
                charged, including an itemization of amounts for 
                administration, reserves, and other expenses associated 
                with the operation of the plan.
                    ``(E) Other information.--Any other information 
                which may be prescribed in regulations of the Secretary 
                as necessary to carry out the purposes of this part.
    ``(c) Filing Notice of Certification With States.--A certification 
granted under this part to an association health plan shall not be 
effective unless written notice of such certification is filed with the 
applicable State authority of each State in which at least 25 percent 
of the participants and beneficiaries under the plan are located. For 
purposes of this subsection, an individual shall be considered to be 
located in the State in which a known address of such individual is 
located or in which such individual is employed.
    ``(d) Notice of Material Changes.--In the case of any association 
health plan certified under this part, descriptions of material changes 
in any information which was required to be submitted with the 
application for the certification under this part shall be filed in 
such form and manner as shall be prescribed in regulations of the 
Secretary. The Secretary may require by regulation prior notice of 
material changes with respect to specified matters which might serve as 
the basis for suspension or revocation of the certification.
    ``(e) Reporting Requirements for Certain Association Health 
Plans.--An association health plan certified under this part which 
provides benefit options in addition to health insurance coverage for 
such plan year shall meet the requirements of section 103 by filing an 
annual report under such section which shall include information 
described in subsection (b)(6) with respect to the plan year and, 
notwithstanding section 104(a)(1)(A), shall be filed not later than 90 
days after the close of the plan year (or on such later date as may be 
prescribed by the Secretary).
    ``(f) Engagement of Qualified Actuary.--The board of trustees of 
each association health plan which provides benefits options in 
addition to health insurance coverage and which is applying for 
certification under this part or is certified under this part shall 
engage, on behalf of all participants and beneficiaries, a qualified 
actuary who shall be responsible for the preparation of the materials 
comprising information necessary to be submitted by a qualified actuary 
under this part. The qualified actuary shall utilize such assumptions 
and techniques as are necessary to enable such actuary to form an 
opinion as to whether the contents of the matters reported under this 
part--
            ``(1) are in the aggregate reasonably related to the 
        experience of the plan and to reasonable expectations, and
            ``(2) represent such actuary's best estimate of anticipated 
        experience under the plan.
The opinion by the qualified actuary shall be made with respect to, and 
shall be made a part of, the annual report.

``SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

    ``Except as provided in section 809(b), an association health plan 
which is or has been certified under this part may terminate (upon or 
at any time after cessation of accruals in benefit liabilities) only if 
the board of trustees--
            ``(1) not less than 60 days before the proposed termination 
        date, provides to the participants and beneficiaries a written 
        notice of intent to terminate stating that such termination is 
        intended and the proposed termination date,
            ``(2) develops a plan for winding up the affairs of the 
        plan in connection with such termination in a manner which will 
        result in timely payment of all benefits for which the plan is 
        obligated, and
            ``(3) submits such plan in writing to the Secretary.
Actions required under this section shall be taken in such form and 
manner as may be prescribed in regulations of the Secretary.

``SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

    ``(a) Actions To Avoid Depletion of Reserves.--An association 
health plan which is certified under this part and which provides 
benefits other than health insurance coverage shall continue to meet 
the requirements of section 806, irrespective of whether such 
certification continues in effect. The board of trustees of such plan 
shall determine quarterly whether the requirements of section 806 are 
met. In any case in which the board determines that there is reason to 
believe that there is or will be a failure to meet such requirements, 
or the Secretary makes such a determination and so notifies the board, 
the board shall immediately notify the qualified actuary engaged by the 
plan, and such actuary shall, not later than the end of the next 
following month, make such recommendations to the board for corrective 
action as the actuary determines necessary to ensure compliance with 
section 806. Not later than 30 days after receiving from the actuary 
recommendations for corrective actions, the board shall notify the 
Secretary (in such form and manner as the Secretary may prescribe by 
regulation) of such recommendations of the actuary for corrective 
action, together with a description of the actions (if any) that the 
board has taken or plans to take in response to such recommendations. 
The board shall thereafter report to the Secretary, in such form and 
frequency as the Secretary may specify to the board, regarding 
corrective action taken by the board until the requirements of section 
806 are met.
    ``(b) Mandatory Termination.--In any case in which--
            ``(1) the Secretary has been notified under subsection (a) 
        of a failure of an association health plan which is or has been 
        certified under this part and is described in section 806(a)(2) 
        to meet the requirements of section 806 and has not been 
        notified by the board of trustees of the plan that corrective 
        action has restored compliance with such requirements, and
            ``(2) the Secretary determines that there is a reasonable 
        expectation that the plan will continue to fail to meet the 
        requirements of section 806,
the board of trustees of the plan shall, at the direction of the 
Secretary, terminate the plan and, in the course of the termination, 
take such actions as the Secretary may require, including satisfying 
any claims referred to in section 806(a)(2)(B)(ii) and recovering for 
the plan any liability under subsection (a)(2)(B)(ii) or (e) of section 
806, as necessary to ensure that the affairs of the plan will be, to 
the maximum extent possible, wound up in a manner which will result in 
timely provision of all benefits for which the plan is obligated.
    ``(c) Guarantee Fund.--In any case in which claims against an 
association health plan terminated under subsection (b) remain 
outstanding after all actions required under subsection (b) have been 
undertaken in connection with the termination, the Secretary shall 
assess all ongoing association health plans which are or have been 
certified under this part and are described in section 806(a)(2) in an 
amount--
            ``(1) expressed as a uniform percentage of claims paid by 
        such plans per year for coverage, other than health insurance 
        coverage, commencing with the last plan year ending before the 
        date of the termination, and
            ``(2) equal, in the aggregate, to the total amount of such 
        outstanding claims,
except that any such assessment shall not exceed 2 percent per year. 
The Secretary shall promptly pay such outstanding claims with the 
amounts assessed pursuant to this subsection. The Secretary shall 
deposit and hold such assessments in a guarantee fund which shall be 
established by the Secretary for payment of such claims until such 
payment of such claims has been completed. The Secretary may invest 
amounts of the fund in such obligations as the Secretary considers 
appropriate.

``SEC. 810. SPECIAL RULES FOR CHURCH PLANS.

    ``(a) Election for Church Plans.--Notwithstanding section 4(b)(2), 
if a church, a convention or association of churches, or an 
organization described in section 3(33)(C)(i) maintains a church plan 
which is a group health plan (as defined in section 733(a)(1)), and 
such church, convention, association, or organization makes an election 
with respect to such plan under this subsection (in such form and 
manner as the Secretary may by regulation prescribe), then the 
provisions of this section shall apply to such plan, with respect to 
benefits provided under such plan consisting of medical care, as if 
section 4(b)(2) did not contain an exclusion for church plans. Nothing 
in this paragraph shall be construed to render any other section of 
this title applicable to church plans, except to the extent that such 
other section is incorporated by reference in this section.
    ``(b) Effect of Election.--
            ``(1) Preemption of state insurance laws regulating covered 
        church plans.--Subject to paragraphs (2) and (3), this section 
        shall supersede any and all State laws which regulate insurance 
        insofar as they may now or hereafter regulate church plans to 
        which this section applies or trusts established under such 
        church plans.
            ``(2) General state insurance regulation unaffected.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and paragraph (3), nothing in this 
                section shall be construed to exempt or relieve any 
                person from any provision of State law which regulates 
                insurance.
                    ``(B) Church plans not to be deemed insurance 
                companies or insurers.--Neither a church plan to which 
                this section applies, nor any trust established under 
                such a church plan, shall be deemed to be an insurance 
                company or other insurer or to be engaged in the 
                business of insurance for purposes of any State law 
                purporting to regulate insurance companies or insurance 
                contracts.
            ``(3) Preemption of certain state laws relating to premium 
        rate regulation and benefit mandates.--The provisions of 
        subsections (a)(2)(B) and (b) of section 805 shall apply with 
        respect to a church plan to which this section applies in the 
        same manner and to the same extent as such provisions apply 
        with respect to association health plans.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) State law.--The term `State law' includes all 
                laws, decisions, rules, regulations, or other State 
                action having the effect of law, of any State. A law of 
                the United States applicable only to the District of 
                Columbia shall be treated as a State law rather than a 
                law of the United States.
                    ``(B) State.--The term `State' includes a State, 
                any political subdivision thereof, or any agency or 
                instrumentality of either, which purports to regulate, 
                directly or indirectly, the terms and conditions of 
                church plans covered by this section.
    ``(c) Requirements for Covered Church Plans.--
            ``(1) Fiduciary rules and exclusive purpose.--A fiduciary 
        shall discharge his duties with respect to a church plan to 
        which this section applies--
                    ``(A) for the exclusive purpose of:
                            ``(i) providing benefits to participants 
                        and their beneficiaries; and
                            ``(ii) defraying reasonable expenses of 
                        administering the plan;
                    ``(B) with the care, skill, prudence and diligence 
                under the circumstances then prevailing that a prudent 
                man acting in a like capacity and familiar with such 
                matters would use in the conduct of an enterprise of a 
                like character and with like aims; and
                    ``(C) in accordance with the documents and 
                instruments governing the plan.
        The requirements of this paragraph shall not be treated as not 
        satisfied solely because the plan assets are commingled with 
        other church assets, to the extent that such plan assets are 
        separately accounted for.
            ``(2) Claims procedure.--In accordance with regulations of 
        the Secretary, every church plan to which this section applies 
        shall--
                    ``(A) provide adequate notice in writing to any 
                participant or beneficiary whose claim for benefits 
                under the plan has been denied, setting forth the 
                specific reasons for such denial, written in a manner 
                calculated to be understood by the participant;
                    ``(B) afford a reasonable opportunity to any 
                participant whose claim for benefits has been denied 
                for a full and fair review by the appropriate fiduciary 
                of the decision denying the claim; and
                    ``(C) provide a written statement to each 
                participant describing the procedures established 
                pursuant to this paragraph.
            ``(3) Annual statements.--In accordance with regulations of 
        the Secretary, every church plan to which this section applies 
        shall file with the Secretary an annual statement--
                    ``(A) stating the names and addresses of the plan 
                and of the church, convention, or association 
                maintaining the plan (and its principal place of 
                business);
                    ``(B) certifying that it is a church plan to which 
                this section applies and that it complies with the 
                requirements of paragraphs (1) and (2);
                    ``(C) identifying the States in which participants 
                and beneficiaries under the plan are or likely will be 
                located during the 1-year period covered by the 
                statement; and
                    ``(D) containing a copy of a statement of actuarial 
                opinion signed by a qualified actuary that the plan 
                maintains capital, reserves, insurance, other financial 
                arrangements, or any combination thereof adequate to 
                enable the plan to fully meet all of its financial 
                obligations on a timely basis.
            ``(4) Disclosure.--At the time that the annual statement is 
        filed by a church plan with the Secretary pursuant to paragraph 
        (3), a copy of such statement shall be made available by the 
        Secretary to the State insurance commissioner (or similar 
        official) of any State. The name of each church plan and 
        sponsoring organization filing an annual statement in 
        compliance with paragraph (3) shall be published annually in 
        the Federal Register.
    ``(c) Enforcement.--The Secretary may enforce the provisions of 
this section in a manner consistent with section 502, to the extent 
applicable with respect to actions under section 502(a)(5), and with 
section 3(33)(D), except that, other than for the purpose of seeking a 
temporary restraining order, a civil action may be brought with respect 
to the plan's failure to meet any requirement of this section only if 
the plan fails to correct its failure within the correction period 
described in section 3(33)(D). The other provisions of part 5 (except 
sections 501(a), 503, 512, 514, and 515) shall apply with respect to 
the enforcement and administration of this section.
    ``(d) Definitions and Other Rules.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        section, any term used in this section which is defined in any 
        provision of this title shall have the definition provided such 
        term by such provision.
            ``(2) Seminary students.--Seminary students who are 
        enrolled in an institution of higher learning described in 
        section 3(33)(C)(iv) and who are treated as participants under 
        the terms of a church plan to which this section applies shall 
        be deemed to be employees as defined in section 3(6) if the 
        number of such students constitutes an insignificant portion of 
        the total number of individuals who are treated as participants 
        under the terms of the plan.

``SEC. 811. DEFINITIONS AND RULES OF CONSTRUCTION.

    ``(a) Definitions.--For purposes of this part--
            ``(1) Group health plan.--The term `group health plan' has 
        the meaning provided in section 733(a)(1).
            ``(2) Medical care.--The term `medical care' has the 
        meaning provided in section 733(a)(2).
            ``(3) Health insurance coverage.--The term `health 
        insurance coverage' has the meaning provided in section 
        733(b)(1).
            ``(4) Health insurance issuer.--The term `health insurance 
        issuer' has the meaning provided in section 733(b)(2).
            ``(5) Health status-related factor.--The term `health 
        status-related factor' has the meaning provided in section 
        733(d)(2).
            ``(6) Individual market.--
                    ``(A) In general.--The term `individual market' 
                means the market for health insurance coverage offered 
                to individuals other than in connection with a group 
                health plan.
                    ``(B) Treatment of very small groups.--
                            ``(i) In general.--Subject to clause (ii), 
                        such term includes coverage offered in 
                        connection with a group health plan that has 
                        fewer than 2 participants as current employees 
                        or participants described in section 732(d)(3) 
                        on the first day of the plan year.
                            ``(ii) State exception.--Clause (i) shall 
                        not apply in the case of health insurance 
                        coverage offered in a State if such State 
                        regulates the coverage described in such clause 
                        in the same manner and to the same extent as 
                        coverage in the small group market (as defined 
                        in section 2791(e)(5) of the Public Health 
                        Service Act) is regulated by such State.
            ``(7) Participating employer.--The term `participating 
        employer' means, in connection with an association health plan, 
        any employer, if any individual who is an employee of such 
        employer, a partner in such employer, or a self-employed 
        individual who is such employer (or any dependent, as defined 
        under the terms of the plan, of such individual) is or was 
        covered under such plan in connection with the status of such 
        individual as such an employee, partner, or self-employed 
        individual in relation to the plan.
            ``(8) Applicable state authority.--The term `applicable 
        State authority' means, with respect to a health insurance 
        issuer in a State, the State insurance commissioner or official 
        or officials designated by the State to enforce the 
        requirements of title XXVII of the Public Health Service Act 
        for the State involved with respect to such issuer.
            ``(9) Qualified actuary.--The term `qualified actuary' 
        means an individual who is a member of the American Academy of 
        Actuaries or meets such reasonable standards and qualifications 
        as the Secretary may provide by regulation.
            ``(10) Affiliated member.--The term `affiliated member' 
        means, in connection with a sponsor, a person eligible to be a 
        member of the sponsor or, in the case of a sponsor with member 
        associations, a person who is a member, or is eligible to be a 
        member, of a member association.
    ``(b) Rules of Construction.--
            ``(1) Employers and employees.--For purposes of determining 
        whether a plan, fund, or program is an employee welfare benefit 
        plan which is an association health plan, and for purposes of 
        applying this title in connection with such plan, fund, or 
        program so determined to be such an employee welfare benefit 
        plan--
                    ``(A) in the case of a partnership, the term 
                `employer' (as defined in section (3)(5)) includes the 
                partnership in relation to the partners, and the term 
                `employee' (as defined in section (3)(6)) includes any 
                partner in relation to the partnership, and
                    ``(B) in the case of a self-employed individual, 
                the term `employer' (as defined in section 3(5)) and 
                the term `employee' (as defined in section 3(6)) shall 
                include such individual.
            ``(2) Plans, funds, and programs treated as employee 
        welfare benefit plans.--In the case of any plan, fund, or 
        program which was established or is maintained for the purpose 
        of providing medical care (through the purchase of insurance or 
        otherwise) for employees (or their dependents) covered 
        thereunder and which demonstrates to the Secretary that all 
        requirements for certification under this part would be met 
        with respect to such plan, fund, or program if such plan, fund, 
        or program were a group health plan, such plan, fund, or 
        program shall be treated for purposes of this title as an 
        employee welfare benefit plan on and after the date of such 
        demonstration.''.
    (b) Conforming Amendments to Preemption Rules.--
            (1) Section 514(b)(6) of such Act (29 U.S.C. 1144(b)(6)) is 
        amended by adding at the end the following new subparagraph:
    ``(E) The preceding subparagraphs of this paragraph do not apply 
with respect to any State law in the case of an association health plan 
which is certified under part 8.''.
            (2) Section 514 of such Act (29 U.S.C. 1144) is amended--
                    (A) in subsection (b)(4), by striking ``Subsection 
                (a)'' and inserting ``Subsections (a) and (d)'';
                    (B) in subsection (b)(5), by striking ``subsection 
                (a)'' in subparagraph (A) and inserting ``subsection 
                (a) of this section and subsections (a)(2)(B) and (b) 
                of section 805'', and by striking ``subsection (a)'' in 
                subparagraph (B) and inserting ``subsection (a) of this 
                section or subsection (a)(2)(B) or (b) of section 
                805'';
                    (C) by redesignating subsection (d) as subsection 
                (e); and
                    (D) by inserting after subsection (c) the following 
                new subsection:
    ``(d)(1) Except as provided in subsection (b)(4), the provisions of 
this title shall supersede any and all State laws insofar as they may 
now or hereafter preclude a health insurance issuer from offering 
health insurance coverage in connection with an association health plan 
which is certified under part 8.
    ``(2) Except as provided in paragraphs (4) and (5) of subsection 
(b) of this section--
            ``(A) In any case in which health insurance coverage of any 
        policy type is offered under an association health plan 
        certified under part 8 to a participating employer operating in 
        such State, the provisions of this title shall supersede any 
        and all laws of such State insofar as they may preclude a 
        health insurance issuer from offering health insurance coverage 
        of the same policy type to other employers operating in the 
        State which are eligible for coverage under such association 
        health plan, whether or not such other employers are 
        participating employers in such plan.
            ``(B) In any case in which health insurance coverage of any 
        policy type is offered under an association health plan in a 
        State and the filing, with the applicable State authority, of 
        the policy form in connection with such policy type is approved 
        by such State authority, the provisions of this title shall 
        supersede any and all laws of any other State in which health 
        insurance coverage of such type is offered, insofar as they may 
        preclude, upon the filing in the same form and manner of such 
        policy form with the applicable State authority in such other 
        State, the approval of the filing in such other State.
    ``(3) For additional provisions relating to association health 
plans, see subsections (a)(2)(B) and (b) of section 805.
    ``(4) For purposes of this subsection, the term `association health 
plan' has the meaning provided in section 801(a), and the terms `health 
insurance coverage', `participating employer', and `health insurance 
issuer' have the meanings provided such terms in section 811, 
respectively.''.
            (3) Section 514(b)(6)(A) of such Act (29 U.S.C. 
        1144(b)(6)(A)) is amended--
                    (A) in clause (i)(II), by striking ``and'' at the 
                end;
                    (B) in clause (ii), by inserting ``and which does 
                not provide medical care (within the meaning of section 
                733(a)(2)),'' after ``arrangement,'', and by striking 
                ``title.'' and inserting ``title, and''; and
                    (C) by adding at the end the following new clause:
            ``(iii) subject to subparagraph (E), in the case of any 
        other employee welfare benefit plan which is a multiple 
        employer welfare arrangement and which provides medical care 
        (within the meaning of section 733(a)(2)), any law of any State 
        which regulates insurance may apply.''.
    (c) Plan Sponsor.--Section 3(16)(B) of such Act (29 U.S.C. 
102(16)(B)) is amended by adding at the end the following new sentence: 
``Such term also includes a person serving as the sponsor of an 
association health plan under part 8.''.
    (d) Savings Clause.--Section 731(c) of such Act is amended by 
inserting ``or part 8'' after ``this part''.
    (e) Clerical Amendment.--The table of contents in section 1 of the 
Employee Retirement Income Security Act of 1974 is amended by inserting 
after the item relating to section 734 the following new items:

           ``Part 8--Rules Governing Association Health Plans

``Sec. 801. Association health plans.
``Sec. 802. Certification of association health plans.
``Sec. 803. Requirements relating to sponsors and boards of trustees.
``Sec. 804. Participation and coverage requirements.
``Sec. 805. Other requirements relating to plan documents, contribution 
                            rates, and benefit options.
``Sec. 806. Maintenance of reserves and provisions for solvency for 
                            plans providing health benefits in addition 
                            to health insurance coverage.
``Sec. 807. Requirements for application and related requirements.
``Sec. 808. Notice requirements for voluntary termination.
``Sec. 809. Corrective actions and mandatory termination.
``Sec. 810. Special rules for church plans.
``Sec. 811. Definitions and rules of construction.''

SEC. 5303. CLARIFICATION OF TREATMENT OF SINGLE EMPLOYER ARRANGEMENTS.

    Section 3(40)(B) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1002(40)(B)) is amended--
            (1) in clause (i), by inserting ``for any plan year of any 
        such plan, or any fiscal year of any such other arrangement;'' 
        after ``single employer'', and by inserting ``during such year 
        or at any time during the preceding 1-year period'' after 
        ``control group'';
            (2) in clause (iii)--
                    (A) by striking ``common control shall not be based 
                on an interest of less than 25 percent'' and inserting 
                ``an interest of greater than 25 percent may not be 
                required as the minimum interest necessary for common 
                control''; and
                    (B) by striking ``similar to'' and inserting 
                ``consistent and coextensive with'';
            (3) by redesignating clauses (iv) and (v) as clauses (v) 
        and (vi), respectively; and
            (4) by inserting after clause (iii) the following new 
        clause:
            ``(iv) in determining, after the application of clause (i), 
        whether benefits are provided to employees of two or more 
        employers, the arrangement shall be treated as having only 1 
        participating employer if, after the application of clause (i), 
        the number of individuals who are employees and former 
        employees of any one participating employer and who are covered 
        under the arrangement is greater than 75 percent of the 
        aggregate number of all individuals who are employees or former 
        employees of participating employers and who are covered under 
        the arrangement,''.

SEC. 5304. CLARIFICATION OF TREATMENT OF CERTAIN COLLECTIVELY BARGAINED 
              ARRANGEMENTS.

    (a) In General.--Section 3(40)(A)(i) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1002(40)(A)(i)) is amended to 
read as follows:
            ``(i)(I) under or pursuant to one or more collective 
        bargaining agreements which are reached pursuant to collective 
        bargaining described in section 8(d) of the National Labor 
        Relations Act (29 U.S.C. 158(d)) or paragraph Fourth of section 
        2 of the Railway Labor Act (45 U.S.C. 152, paragraph Fourth) or 
        which are reached pursuant to labor-management negotiations 
        under similar provisions of State public employee relations 
        laws, and (II) in accordance with subparagraphs (C), (D), and 
        (E),''.
    (b) Limitations.--Section 3(40) of such Act (29 U.S.C. 1002(40)) is 
amended by adding at the end the following new subparagraphs:
    ``(C) For purposes of subparagraph (A)(i)(II), a plan or other 
arrangement shall be treated as established or maintained in accordance 
with this subparagraph only if the following requirements are met:
            ``(i) The plan or other arrangement, and the employee 
        organization or any other entity sponsoring the plan or other 
        arrangement, do not--
                    ``(I) utilize the services of any licensed 
                insurance agent or broker for soliciting or enrolling 
                employers or individuals as participating employers or 
                covered individuals under the plan or other 
                arrangement; or
                    ``(II) pay a commission or any other type of 
                compensation to a person, other than a full time 
                employee of the employee organization (or a member of 
                the organization to the extent provided in regulations 
                of the Secretary), that is related either to the volume 
                or number of employers or individuals solicited or 
                enrolled as participating employers or covered 
                individuals under the plan or other arrangement, or to 
                the dollar amount or size of the contributions made by 
                participating employers or covered individuals to the 
                plan or other arrangement;
        except to the extent that the services used by the plan, 
        arrangement, organization, or other entity consist solely of 
        preparation of documents necessary for compliance with the 
        reporting and disclosure requirements of part 1 or 
        administrative, investment, or consulting services unrelated to 
        solicitation or enrollment of covered individuals.
            ``(ii) As of the end of the preceding plan year, the number 
        of covered individuals under the plan or other arrangement who 
        are identified to the plan or arrangement and who are neither--
                    ``(I) employed within a bargaining unit covered by 
                any of the collective bargaining agreements with a 
                participating employer (nor covered on the basis of an 
                individual's employment in such a bargaining unit); nor
                    ``(II) present employees (or former employees who 
                were covered while employed) of the sponsoring employee 
                organization, of an employer who is or was a party to 
                any of the collective bargaining agreements, or of the 
                plan or other arrangement or a related plan or 
                arrangement (nor covered on the basis of such present 
                or former employment);
        does not exceed 15 percent of the total number of individuals 
        who are covered under the plan or arrangement and who are 
        present or former employees who are or were covered under the 
        plan or arrangement pursuant to a collective bargaining 
        agreement with a participating employer. The requirements of 
        the preceding provisions of this clause shall be treated as 
        satisfied if, as of the end of the preceding plan year, such 
        covered individuals are comprised solely of individuals who 
        were covered individuals under the plan or other arrangement as 
        of the date of the enactment of the Expansion of Portability 
        and Health Insurance Coverage Act of 1997 and, as of the end of 
        the preceding plan year, the number of such covered individuals 
        does not exceed 25 percent of the total number of present and 
        former employees enrolled under the plan or other arrangement.
            ``(iii) The employee organization or other entity 
        sponsoring the plan or other arrangement certifies to the 
        Secretary each year, in a form and manner which shall be 
        prescribed in regulations of the Secretary that the plan or 
        other arrangement meets the requirements of clauses (i) and 
        (ii).
    ``(D) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in accordance 
with this subparagraph only if--
            ``(i) all of the benefits provided under the plan or 
        arrangement consist of health insurance coverage; or
            ``(ii)(I) the plan or arrangement is a multiemployer plan; 
        and
            ``(II) the requirements of clause (B) of the proviso to 
        clause (5) of section 302(c) of the Labor Management Relations 
        Act, 1947 (29 U.S.C. 186(c)) are met with respect to such plan 
        or other arrangement.
    ``(E) For purposes of subparagraph (A)(i)(II), a plan or 
arrangement shall be treated as established or maintained in accordance 
with this subparagraph only if--
            ``(i) the plan or arrangement is in effect as of the date 
        of the enactment of the Expansion of Portability and Health 
        Insurance Coverage Act of 1997, or
            ``(ii) the employee organization or other entity sponsoring 
        the plan or arrangement--
                    ``(I) has been in existence for at least 3 years or 
                is affiliated with another employee organization which 
                has been in existence for at least 3 years, or
                    ``(II) demonstrates to the satisfaction of the 
                Secretary that the requirements of subparagraphs (C) 
                and (D) are met with respect to the plan or other 
                arrangement.''.
    (c) Conforming Amendments to Definitions of Participant and 
Beneficiary.--Section 3(7) of such Act (29 U.S.C. 1002(7)) is amended 
by adding at the end the following new sentence: ``Such term includes 
an individual who is a covered individual described in paragraph 
(40)(C)(ii).''.

SEC. 5305. ENFORCEMENT PROVISIONS RELATING TO ASSOCIATION HEALTH PLANS.

    (a) Criminal Penalties for Certain Willful Misrepresentations.--
Section 501 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1131) is amended--
            (1) by inserting ``(a)'' after ``Sec. 501.''; and
            (2) by adding at the end the following new subsection:
    ``(b) Any person who, either willfully or with willful blindness, 
falsely represents, to any employee, any employee's beneficiary, any 
employer, the Secretary, or any State, a plan or other arrangement 
established or maintained for the purpose of offering or providing any 
benefit described in section 3(1) to employees or their beneficiaries 
as--
            ``(1) being an association health plan which has been 
        certified under part 8;
            ``(2) having been established or maintained under or 
        pursuant to one or more collective bargaining agreements which 
        are reached pursuant to collective bargaining described in 
        section 8(d) of the National Labor Relations Act (29 U.S.C. 
        158(d)) or paragraph Fourth of section 2 of the Railway Labor 
        Act (45 U.S.C. 152, paragraph Fourth) or which are reached 
        pursuant to labor-management negotiations under similar 
        provisions of State public employee relations laws; or
            ``(3) being a plan or arrangement with respect to which the 
        requirements of subparagraph (C), (D), or (E) of section 3(40) 
        are met;
shall, upon conviction, be imprisoned not more than five years, be 
fined under title 18, United States Code, or both.''.
    (b) Cease Activities Orders.--Section 502 of such Act (29 U.S.C. 
1132) is amended by adding at the end the following new subsection:
    ``(n)(1) Subject to paragraph (2), upon application by the 
Secretary showing the operation, promotion, or marketing of an 
association health plan (or similar arrangement providing benefits 
consisting of medical care (as defined in section 733(a)(2))) that--
            ``(A) is not certified under part 8, is subject under 
        section 514(b)(6) to the insurance laws of any State in which 
        the plan or arrangement offers or provides benefits, and is not 
        licensed, registered, or otherwise approved under the insurance 
        laws of such State; or
            ``(B) is an association health plan certified under part 8 
        and is not operating in accordance with the requirements under 
        part 8 for such certification,
a district court of the United States shall enter an order requiring 
that the plan or arrangement cease activities.
    ``(2) Paragraph (1) shall not apply in the case of an association 
health plan or other arrangement if the plan or arrangement shows 
that--
            ``(A) all benefits under it referred to in paragraph (1) 
        consist of health insurance coverage; and
            ``(B) with respect to each State in which the plan or 
        arrangement offers or provides benefits, the plan or 
        arrangement is operating in accordance with applicable State 
laws that are not superseded under section 514.
    ``(3) The court may grant such additional equitable relief, 
including any relief available under this title, as it deems necessary 
to protect the interests of the public and of persons having claims for 
benefits against the plan.''.
    (c) Responsibility for Claims Procedure.--Section 503 of such Act 
(29 U.S.C. 1133) is amended by adding at the end (after and below 
paragraph (2)) the following new sentence:
``The terms of each association health plan which is or has been 
certified under part 8 shall require the board of trustees or the named 
fiduciary (as applicable) to ensure that the requirements of this 
section are met in connection with claims filed under the plan.''.

SEC. 5306. COOPERATION BETWEEN FEDERAL AND STATE AUTHORITIES.

    Section 506 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1136) is amended by adding at the end the following new 
subsection:
    ``(c) Responsibility of States With Respect to Association Health 
Plans.--
            ``(1) Agreements with states.--A State may enter into an 
        agreement with the Secretary for delegation to the State of 
        some or all of the Secretary's authority under sections 502 and 
        504 to enforce the requirements for certification under part 8. 
        The Secretary shall enter into the agreement if the Secretary 
        determines that the delegation provided for therein would not 
        result in a lower level or quality of enforcement of the 
        provisions of this title.
            ``(2) Delegations.--Any department, agency, or 
        instrumentality of a State to which authority is delegated 
        pursuant to an agreement entered into under this paragraph may, 
        if authorized under State law and to the extent consistent with 
        such agreement, exercise the powers of the Secretary under this 
        title which relate to such authority.
            ``(3) Recognition of primary domicile state.--In entering 
        into any agreement with a State under subparagraph (A), the 
        Secretary shall ensure that, as a result of such agreement and 
        all other agreements entered into under subparagraph (A), only 
        one State will be recognized, with respect to any particular 
        association health plan, as the primary domicile State to which 
        authority has been delegated pursuant to such agreements.''.

SEC. 5307. EFFECTIVE DATE AND TRANSITIONAL RULES.

    (a) Effective Date.--The amendments made by sections 5302, 5305, 
and 5306 shall take effect on January 1, 1999. The amendments made by 
sections 5303 and 5304 shall take effect on the date of the enactment 
of this Act. The Secretary of Labor shall issue all regulations 
necessary to carry out the amendments made by this Act before January 
1, 1999.
    (b) Exception.--Section 801(a)(2) of the Employee Retirement Income 
Security Act of 1974 (added by section 5302) does not apply with 
respect to group health plans (as defined in section 733(a)(1) of such 
Act) existing on April 1, 1997, which do not provide health insurance 
coverage (as defined in section 733(b)(1) of such Act) on such date.

         TITLE VI--COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                       Subtitle A--Postal Service

SEC. 6001. REPEAL OF AUTHORIZATION OF TRANSITIONAL APPROPRIATIONS FOR 
              THE UNITED STATES POSTAL SERVICE.

    (a) Repeal.--
            (1) In general.--Section 2004 of title 39, United States 
        Code, is repealed.
            (2) Technical and conforming amendments.--
                    (A) The table of sections for chapter 20 of such 
                title is amended by repealing the item relating to 
                section 2004.
                    (B) Section 2003(e)(2) of such title is amended by 
                striking ``sections 2401 and 2004'' each place it 
                appears and inserting ``section 2401''.
    (b) Clarification That Liabilities Formerly Paid Pursuant to 
Section 2004 Remain Liabilities Payable by the Postal Service.--Section 
2003 of title 39, United States Code, is amended by adding at the end 
the following:
    ``(h) Liabilities of the former Post Office Department to the 
Employees' Compensation Fund (appropriations for which were authorized 
by former section 2004, as in effect before the effective date of this 
subsection) shall be liabilities of the Postal Service payable out of 
the Fund.''.
    (c) Effective Date.--
            (1) In general.--This section and the amendments made by 
        this section shall take effect on the date of the enactment of 
        this Act or October 1, 1997, whichever is later.
            (2) Provisions relating to payments for fiscal year 1998.--
                    (A) Amounts not yet paid.--No payment may be made 
                to the Postal Service Fund, on or after the date of the 
                enactment of this Act, pursuant to any appropriation 
                for fiscal year 1998 authorized by section 2004 of 
                title 39, United States Code (as in effect before the 
                effective date of this section).
                    (B) Amounts paid.--If any payment to the Postal 
                Service Fund is or has been made pursuant to an 
                appropriation for fiscal year 1998 authorized by such 
                section 2004, then, an amount equal to the amount of 
                such payment shall be paid from such Fund into the 
                Treasury as miscellaneous receipts before October 1, 
                1998.

                       Subtitle B--Civil Service

SEC. 6101. CONTRIBUTIONS UNDER THE CIVIL SERVICE RETIREMENT SYSTEM.

            (a) Individual Contributions.--
                    (1) In General.--Subsection (c) of section 8334 of 
                title 5, United States Code, is amended to read as 
                follows:
    ``(c) Each employee or Member credited with civilian service after 
July 31, 1920, for which retirement deductions or deposits have not 
been made, may deposit with interest an amount equal to the following 
percentages of his basic pay received for that service:

                                                                                                                
                                           ``Percentage of basic                                                
                                                   pay                             Service period               
                                                                                                                
Employee................................  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to December 31, 1998.       
                                          7.25...................  January 1, 1999, to December 31, 1999.       
                                          7.40...................  January 1, 2000, to December 31, 2000.       
                                          7.50...................  January 1, 2001, to December 31, 2002.       
                                          7......................  After December 31, 2002.                     
Member or employee for Congressional                                                                            
 employee service.......................  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7.50...................  January 1, 1970, to December 31, 1998.       
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.50...................  After December 31, 2002.                     
Member for Member service...............  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to August 1, 1946.             
                                          6......................  August 2, 1946, to October 31, 1956.         
                                          7.50...................  November 1, 1956, to December 31, 1969.      
                                          8......................  January 1, 1970, to December 31, 1998.       
                                          8.25...................  January 1, 1999, to December 31, 1999.       
                                          8.40...................  January 1, 2000, to December 31, 2000.       
                                          8.50...................  January 1, 2001, to December 31, 2002.       
                                          8......................  After December 31, 2002.                     
Law enforcement officer for law                                                                                 
 enforcement service and firefighter for                                                                        
 firefighter service....................  2.50...................                                               
                                          3.50...................  August 1, 1920, to June 30, 1926.            
                                                                   July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to December 31, 1974.       
                                          7.50...................  January 1, 1975, to December 31, 1998.       
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.50...................  After December 31, 2002.                     
Bankruptcy judge........................  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 3, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to December 31, 1983.       
                                          8......................  January 1, 1984, to December 31, 1998.       
                                          8.25...................  January 1, 1999, to December 31, 1999.       
                                          8.40...................  January 1, 2000, to December 31, 2000.       
                                          8.50...................  January 1, 2001, to December 31, 2002.       
                                          8......................  After December 31, 2002.                     
Judge of the United States Court of                                                                             
 Appeals for the Armed Forces for                                                                               
 service as a judge of that court.......  6......................                                               
                                          6.50...................  May 5, 1950, to October 31, 1956.            
                                                                   November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to (but not including) the  
                                                                    date of the enactment of the Department of  
                                                                    Defense Authorization Act, 1984.            
                                          8......................  The date of the enactment of the Department  
                                                                    of Defense Authorization Act, 1984, to      
                                                                    December 31, 1998.                          
                                          8.25...................  January 1, 1999, to December 31, 1999.       
                                          8.40...................  January 1, 2000, to December 31, 2000.       
                                          8.50...................  January 1, 2001, to December 31, 2002.       
                                          8......................  After December 31, 2002.                     
United States magistrate................  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to September 30, 1987.      
                                          8......................  October 1, 1987, to December 31, 1998.       
                                          8.25...................  January 1, 1999, to December 31, 1999.       
                                          8.40...................  January 1, 2000, to December 31, 2000.       
                                          8.50...................  January 1, 2001, to December 31, 2002.       
                                          8......................  After December 31, 2002.                     
Claims Court Judge......................  2.50...................  August 1, 1920, to June 30, 1926.            
                                          3.50...................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.50...................  November 1, 1956, to December 31, 1969.      
                                          7......................  January 1, 1970, to September 30, 1988.      
                                          8......................  October 1, 1988, to December 31, 1998.       
                                          8.25...................  January 1, 1999, to December 31, 1999.       
                                          8.40...................  January 1, 2000, to December 31, 2000.       
                                          8.50...................  January 1, 2001, to December 31, 2002.       
                                          8......................  After December 31, 2002.                     
                                                                                                                

Notwithstanding the preceding provisions of this subsection and any 
provision of section 206(b)(3) of the Federal Employees' Retirement 
Contribution Temporary Adjustment Act of 1983, the percentage of basic 
pay required under this subsection in the case of an individual 
described in section 8402(b)(2) shall, with respect to any covered 
service (as defined by section 203(a)(3) of such Act) performed by such 
individual after December 31, 1983, and before January 1, 1987, be 
equal to 1.3 percent, and, with respect to any such service performed 
after December 31, 1986, be equal to the amount that would have been 
deducted from the employee's basic pay under subsection (k) of this 
section if the employee's pay had been subject to that subsection 
during such period.''.
            (2) Deductions.--The first sentence of section 8334(a)(1) 
        of title 5, United States Code, is amended to read as follows: 
        ``The employing agency shall deduct and withhold from the basic 
        pay of an employee, Member, Congressional employee, law 
        enforcement officer, firefighter, bankruptcy judge, judge of 
        the United States Court of Appeals for the Armed Forces, United 
        States magistrate, or Claims Court judge, as the case may be, 
        the percentage of basic pay applicable under subsection (c).''.
            (3) Other service.--
                    (A) Military service.--Section 8334(j) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1)(A) by inserting ``and 
                        subject to paragraph (5),'' after ``Except as 
                        provided in subparagraph (B),''; and
                            (ii) by adding at the end the following:
    ``(5) Effective with respect to any period of military service 
performed after December 31, 1998, and before January 1, 2003, the 
percentage of basic pay under section 204 of title 37 payable under 
paragraph (1) shall be equal to the same percentage as would be 
applicable under section 8334(c) for that same period for service as an 
`employee', subject to paragraph (1)(B).''.
                    (B) Volunteer service.--Section 8334(l) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1) by striking the period 
                        at the end and inserting ``, subject to 
                        paragraph (4).''; and
                            (ii) by adding at the end the following:
    ``(4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 1998, and 
before January 1, 2003, the percentage of the readjustment allowance or 
stipend (as the case may be) payable under paragraph (1) shall be equal 
to the same percentage as would be applicable under section 8334(c) for 
that same period for service as an `employee'.''.
    (b) Government Contributions.--
            (1) In general.--Section 8334 of title 5, United States 
        Code, is amended by adding at the end the following:
    ``(m)(1) This subsection shall govern for purposes of determining 
the amount to be contributed under the second sentence of subsection 
(a)(1) with respect to any service--
            ``(A) which is performed after September 30, 1997, and 
        before January 1, 2003; and
            ``(B) as to which a contribution under such sentence would 
        otherwise be payable.
    ``(2) The amount of the contribution required under the second 
sentence of subsection (a)(1) with respect to any service described in 
paragraph (1) shall (instead of the amount which would otherwise apply 
under such sentence) be equal to the amount of basic pay received for 
such service by the employee or Member involved, multiplied by the 
percentage under paragraph (3).
    ``(3)(A) The percentage under this paragraph is, with respect to 
any service, equal to the sum of--
            ``(i) the percentage which would have been applicable under 
        subsection (c), with respect to such service, if it had been 
        performed in fiscal year 1997, plus
            ``(ii) the applicable percentage under subparagraph (B).
    ``(B) The applicable percentage under this subparagraph is, with 
respect to service performed--
            ``(i) after September 30, 1997, and before October 1, 2002, 
        1.51 percent; or
            ``(ii) after September 30, 2002, and before January 1, 
        2003, 0 percent.
    ``(4) An amount determined under this subsection with respect to 
any period of service shall, for purposes of subsection (k)(1)(B) (and 
any other provision of law which similarly refers to contributions 
under the second sentence of subsection (a)(1)), be treated as the 
amount required under such sentence with respect to such service.
    ``(5)(A) Notwithstanding paragraphs (1) through (4), the amount to 
be contributed by the Postal Service by reason of the second sentence 
of subsection (a)(1) with respect to any service performed by an 
officer or employee of the Postal Service during the period described 
in subparagraph (A) of paragraph (1) shall be determined as if section 
6101 of the Balanced Budget Act of 1997 had never been enacted.
    ``(B) For purposes of this paragraph, the term `Postal Service' 
means the United States Postal Service and the Postal Rate 
Commission.''.
            (2) Conforming amendment.--The second sentence of section 
        8334(a)(1) of title 5, United States Code, is amended by 
        striking the period and inserting ``, subject to subsection 
        (m).''.

SEC. 6102. CONTRIBUTIONS UNDER THE FEDERAL EMPLOYEES' RETIREMENT 
              SYSTEM.

    (a) Individual Contributions.--
            (1) In general.--Subsection (a) of section 8422 of title 5, 
        United States Code, is amended--
                    (A) in paragraph (1) by striking ``paragraph (2).'' 
                and inserting ``paragraph (2) or (3), as applicable.'';
                    (B) in paragraph (2) by striking ``The applicable'' 
                and inserting ``Subject to paragraph (3), the 
                applicable''; and
                    (C) by adding at the end the following:
    ``(3)(A) The applicable percentage under this subsection shall, for 
purposes of service performed after December 31, 1998, and before 
January 1, 2003, be equal to--
            ``(i) the applicable percentage under subparagraph (B), 
        minus
            ``(ii) the percentage then in effect under section 3101(a) 
        of the Internal Revenue Code of 1986 (relating to rate of tax 
        for old-age, survivors, and disability insurance).
    ``(B) The applicable percentage under this subparagraph shall be as 
follows:

                                                                                                                
                                           ``Percentage of basic                                                
                                                   pay                             Service period               
                                                                                                                
Employee................................  7.25...................  January 1, 1999, to December 31, 1999.       
                                          7.40...................  January 1, 2000, to December 31, 2000.       
                                          7.50...................  January 1, 2001, to December 31, 2002.       
Congressional employee..................  7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
Member..................................  7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
Law enforcement officer.................  7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
Firefighter.............................  7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
Air traffic controller..................  7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.90...................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.''.    
                                                                                                                

            (2) Other service.--
                    (A) Military service.--Section 8422(e) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1)(A) by inserting ``and 
                        subject to paragraph (5),'' after ``Except as 
                        provided in subparagraph (B),''; and
                            (ii) by adding at the end the following:
    ``(5) Effective with respect to any period of military service 
performed after December 31, 1998, and before January 1, 2003, the 
percentage of basic pay under section 204 of title 37 payable under 
paragraph (1) shall be equal to the sum of the percentage specified in 
paragraph (1), plus--
            ``(A) .25 percent, if performed after December 31, 1998, 
        and before January 1, 2000;
            ``(B) .40 percent, if performed after December 31, 1999, 
        and before January 1, 2001;
            ``(C) .50 percent, if performed after December 31, 2000, 
        and before January 1, 2003.''.
                    (B) Volunteer service.--Section 8422(f) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1) by striking the period 
                        at the end and inserting ``, subject to 
                        paragraph (4).''; and
                            (ii) by adding at the end the following:
    ``(4) Effective with respect to any period of service as a 
volunteer or volunteer leader performed after December 31, 1998, and 
before January 1, 2003, the percentage of the readjustment allowance or 
stipend (as the case may be) payable under paragraph (1) shall be equal 
to the sum of the percentage specified in paragraph (1), plus--
            ``(A) .25 percent, if performed after December 31, 1998, 
        and before January 1, 2000;
            ``(B) .40 percent, if performed after December 31, 1999, 
        and before January 1, 2001;
            ``(C) .50 percent, if performed after December 31, 2000, 
        and before January 1, 2003.''.
    (b) Government Contributions.--
            (1) In general.--Section 8423 of title 5, United States 
        Code, is amended by adding at the end the following:
    ``(d)(1) This subsection shall govern for purposes of determining 
the amount to be contributed by an employing agency for any period (or 
portion thereof)--
            ``(A) which is occurs after September 30, 1997, and before 
        January 1, 2003; and
            ``(B) as to which a contribution under subsection (a) would 
        otherwise be payable by such agency.
    ``(2) The amount of the contribution required under subsection (a) 
with respect to any period (or portion thereof) described in paragraph 
(1) shall (instead of the amount which would otherwise apply) be equal 
to the amount which would be required under subsection (a) if section 
6102(a) of the Balanced Budget Act of 1997 had never been enacted.''.
            (2) Conforming amendment.--Section 8423(a)(1) of title 5, 
        United States Code, is amended by striking ``Each'' and 
        inserting ``Subject to subsection (d), each''.

SEC. 6103. GOVERNMENT CONTRIBUTION FOR HEALTH BENEFITS.

    (a) In General.--Section 8906 of title 5, United States Code, is 
amended by striking subsection (a) and all that follows through the end 
of paragraph (1) of subsection (b) and inserting the following:
    ``(a)(1) The Office of Personnel Management shall, not later than 
October 1 of each year, determine the weighted average of the 
subscription charges that will be in effect during the following 
contract year with respect to--
            ``(A) enrollments under this chapter for self alone; and
            ``(B) enrollments under this chapter for self and family.
    ``(2) In determining each weighted average under paragraph (1), the 
weight to be given to a particular subscription charge shall, with 
respect to each plan (and option) to which it is to apply, be 
commensurate with the number of enrollees enrolled in such plan (and 
option) as of March 31 of the year in which the determination is being 
made.
    ``(3) For purposes of paragraph (2), the term `enrollee' means any 
individual who, during the contract year for which the weighted average 
is to be used under this section, will be eligible for a Government 
contribution for health benefits.
    ``(b)(1) Except as provided in paragraphs (2) and (3), the biweekly 
Government contribution for health benefits for an employee or 
annuitant enrolled in a health benefits plan under this chapter is 
adjusted to an amount equal to 72 percent of the weighted average under 
subsection (a)(1)(A) or (B), as applicable. For an employee, the 
adjustment begins on the first day of the employee's first pay period 
of each year. For an annuitant, the adjustment begins on the first day 
of the first period of each year for which an annuity payment is 
made.''.
    (b) Effective Date.--This section and the amendment made by this 
section shall take effect on the first day of the contract year that 
begins in 1999, except that nothing in this subsection shall prevent 
the Office of Personnel Management from taking any action, before such 
first day, which it considers necessary in order to ensure the timely 
implementation of such amendment.

SEC. 6104. EFFECTIVE DATE.

    (a) In General.--Except as provided in section 6103, this subtitle 
shall take effect on--
            (1) October 1, 1997; or
            (2) if later, the date of the enactment of this Act.
    (b) Special Rule.--If the date of the enactment of this Act is 
later than October 1, 1997, then, for purposes of applying the 
amendments made by sections 6101 and 6102--
            (1) any reference in any such amendment to ``September 30, 
        1997'' shall be treated as referring to the day before the date 
        of the enactment of this Act; and
            (2) any reference in any such amendment to ``October 1, 
        1997'' shall be treated as referring to the date of the 
        enactment of this Act.

       TITLE VII--COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

SEC. 7001. EXTENSION OF HIGHER VESSEL TONNAGE DUTIES.

    (a) Extension of Duties.--Section 36 of the Act of August 5, 1909 
(36 Stat. 111; 46 U.S.C. App. 121), is amended by striking ``for fiscal 
years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998,'' each place it 
appears and inserting ``for fiscal years through fiscal year 2002,''.
    (b) Conforming Amendment.--The Act entitled ``An Act concerning 
tonnage duties on vessels entering otherwise than by sea'', approved 
March 8, 1910 (36 Stat. 234; 46 U.S.C. App. 132), is amended by 
striking ``for fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 
and 1998,'' and inserting ``for fiscal years through fiscal year 
2002,''.

SEC. 7002. SALE OF GOVERNORS ISLAND, NEW YORK.

    (a) In General.--Notwithstanding any other provision of law, no 
earlier than fiscal year 2002, the Administrator of General Services 
shall dispose of by sale at fair market value all rights, title, and 
interests of the United States in and to the land of, and improvements 
to, Governors Island, New York.
    (b) Right of First Refusal.--Before a sale is made under subsection 
(a) to any other parties, the State of New York and the city of New 
York shall be given the right of first refusal to purchase all or part 
of Governors Island. Such right may be exercised by either the State of 
New York or the city of New York or by both parties acting jointly.
    (c) Proceeds.--Proceeds from the disposal of Governors Island under 
subsection (a) shall be deposited in the general fund of the Treasury 
and credited as miscellaneous receipts.

SEC. 7003. SALE OF AIR RIGHTS.

    (a) In General.--Notwithstanding any other provision of law, the 
Administrator of General Services shall sell, at fair market value and 
in a manner to be determined by the Administrator, the air rights 
adjacent to Washington Union Station described in subsection (b), 
including air rights conveyed to the Administrator under subsection 
(d). The Administrator shall complete the sale by such date as is 
necessary to ensure that the proceeds from the sale will be deposited 
in accordance with subsection (c).
    (b) Description.--The air rights referred to in subsection (a) 
total approximately 16.5 acres and are depicted on the plat map of the 
District of Columbia as follows:
            (1) Part of lot 172, square 720.
            (2) Part of lots 172 and 823, square 720.
            (3) Part of lot 811, square 717.
    (c) Proceeds.--Before September 30, 2002, proceeds from the sale of 
air rights under subsection (a) shall be deposited in the general fund 
of the Treasury and credited as miscellaneous receipts.
    (d) Conveyance of Amtrak Air Rights.--
            (1) General rule.--As a condition of future Federal 
        financial assistance, Amtrak shall convey to the Administrator 
        of General Services on or before December 31, 1997, at no 
        charge, all of the air rights of Amtrak described in subsection 
        (b).
            (2) Failure to comply.--If Amtrak does not meet the 
        condition established by paragraph (1), Amtrak shall be 
        prohibited from obligating Federal funds after March 1, 1998.

               TITLE VIII--COMMITTEE ON VETERANS' AFFAIRS

SEC. 8001. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This title may be cited as the ``Veterans 
Reconciliation Act of 1997''.
    (b) Table of Contents.--The table of contents for this title is as 
follows:

Sec. 8001. Short title; table of contents.
             Subtitle A--Extension of Temporary Authorities

Sec. 8011. Authority to require that certain veterans make copayments 
                            in exchange for receiving health-care 
                            benefits.
Sec. 8012. Medical care cost recovery for non-service-connected 
                            disabilities of service-connected veterans.
Sec. 8013. Department of Veterans Affairs medical-care receipts.
Sec. 8014. Income verification authority.
Sec. 8015. Limitation on pension for certain recipients of medicaid-
                            covered nursing home care.
Sec. 8016. Home loan fees.
Sec. 8017. Procedures applicable to liquidation sales on defaulted home 
                            loans guaranteed by the Secretary of 
                            Veterans Affairs.
Sec. 8018. Enhanced loan asset sale authority.
                       Subtitle B--Other Matters

Sec. 8021. Rounding down of cost-of-living adjustments in compensation 
                            and DIC rates.
Sec. 8022. Withholding of payments and benefits.

             Subtitle A--Extension of Temporary Authorities

SEC. 8011. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE COPAYMENTS 
              IN EXCHANGE FOR RECEIVING HEALTH-CARE BENEFITS.

    (a) Hospital and Medical Care.--
            (1) Extension.--Section 1710(f)(2)(B) of title 38, United 
        States Code, is amended by inserting ``before September 30, 
        2002,'' after ``(B)''.
            (2) Repeal of superseded provision.--Section 8013(e) of the 
        Omnibus Budget Reconciliation Act of 1990 (38 U.S.C. 1710 note) 
        is repealed.
    (b) Outpatient Medications.--Section 1722A(c) of title 38, United 
States Code, is amended by striking out ``September 30, 1998'' and 
inserting in lieu thereof ``September 30, 2002''.

                           [HVAC Reconciliation]

SEC. 8012. MEDICAL CARE COST RECOVERY FOR NON-SERVICE-CONNECTED 
              DISABILITIES OF SERVICE-CONNECTED VETERANS.

    Section 1729(a)(2)(E) of title 38, United States Code, is amended 
by striking out ``before October 1, 1998,'' and inserting ``before 
October 1, 2002,''.

SEC. 8013. DEPARTMENT OF VETERANS AFFAIRS MEDICAL-CARE RECEIPTS.

    (a) Allocation of Receipts.--(1) Chapter 17 of title 38, United 
States Code, is amended by inserting after section 1729 the following 
new section:
``Sec. 1729A. Department of Veterans Affairs Medical Care Collections 
              Fund
    ``(a) There is in the Treasury a fund to be known as the Department 
of Veterans Affairs Medical Care Collections Fund.
    ``(b) Amounts recovered or collected after September 30, 1997, 
under any of the following provisions of law shall be deposited in the 
fund:
            ``(1) Section 1710(f) of this title.
            ``(2) Section 1710(g) of this title.
            ``(3) Section 1711 of this title.
            ``(4) Section 1722A of this title.
            ``(5) Section 1729 of this title.
            ``(6) Public Law 87-693, popularly known as the `Federal 
        Medical Care Recovery Act' (42 U.S.C. 2651 et seq.), to the 
        extent that a recovery or collection under that law is based on 
        medical care or services furnished under this chapter.
    ``(c)(1) Amounts in the fund are available to the Secretary for the 
following purposes:
            ``(A) Furnishing medical care and services under this 
        chapter, to be available during any fiscal year for the same 
        purposes and subject to the same limitations as apply to 
        amounts appropriated for that fiscal year for medical care.
            ``(B) Expenses of the Department for the identification, 
        billing, auditing, and collection of amounts owed the United 
        States by reason of medical care and services furnished under 
        this chapter.
    ``(2)(A) If for fiscal year 1998, 1999, or 2000 the Secretary 
determines that the total amount to be recovered for that fiscal year 
under the provisions of law specified in subsection (b) will be less 
than the amount contained in the latest Congressional Budget Office 
baseline estimate (computed under section 257 of the Balanced Budget 
and Emergency Deficit Control Act of 1985) for the amount of such 
recoveries for that fiscal year by at least $25,000,000, the Secretary 
shall promptly certify to the Secretary of the Treasury the amount of 
the shortfall (as estimated by the Secretary) that is in excess of 
$25,000,000. Upon receipt of such a certification, the Secretary of the 
Treasury shall, not later than 30 days after receiving the 
certification, deposit in the fund, from any unobligated amounts in the 
Treasury, an amount equal to the amount certified by the Secretary.
    ``(B) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that the 
actual amount recovered for that fiscal year under the provisions of 
law specified in subsection (b) is greater than the amount estimated by 
the Secretary that was used for purposes of the certification by the 
Secretary under subparagraph (A), the Secretary shall pay into the 
general fund of the Treasury, from amounts available for medical care, 
an amount equal to the difference between the amount actually recovered 
and the amount so estimated (but not in excess of the amount of the 
deposit under subparagraph (A) pursuant to such certification).
    ``(C) For a fiscal year for which a deposit is made under 
subparagraph (A), if the Secretary subsequently determines that the 
actual amount recovered for that fiscal year under the provisions of 
law specified in subsection (b) is less than the amount estimated by 
the Secretary that was used for purposes of the certification by the 
Secretary under subparagraph (A), the Secretary shall promptly certify 
to the Secretary of the Treasury the amount of the shortfall. Upon 
receipt of such a certification, the Secretary of the Treasury shall, 
not later than 30 days after receiving the certification, deposit in 
the fund, from any unobligated amounts in the Treasury, an amount equal 
to the amount certified by the Secretary.
    ``(d)(1) The Secretary may allocate amounts available to the 
Secretary under subsection (c) among components of the Department in 
such manner as the Secretary considers appropriate.
    ``(2) The Secretary shall establish a policy for the allocation 
under paragraph (1) of amounts in the fund. Such policy shall be 
designed so as to facilitate the realization of the maximum feasible 
collections under the provisions of law specified in subsection (b). In 
developing the policy, the Secretary shall take into account any 
factors beyond the control of the Secretary that the Secretary 
considers may impede such collections.
    ``(e)(1) The Secretary shall submit to the Committees on Veterans' 
Affairs of the Senate and House of Representatives quarterly reports on 
the operation of this section for fiscal years 1998, 1999, and 2000 and 
for the first quarter of fiscal year 2001. Each such report shall 
specify the amount collected under each of the provisions specified in 
subsection (b) during the preceding quarter and the amount originally 
estimated to be collected under each such provision during such 
quarter.
    ``(2) A report under paragraph (1) for a quarter shall be submitted 
not later than 45 days after the end of that quarter.''.
    (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1729 the 
following new item:

``1729A. Department of Veterans Affairs Medical Care Collections 
                            Fund.''.
    (b) Conforming Amendments.--Chapter 17 of such title is amended as 
follows:
            (1) Section 1710(f) is amended by striking out paragraph 
        (4) and redesignating paragraph (5) as paragraph (4).
            (2) Section 1710(g) is amended by striking out paragraph 
        (4).
            (3) Section 1722A(b) is amended by striking out 
        ``Department of Veterans Affairs Medical-Care Cost Recovery 
        Fund'' and inserting in lieu thereof ``Department of Veterans 
        Affairs Medical Care Collections Fund''.
            (4) Section 1729 is amended by striking out subsection (g).
    (c) Termination of Medical-Care Cost Recovery Fund.--The amount of 
the unobligated balance remaining in the Department of Veterans Affairs 
Medical-Care Cost Recovery Fund (established pursuant to section 
1729(g)(1) of title 38, United States Code), at the close of September 
30, 1997, shall be deposited, not later than December 31, 1997, in the 
Treasury as miscellaneous receipts, and that fund shall be terminated 
when the deposit occurs.
    (d) Determination of Amounts Subject to Recovery.--Section 1729 of 
title 38, United States Code, is amended--
            (1) in subsection (a)(1), by striking out ``the reasonable 
        cost of'' and inserting in lieu thereof ``reasonable charges 
        for'';
            (2) in subsection (c)(2)--
                    (A) by striking out ``the reasonable cost of'' in 
                the first sentence of subparagraph (A) and in 
                subparagraph (B) and inserting in lieu thereof 
                ``reasonable charges for''; and
                    (B) by striking out ``cost'' in the second sentence 
                of subparagraph (A) and inserting in lieu thereof 
                ``charges''.
    (e) Technical Amendment.--Paragraph (2) of section 712(b) of title 
38, United States Code, is amended--
            (1) by striking out subparagraph (B); and
            (2) by redesignating subparagraph (C) as subparagraph (B).
    (f) Implementation.--(1) Not later than January 1, 1999, the 
Secretary of Veterans Affairs shall submit to the Committees on 
Veterans' Affairs of the Senate and House of Representatives a report 
on the implementation of this section. The report shall describe the 
collections under each of the provisions specified in section 1729A(b) 
of title 38, United States Code, as added by subsection (a). 
Information on such collections shall be shown for each of the health 
service networks (known as Veterans Integrated Service Networks) and, 
to the extent practicable for each facility within each such network. 
The Secretary shall include in the report an analysis of differences 
among the networks with respect to (A) the market in which the networks 
operates, (B) the effort expended to achieve collections, (C) the 
efficiency of such effort, and (D) any other relevant information.
    (2) The Secretary shall adjust the allocation policy established 
under section 1729A(d)(2) of title 38, United States Code, as added by 
subsection (a), to take account of differences in collections that the 
Secretary determines are attributable to the different markets in which 
networks operate and shall include in the report under paragraph (1) a 
description of such adjustments.
    (g) Effective Date.--(1) Except as provided in paragraph (2), this 
section and the amendments made by this section shall take effect on 
October 1, 1997.
    (2) The amendments made by subsection (d) shall take effect on the 
date of the enactment of this Act.

SEC. 8014. INCOME VERIFICATION AUTHORITY.

    (a) Extension.--Section 5317(g) of title 38, United States Code, is 
amended by striking out ``September 30, 1998'' and inserting in lieu 
thereof ``September 30, 2002''.
    (b) Social Security and Tax Return Information.--Section 6103(l)(7) 
of the Internal Revenue Code of 1986 is amended by striking out 
``Clause (viii) shall not apply after September 30, 1998'' and 
inserting in lieu thereof ``Clause (viii) shall not apply after 
September 30, 2002''.

SEC. 8015. LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF MEDICAID-
              COVERED NURSING HOME CARE.

    Section 5503(f)(7) of title 38, United States Code, is amended by 
striking out ``September 30, 1998'' and inserting in lieu thereof 
``September 30, 2002''.

SEC. 8016. HOME LOAN FEES.

    (a) Increase in Loan Fee Under Property Management Program.--
Paragraph (2) of section 3729(a) of title 38, United States Code, is 
amended--
            (1) in subparagraph (A), by striking out ``or 3733(a)'';
            (2) by striking out ``and'' at the end of subparagraph (D);
            (3) by striking out the period at the end of subparagraph 
        (E) and inserting in lieu thereof ``; and''; and
            (4) by adding at the end the following new subparagraph:
            ``(F) in the case of a loan made under section 3733(a) of 
        this title, the amount of such fee shall be 2.25 percent of the 
        total loan amount.''.
    (b) Extensions.--Such section is further amended--
            (1) in paragraph (4)--
                    (A) by striking out ``October 1, 1998'' and 
                inserting in lieu thereof ``October 1, 2002''; and
                    (B) by striking out ``or (E)'' and inserting in 
                lieu thereof ``(E), or (F)''; and
            (2) in paragraph (5)(C), by striking out ``October 1, 
        1998'' and inserting in lieu thereof ``October 1, 2002''.

SEC. 8017. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED HOME 
              LOANS GUARANTEED BY THE SECRETARY OF VETERANS AFFAIRS.

    Section 3732(c)(11) of title 38, United States Code, is amended by 
striking out ``October 1, 1998'' and inserting ``October 1, 2002''.

SEC. 8018. ENHANCED LOAN ASSET SALE AUTHORITY.

    Section 3720(h)(2) of title 38, United States Code, is amended by 
striking out ``December 31, 1997'' and inserting in lieu thereof 
``September 30, 2002''.

                       Subtitle B--Other Matters

SEC. 8021. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION 
              AND DIC RATES.

    (a) Compensation COLAS.--(1) Chapter 11 of title 38, United States 
Code, is amended by inserting after section 1102 the following new 
section:
``Sec. 1103. Cost-of-living adjustments
    ``(a) In the computation of cost-of-living adjustments for fiscal 
years 1998 through 2002 in the rates of, and dollar limitations 
applicable to, compensation payable under this chapter, such 
adjustments shall be made by a uniform percentage that is no more than 
the percentage equal to the social security increase for that fiscal 
year, with all increased monthly rates and limitations (other than 
increased rates or limitations equal to a whole dollar amount) rounded 
down to the next lower whole dollar amount.
    ``(b) For purposes of this section, the term `social security 
increase' means the percentage by which benefit amounts payable under 
title II of the Social Security Act (42 U.S.C. 401 et seq.) are 
increased for any fiscal year as a result of a determination under 
section 215(i) of such Act (42 U.S.C. 415(i)).''.
    (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1102 the 
following new item:

``1103. Cost-of-living adjustments.''.
    (b) Out-Year DIC COLAs.--(1) Chapter 13 of title 38, United States 
Code, is amended by inserting after section 1302 the following new 
section:
``Sec. 1303. Cost-of-living adjustments
    ``(a) In the computation of cost-of-living adjustments for fiscal 
years 1998 through 2002 in the rates of dependency and indemnity 
compensation payable under this chapter, such adjustments shall be made 
by a uniform percentage that is no more than the percentage equal to 
the social security increase for that fiscal year, with all increased 
monthly rates (other than increased rates equal to a whole dollar 
amount) rounded down to the next lower whole dollar amount.
    ``(b) For purposes of this section, the term `social security 
increase' means the percentage by which benefit amounts payable under 
title II of the Social Security Act (42 U.S.C. 401 et seq.) are 
increased for any fiscal year as a result of a determination under 
section 215(i) of such Act (42 U.S.C. 415(i)).''.
    (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1302 the 
following new item:

``1303. Cost-of-living adjustments.''.

SEC. 8022. WITHHOLDING OF PAYMENTS AND BENEFITS.

    (a) Notice Required in Lieu of Consent or Court Order.--Section 
3726 of title 38, United States Code, is amended by striking out 
``unless'' and all that follows and inserting in lieu thereof the 
following: ``unless the Secretary provides such veteran or surviving 
spouse with notice by certified mail with return receipt requested of 
the authority of the Secretary to waive the payment of indebtedness 
under section 5302(b) of this title. If the Secretary does not waive 
the entire amount of the liability, the Secretary shall then determine 
whether the veteran or surviving spouse should be released from 
liability under section 3713(b) of this title. If the Secretary 
determines that the veteran or surviving spouse should not be released 
from liability, the Secretary shall notify the veteran or surviving 
spouse of that determination and provide a notice of the procedure for 
appealing that determination, unless the Secretary has previously made 
such determination and notified the veteran or surviving spouse of the 
procedure for appealing the determination.''.
    (b) Conforming Amendment.--Section 5302(b) of such title is amended 
by inserting ``with return receipt requested'' after ``certified 
mail''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to any indebtedness to the United States arising 
pursuant to chapter 37 of title 38, United States Code, before, on, or 
after the date of the enactment of this Act.

           TITLE IX--COMMITTEE ON WAYS AND MEANS--NONMEDICARE

SEC. 9000. TABLE OF CONTENTS.

    The table of contents of this title is as follows:

Sec. 9000. Table of contents.
                      Subtitle A--TANF Block Grant

Sec. 9001. Welfare-to-work grants.
Sec. 9002. Limitation on amount of Federal funds transferable to title 
                            XX programs.
Sec. 9003. Clarification of limitation on number of persons who may be 
                            treated as engaged in work by reason of 
                            participation in vocational educational 
                            training.
Sec. 9004. Required hours of work; health and safety.
Sec. 9005. Penalty for failure of State to reduce assistance for 
                            recipients refusing without good cause to 
                            work.
                Subtitle B--Supplemental Security Income

Sec. 9101. Requirement to perform childhood disability redeterminations 
                            in missed cases.
Sec. 9102. Repeal of maintenance of effort requirements applicable to 
                            optional State programs for supplementation 
                            of SSI benefits.
Sec. 9103. Fees for Federal administration of State supplementary 
                            payments.
                 Subtitle C--Child Support Enforcement

Sec. 9201. Clarification of authority to permit certain redisclosures 
                            of wage and claim information.
     Subtitle D--Restricting Welfare and Public Benefits for Aliens

Sec. 9301. Extension of eligibility period for refugees and certain 
                            other qualified aliens from 5 to 7 years 
                            for SSI and medicaid.
Sec. 9302. SSI eligibility for aliens receiving SSI on August 22, 1996.
Sec. 9303. SSI eligibility for permanent resident aliens who are 
                            members of an Indian tribe.
Sec. 9304. Verification of eligibility for State and local public 
                            benefits.
Sec. 9305. Derivative eligibility for benefits.
Sec. 9306. Effective date.
                 Subtitle E--Unemployment Compensation

Sec. 9401. Clarifying provision relating to base periods.
Sec. 9402. Increase in Federal unemployment account ceiling.
Sec. 9403. Special distribution to States from Unemployment Trust Fund.
Sec. 9404. Interest-free advances to State accounts in Unemployment 
                            Trust Fund restricted to States which meet 
                            funding goals.
Sec. 9405. Exemption of service performed by election workers from the 
                            Federal unemployment tax.
Sec. 9406. Treatment of certain services performed by inmates.
Sec. 9407. Exemption of service performed for an elementary or 
                            secondary school operated primarily for 
                            religious purposes from the Federal 
                            unemployment tax.
Sec. 9408. State program integrity activities for unemployment 
                            compensation.
               Subtitle F--Increase in Public Debt Limit

Sec. 9501. Increase in public debt limit.

                      Subtitle A--TANF Block Grant

SEC. 9001. WELFARE-TO-WORK GRANTS.

    (a) Grants to States.--
            (1) In general.--Section 403(a) of the Social Security Act 
        (42 U.S.C. 603(a)) is amended by adding at the end the 
        following:
            ``(5) Welfare-to-work grants.--
                    ``(A) Noncompetitive grants.--
                            ``(i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary a grant 
                        for each fiscal year specified in subparagraph 
                        (H) of this paragraph for which the State is a 
                        welfare-to-work State, in an amount that does 
                        not exceed the lesser of----
                                    ``(I) 2 times the total of the 
                                expenditures by the State (excluding 
                                qualified State expenditures (as 
                                defined in section 409(a)(7)(B)(i)) and 
                                any expenditure described in subclause 
                                (I), (II), or (IV) of section 
                                409(a)(7)(B)(iv)) during the fiscal 
                                year for activities described in 
                                subparagraph (C)(i) of this paragraph; 
                                or
                                    ``(II) the allotment of the State 
                                under clause (iii) of this subparagraph 
                                for the fiscal year.
                            ``(ii) Welfare-to-work state.--A State 
                        shall be considered a welfare-to-work State for 
                        a fiscal year for purposes of this subparagraph 
                        if the Secretary, after consultation (and the 
                        sharing of any plan or amendment thereto 
                        submitted under this clause) with the Secretary 
                        of Health and Human Services and the Secretary 
                        of Housing and Urban Development, determines 
                        that the State meets the following 
                        requirements:
                                    ``(I) The State has submitted to 
                                the Secretary (in the form of an 
                                addendum to the State plan submitted 
                                under section 402) a plan which--
                                            ``(aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State will 
                                        use any funds provided under 
                                        this subparagraph during the 
                                        fiscal year;
                                            ``(bb) specifies the 
                                        formula to be used pursuant to 
                                        clause (vi) to distribute funds 
                                        in the State, and describes the 
                                        process by which the formula 
                                        was developed;
                                            ``(cc) contains evidence 
                                        that the plan was developed in 
                                        consultation and coordination 
                                        with sub-State areas; and
                                            ``(dd) is approved by the 
                                        agency administering the State 
                                        program funded under this part.
                                    ``(II) The State has provided the 
                                Secretary with an estimate of the 
                                amount that the State intends to expend 
                                during the fiscal year (excluding 
                                expenditures described in section 
                                409(a)(7)(B)(iv)) for activities 
                                described in subparagraph (C)(i) of 
                                this paragraph.
                                    ``(III) The State has agreed to 
                                negotiate in good faith with the 
                                Secretary of Health and Human Services 
                                with respect to the substance of any 
                                evaluation under section 413(j), and to 
                                cooperate with the conduct of any such 
                                evaluation.
                                    ``(IV) The State is an eligible 
                                State for the fiscal year.
                                    ``(V) Qualified State expenditures 
                                (within the meaning of section 
                                409(a)(7)) are at least 80 percent of 
                                historic State expenditures (within the 
                                meaning of such section), with respect 
                                to the fiscal year or the immediately 
                                preceding fiscal year.
                            ``(iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-work 
                        State for a fiscal year shall be the available 
                        amount for the fiscal year multiplied by the 
                        State percentage for the fiscal year.
                            ``(iv) Available amount.--As used in this 
                        subparagraph, the term `available amount' 
                        means, for a fiscal year, the sum of--
                                    ``(I) 50 percent of the sum of--
                                            ``(aa) the amount specified 
                                        in subparagraph (H) for the 
                                        fiscal year, minus the total of 
                                        the amounts reserved pursuant 
                                        to subparagraphs (F) and (G) 
                                        for the fiscal year; and
                                            ``(bb) any amount reserved 
                                        pursuant to subparagraph (F) 
                                        for the immediately preceding 
                                        fiscal year that has not been 
                                        obligated; and
                                    ``(II) any available amount for the 
                                immediately preceding fiscal year that 
                                has not been obligated by a State or 
                                sub-State entity.
                                    ``(v) State percentage.--As used in 
                                clause (iii), the term `State 
                                percentage' means, with respect to a 
                                fiscal year, \1/3\ of the sum of--
                                            ``(aa) the percentage 
                                        represented by the number of 
                                        individuals in the State whose 
                                        income is less than the poverty 
                                        line divided by the number of 
                                        such individuals in the United 
                                        States;
                                            ``(bb) the percentage 
                                        represented by the number of 
                                        unemployed individuals in the 
                                        State divided by the number of 
                                        such individuals in the United 
                                        States; and
                                            ``(cc) the percentage 
                                        represented by the number of 
                                        individuals who are adult 
                                        recipients of assistance under 
                                        the State program funded under 
                                        this part divided by the number 
                                        of individuals in the United 
                                        States who are adult recipients 
                                        of assistance under any State 
                                        program funded under this part.
                            ``(vi) Distribution of funds within 
                        states.--
                                    ``(I) In general.--A State to which 
                                a grant is made under this subparagraph 
                                shall distribute not less than 85 
                                percent of the grant funds among the 
                                service delivery areas in the State, in 
                                accordance with a formula which--
                                            ``(aa) determines the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number (if any) by which 
                                        the number of individuals 
                                        residing in the service 
                                        delivery area with an income 
                                        that is less than the poverty 
                                        line exceeds 5 percent of the 
                                        population of the service 
                                        delivery area, relative to such 
                                        number for the other service 
                                        delivery areas in the State, 
                                        and accords a weight of not 
                                        less than 50 percent to this 
                                        factor;
                                            ``(bb) may determine the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number of adults residing 
                                        in the service delivery area 
                                        who are recipients of 
                                        assistance under the State 
                                        program funded under this part 
                                        (whether in effect before or 
                                        after the amendments made by 
                                        section 103(a) of the Personal 
                                        Responsibility and Work 
                                        Opportunity Reconciliation Act 
                                        first applied to the State) for 
                                        at least 30 months (whether or 
                                        not consecutive) relative to 
                                        the number of such adults 
                                        residing in the other service 
                                        delivery areas in the State; 
                                        and
                                            ``(cc) may determine the 
                                        amount to be distributed for 
                                        the benefit of a service 
                                        delivery area in proportion to 
                                        the number of unemployed 
                                        individuals residing in the 
                                        service delivery area relative 
                                        to the number of such 
                                        individuals residing in the 
                                        other service delivery areas in 
                                        the State.
                                    ``(II) Special rule.--
                                Notwithstanding subclause (I), if the 
                                formula used pursuant to subclause (I) 
                                would result in the distribution of 
                                less than $100,000 during a fiscal year 
                                for the benefit of a service delivery 
                                area, then in lieu of distributing such 
                                sum in accordance with the formula, 
                                such sum shall be available for 
                                distribution under subclause (III) 
                                during the fiscal year.
                                    ``(III) Projects to help long-term 
                                recipients of assistance into the work 
                                force.--The Governor of a State to 
                                which a grant is made under this 
                                subparagraph may distribute not more 
                                than 15 percent of the grant funds 
                                (plus any amount required to be 
                                distributed under this subclause by 
                                reason of subclause (II)) to projects 
                                that appear likely to help long-term 
                                recipients of assistance under the 
                                State program funded under this part 
                                (whether in effect before or after the 
                                amendments made by section 103(a) of 
                                the Personal Responsibility and Work 
                                Opportunity Reconciliation Act first 
                                applied to the State) enter the work 
                                force.
                            ``(vii) Administration.--
                                    ``(I) In general.--A grant made 
                                under this subparagraph to a State 
                                shall be administered by the State 
                                agency that is administering, or 
                                supervising the administration of, the 
                                State program funded under this part, 
                                or by another State agency designated 
                                by the Governor of the State.
                                    ``(II) Spending by private industry 
                                councils.--The private industry council 
                                for a service delivery area shall have 
                                sole authority to expend the amounts 
                                provided for the benefit of a service 
                                delivery area under subparagraph 
                                (vi)(I), pursuant to an agreement with 
                                the agency that is administering the 
                                State program funded under this part in 
                                the service delivery area.
                    ``(B) Competitive grants.--
                            ``(i) In general.--The Secretary, in 
                        consultation with the Secretary of Health and 
                        Human Services and the Secretary of Housing and 
                        Urban Development, shall award grants in 
                        accordance with this subparagraph, in fiscal 
                        years 1998 and 2000, for projects proposed by 
                        eligible applicants, based on the following:
                                    ``(I) The effectiveness of the 
                                proposal in--
                                            ``(aa) expanding the base 
                                        of knowledge about programs 
                                        aimed at moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force.
                                            ``(bb) moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force; and
                                            ``(cc) moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force, even in labor markets 
                                        that have a shortage of low-
                                        skill jobs.
                                    ``(II) At the discretion of the 
                                Secretary, any of the following:
                                            ``(aa) The history of 
                                        success of the applicant in 
                                        moving individuals with 
                                        multiple barriers into work.
                                            ``(bb) Evidence of the 
                                        applicant's ability to leverage 
                                        private, State, and local 
                                        resources.
                                            ``(cc) Use by the applicant 
                                        of State and local resources 
                                        beyond those required by 
                                        subparagraph (A).
                                            ``(dd) Plans of the 
                                        applicant to coordiate with 
                                        other organizations at the 
                                        local and State level.
                                            ``(ee) Use by the applicant 
                                        of current or former recipients 
                                        of assistance under a State 
                                        program funded under this part 
                                        as mentors, case managers, or 
                                        service providers.
                            ``(ii) Eligible applicants.--As used in 
                        clause (i), the term `eligible applicant' means 
                        a private industry council or a political 
                        subdivision of a State that submits a proposal 
                        that is approved by the agency administering 
                        the State program funded under this part.
                            ``(iii) Determination of grant amount.--In 
                        determining the amount of a grant to be made 
                        under this subparagraph for a project proposed 
                        by an applicant, the Secretary shall provide 
                        the applicant with an amount sufficient to 
                        ensure that the project has a reasonable 
                        opportunity to be successful, taking into 
                        account the number of long-term recipients of 
                        assistance under a State program funded under 
                        this part, the level of unemployment, the job 
                        opportunities and job growth, the poverty rate, 
                        and such other factors as the Secretary deems 
                        appropriate, in the area to be served by the 
                        project.
                            ``(iv) Targeting of funds to certain 
                        areas.--
                                    ``(I) Cities with greatest number 
                                of persons with income less than the 
                                poverty line.--The Secretary shall use 
                                not less than 65 percent of the funds 
                                available for grants under this 
                                subparagraph for a fiscal year to award 
                                grants for expenditures in cities that 
                                are among the 100 cities in the United 
                                States with the highest number of 
                                residents with an income that is less 
                                than the poverty line.
                                    ``(II) Rural areas.--
                                            ``(aa) In general.--The 
                                        Secretary shall use not less 
                                        than 25 percent of the funds 
                                        available for grants under this 
                                        subparagraph for a fiscal year 
                                        to award grants for 
                                        expenditures in rural areas.
                                            ``(bb) Rural area 
                                        defined.--As used in item (aa), 
                                        the term `rural area' means a 
                                        city, town, or unincorporated 
                                        area that has a population of 
                                        50,000 or fewer inhabitants and 
                                        that is not an urbanized area 
                                        immediately adjacent to a city, 
                                        town, or unincorporated area 
                                        that has a population of more 
                                        than 50,000 inhabitants.
                            ``(v) Funding.--For grants under this 
                        subparagraph for each fiscal year specified in 
                        subparagraph (H), there shall be available to 
                        the Secretary an amount equal to the sum of--
                                    ``(I) 50 percent of the sum of--
                                            ``(aa) the amount specified 
                                        in subparagraph (H) for the 
                                        fiscal year, minus the total of 
                                        the amounts reserved pursuant 
                                        to subparagraphs (F) and (G) 
                                        for the fiscal year; and
                                            ``(bb) any amount reserved 
                                        pursuant to subparagraph (F) 
                                        for the immediately preceding 
                                        fiscal year that has not been 
                                        obligated; and
                                    ``(II) any amount available for 
                                grants under this subparagraph for the 
                                immediately preceding fiscal year that 
                                has not been obligated.
                    ``(C) Limitations on use of funds.--
                            ``(i) Allowable activities.--An entity to 
                        which funds are provided under this paragraph 
                        may use the funds to move into the work force 
                        recipients of assistance under the program 
                        funded under this part of the State in which 
                        the entity is located and the noncustodial 
                        parent of any minor who is such a recipient, by 
                        means of any of the following:
                                    ``(I) Job creation through public 
                                or private sector employment wage 
                                subsidies.
                                    ``(II) On-the-job training.
                                    ``(III) Contracts with public or 
                                private providers of readiness, 
                                placement, and post-employment 
                                services.
                                    ``(IV) Job vouchers for placement, 
                                readiness, and postemployment services.
                                    ``(V) Job support services 
                                (excluding child care services) if such 
                                services are not otherwise available.
                            ``(ii) Required beneficiaries.--An entity 
                        that operates a project with funds provided 
                        under this paragraph shall expend at least 90 
                        percent of all funds provided to the project 
                        for the benefit of recipients of assistance 
                        under the program funded under this part of the 
                        State in which the entity is located who meet 
                        the requirements of each of the following 
                        subclauses:
                                    ``(I) At least 2 of the following 
                                apply to the recipient:
                                            ``(aa) The individual has 
                                        not completed secondary school 
                                        or obtained a certificate of 
                                        general equivalency, and has 
                                        low skills in reading and 
                                        mathematics.
                                            ``(bb) The individual 
                                        requires substance abuse 
                                        treatment for employment.
                                            ``(cc) The individual has a 
                                        poor work history.
                                The Secretary shall prescribe such 
                                regulations as may be necessary to 
                                interpret this subclause.
                                    ``(II) The individual--
                                            ``(aa) has received 
                                        assistance under the State 
                                        program funded under this part 
                                        (whether in effect before or 
                                        after the amendments made by 
                                        section 103 of the Personal 
                                        Responsibility and Work 
                                        Opportunity Reconciliation Act 
                                        of 1996 first apply to the 
                                        State) for at least 30 months 
                                        (whether or not consecutive); 
                                        or
                                            ``(bb) within 12 months, 
                                        will become ineligible for 
                                        assistance under the State 
                                        program funded under this part 
                                        by reason of a durational limit 
                                        on such assistance, without 
                                        regard to any exemption 
                                        provided pursuant to section 
                                        408(a)(7)(C) that may apply to 
                                        the individual.
                            ``(iii) Limitation on applicability of 
                        section 404.--The rules of section 404, other 
                        than subsections (b), (f), and (h) of section 
                        404, shall not apply to a grant made under this 
                        paragraph.
                            ``(iv) Limitations relating to private 
                        industry councils.--
                                    ``(I) No direct provision of 
                                services.--A private industry council 
                                may not directly provide services using 
                                funds provided under this paragraph.
                                    ``(II) Cooperation with tanf 
                                agency.--On a determination by the 
                                Secretary, in consultation with the 
                                Secretary of Health and Human Services 
                                and the Secretary of Housing and Urban 
                                Development, that the private industry 
                                council for a service delivery area in 
                                a State for which funds are provided 
                                under this paragraph and the agency 
                                administering the State program funded 
                                under this part are not adhering to the 
                                agreement referred to in subparagraph 
                                (A)(vii)(II) to implement any plan or 
                                project for which the funds are 
                                provided, the recipient of the funds 
                                shall remit the funds to the Secretary.
                            ``(v) Prohibition against use of grant 
                        funds for any other fund matching 
                        requirement.--An entity to which funds are 
                        provided under this paragraph shall not use any 
                        part of the funds to fulfill any obligation of 
                        any State, political subdivision, or private 
                        industry council to contribute funds under 
                        other Federal law.
                            ``(vi) Deadline for expenditure.--An entity 
                        to which funds are provided under this 
                        paragraph shall remit to the Secretary any part 
                        of the funds that are not expended within 3 
                        years after the date the funds are so provided.
                    ``(D) Individuals with income less than the poverty 
                line.--For purposes of this paragraph, the number of 
                individuals with an income that is less than the 
                poverty line shall be determined based on the 
                methodology used by the Bureau of the Census to produce 
                and publish intercensal poverty data for 1993 for 
                States and counties.
                    ``(E) Definitions.--As used in this paragraph:
                            ``(i) Private industry council.--The term 
                        `private industry council' means, with respect 
                        to a service delivery area, the private 
                        industry council (or successor entity) 
                        established for the service delivery area 
                        pursuant to the Job Training Partnership Act.
                            ``(ii) Secretary.--The term `Secretary' 
                        means the Secretary of Labor, except as 
                        otherwise expressly provided.
                            ``(iii) Service delivery area.--The term 
                        `service delivery area' shall have the meaning 
                        given such term for purposes of the Job 
                        Training Partnership Act.
                    ``(F) Set-aside for indian tribes.--1 percent of 
                the amount specified in subparagraph (H) for each 
                fiscal year shall be reserved for grants to Indian 
                tribes under section 412(a)(3).
                    ``(G) Set-aside for evaluations.--0.5 percent of 
                the amount specified in subparagraph (H) for each 
                fiscal year shall be reserved for use by the Secretary 
                of Health and Human Services to carry out section 
                413(j).
                    ``(H) Funding.--The amount specified in this 
                subparagraph is--
                            ``(i) $750,000,000 for fiscal year 1998;
                            ``(ii) $1,250,000,000 for fiscal year 1999; 
                        and
                            ``(iii) $1,000,000,000 for fiscal year 
                        2000.
                    ``(I) Availability of funds.--Amounts appropriated 
                pursuant to this paragraph shall remain available 
                through fiscal year 2002.
                    ``(J) Budget scoring.--Notwithstanding section 
                457(b)(2) of the Balanced Budget and Emergency Deficit 
                Control Act of 1985, the baseline shall assume that no 
                grant shall be awarded under this paragraph or under 
                section 412(a)(3) after fiscal year 2000.
                    ``(K) Worker protections.--
                            ``(i) Labor standards.--
                                    ``(I) Displacement.--
                                            ``(aa) Prohibition.--A 
                                        participant in an activity 
                                        under this paragraph shall not 
                                        displace (including a partial 
                                        displacement, such as a 
                                        reduction in the hours of 
                                        nonovertime work, wages, or 
                                        employment benefits) any 
                                        currently employed employee (as 
                                        of the date of the 
                                        participation).
                                            ``(bb) Prohibition on 
                                        impairment of contracts.--An 
                                        activity under this paragraph 
                                        shall not impair an existing 
                                        contract for services or 
                                        collective bargaining 
                                        agreement, and no such activity 
                                        that would be inconsistent with 
                                        the terms of a collective 
                                        bargaining agreement shall be 
                                        undertaken without the written 
                                        concurrence of the labor 
                                        organization and employer 
                                        concerned.
                                    ``(II) Other prohibitions.--A 
                                participant in an activity under this 
                                paragraph shall not be employed in a 
                                job--
                                            ``(aa) when any other 
                                        individual is on layoff from 
                                        the same or any substantially 
                                        equivalent job;
                                            ``(bb) when the employer 
                                        has terminated the employment 
                                        of any regular employee or 
                                        otherwise reduced the workforce 
                                        of the employer with the 
                                        intention of filling the 
                                        vacancy so created with the 
                                        participant; or
                                            ``(cc) which is created in 
                                        a promotional line that will 
                                        infringe in any way upon the 
                                        promotional opportunities of 
                                        currently employed individuals.
                                    ``(III) Health and safety.--Health 
                                and safety standards established under 
                                Federal and State law otherwise 
                                applicable to working conditions of 
                                employees shall be equally applicable 
                                to working conditions of participants 
                                engaged in activities under this 
                                paragraph. To the extent that a State 
                                workers' compensation law applies, 
                                workers' compensation shall be provided 
                                to participants on the same basis as 
                                the compensation is provided to other 
                                individuals in the State in similar 
                                employment.
                                    ``(IV) Employment conditions.--
                                Individuals in on-the-job training or 
                                individuals employed in activities 
                                under this paragraph shall be provided 
                                benefits and working conditions at the 
                                same level and to the same extent as 
                                other trainees or employees working a 
                                similar length of time and doing the 
                                same type of work.
                                    ``(V) Opportunity to submit 
                                comments.--Interested parties shall be 
                                provided an opportunity to submit 
                                comments with respect to training 
                                programs proposed to be funded under 
                                this paragraph.
                            ``(ii) Grievance procedure.--
                                    ``(I) In general.--A State to which 
                                funds are provided under this paragraph 
                                shall establish and maintain a 
                                procedure for addressing grievances or 
                                complaints alleging violations of this 
                                paragraph from participants and other 
                                interested or affected parties. The 
                                procedure shall include an opportunity 
                                for a hearing and be completed within 
                                60 days of filing the greivance or 
                                complaint.
                                    ``(II) Investigation.--
                                            ``(aa) In general.--The 
                                        Secretary shall investigate an 
                                        allegation of a violation of 
                                        this paragraph if a decision 
                                        relating to the allegation is 
                                        made within 60 days after the 
                                        date of the filing of the 
                                        grievance or complaint and 
                                        either party appeals to the 
                                        Secretary, or if a decision 
                                        relating to the allegation is 
                                        made within the 60-day period 
                                        and the party to which the 
                                        decision is adverse appeals the 
                                        decision to the Secretary.
                                            ``(bb) Additional 
                                        requirement.--The Secretary 
                                        shall make a final 
                                        determination relating to an 
                                        appeal made under item (aa) no 
                                        later than 120 days after 
                                        receiving the appeal.
                                    ``(III) Remedies.--Remedies shall 
                                be limited to--
                                            ``(aa) suspension or 
                                        termination of payments under 
                                        this paragraph;
                                            ``(bb) prohibition of 
                                        placement of a participant with 
                                        an employer who has violated 
                                        this subparagraph;
                                            ``(cc) where applicable, 
                                        reinstatement of an employee, 
                                        payment of lost wages and 
                                        benefits, and reestablishment 
                                        of other relevant terms, 
                                        conditions and privileges of 
                                        employment; and
                                            ``(dd) where appropriate, 
                                        other equitable relief.''.
            (2) Conforming amendment.--Section 409(a)(7)(B)(iv) of such 
        Act (42 U.S.C. 609(a)(7)(B)(iv)) is amended to read as follows:
                            ``(iv) Expenditures by the state.--The term 
                        `expenditures by the State' does not include--
                                    ``(I) any expenditure from amounts 
                                made available by the Federal 
                                Government;
                                    ``(II) any State funds expended for 
                                the medicaid program under title XIX;
                                    ``(III) any State funds which are 
                                used to match Federal funds provided 
                                under section 403(a)(5); or
                                    ``(IV) any State funds which are 
                                expended as a condition of recieving 
                                Federal funds other than under this 
                                part.
                        Notwithstanding subclause (IV) of the preceding 
                        sentence, such term includes expenditures by a 
                        State for child care in a fiscal year to the 
                        extent that the total amount of the 
                        expenditures does not exceed the amount of 
                        State expenditures in fiscal year 1994 or 1995 
                        (whichever is the greater) that equal the non-
                        Federal share for the programs described in 
                        section 418(a)(1)(A).''.
    (b) Grants to Outlying Areas.--Section 1108(a) of such Act (42 
U.S.C. 1308(a)) is amended by inserting ``(except section 403(a)(5))'' 
after ``title IV''.
    (c) Grants to Indian Tribes.--Section 412(a) of such Act (42 U.S.C. 
612(a)) is amended by adding at the end the following:
            ``(3) Welfare-to-work grants.--
                    ``(A) In general.--The Secretary shall award a 
                grant in accordance with this paragraph to an Indian 
                tribe for each fiscal year specified in section 
                403(a)(5)(H) for which the Indian tribe is a welfare-
                to-work tribe, in such amount as the Secretary deems 
                appropriate, subject to subparagraph (B) of this 
                paragraph.
                    ``(B) Welfare-to-work tribe.--An Indian tribe shall 
                be considered a welfare-to-work tribe for a fiscal year 
                for purposes of this paragraph if the Indian tribe 
                meets the following requirements:
                            ``(i) The Indian tribe has submitted to the 
                        Secretary (in the form of an addendum to the 
                        tribal family assistance plan, if any, of the 
                        Indian tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the Indian 
                        tribe will use any funds provided under this 
                        paragraph during the fiscal year.
                            ``(ii) The Indian tribe has provided the 
                        Secretary with an estimate of the amount that 
                        the Indian tribe intends to expend during the 
                        fiscal year (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) for 
                        activities described in section 
                        403(a)(5)(C)(i).
                            ``(iii) The Indian tribe has agreed to 
                        negotiate in good faith with the Secretary of 
                        Health and Human Services with respect to the 
                        substance of any evaluation under section 
                        413(j), and to cooperate with the conduct of 
                        any such evaluation.
                    ``(C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to Indian 
                tribes under this paragraph in the same manner in which 
                such section applies to funds provided under section 
                403(a)(5).''.
    (d) Funds Received From Grants to be Disregarded in Applying 
Durational Limit on Assistance.--Section 408(a)(7) of such Act (42 
U.S.C. 608(a)(7)) is amended by adding at the end the following:
                    ``(G) Inapplicability to welfare-to-work grants and 
                assistance.--For purposes of subparagraph (A) of this 
                paragraph, a grant made under section 403(a)(5) shall 
                not be considered a grant made under section 403, and 
                assistance from funds provided under section 403(a)(5) 
                shall not be considered assistance.''.
    (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) is 
amended by adding at the end the following:
    ``(j) Evaluation of Welfare-To-Work Programs.--
            ``(1) Evaluation.--The Secretary--
                    ``(A) shall, in consultation with the Secretary of 
                Labor, develop a plan to evaluate how grants made under 
                sections 403(a)(5) and 412(a)(3) have been used;
                    ``(B) may evaluate the use of such grants by such 
                grantees as the Secretary deems appropriate, in 
                accordance with an agreement entered into with the 
                grantees after good-faith negotiations; and
                    ``(C) is urged to include the following outcome 
                measures in the plan developed under subparagraph (A):
                            ``(i) Placements in the labor force and 
                        placements in the labor force that last for at 
                        least 6 months.
                            ``(ii) Placements in the private and public 
                        sectors.
                            ``(iii) Earnings of individuals who obtain 
                        employment.
                            ``(iv) Average expenditures per placement.
            ``(2) Reports to the congress.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), the Secretary, in consultation with the Secretary 
                of Labor and the Secretary of Housing and Urban 
                Development, shall submit to the Congress reports on 
                the projects funded under section 403(a)(5) and 
                412(a)(3) and on the evaluations of the projects.
                    ``(B) Interim report.--Not later than January 1, 
                1999, the Secretary shall submit an interim report on 
                the matter described in subparagraph (A).
                    ``(C) Final report.--Not later than January 1, 
                2001, (or at a later date, if the Secretary informs the 
                Committees of the Congress with jurisdiction over the 
                subject matter of the report) the Secretary shall 
                submit a final report on the matter described in 
                subparagraph (A).''.

SEC. 9002. LIMITATION ON AMOUNT OF FEDERAL FUNDS TRANSFERABLE TO TITLE 
              XX PROGRAMS.

    (a) In General.--Section 404(d) of the Social Security Act (42 
U.S.C. 604(d)) is amended--
            (1) in paragraph (1), by striking ``A State may'' and 
        inserting ``Subject to paragraph (2), a State may''; and
            (2) by amending paragraph (2) to read as follows:
            ``(2) Limitation on amount transferable to title xx 
        programs.--A State may use not more than 10 percent of the 
        amount of any grant made to the State under section 403(a) for 
        a fiscal year to carry out State programs pursuant to title 
        XX.''.
    (b) Retroactivity.--The amendments made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 9003. CLARIFICATION OF LIMITATION ON NUMBER OF PERSONS WHO MAY BE 
              TREATED AS ENGAGED IN WORK BY REASON OF PARTICIPATION IN 
              VOCATIONAL EDUCATIONAL TRAINING.

    (a) In General.--Section 407(c)(2)(D) of the Social Security Act 
(42 U.S.C. 607(c)(2)(D)) is amended to read as follows:
                    ``(D) Limitation on number of persons who may be 
                treated as engaged in work by reason of participation 
                in vocational educational training.--For purposes of 
                determining monthly participation rates under 
                paragraphs (1)(B)(i) and (2)(B) of subsection (b), not 
                more than 30 percent of the number of individuals in 
                all families and in 2-parent families, respectively, in 
                a State who are treated as engaged in work for a month 
                may consist of individuals who are determined to be 
                engaged in work for the month by reason of 
                participation in vocational educational training.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 9004. REQUIRED HOURS OF WORK; HEALTH AND SAFETY.

    (a) In General.--Section 407 of the Social Security Act (42 U.S.C. 
607) is amended by adding at the end the following:
    ``(j) Limitation on Number of Hours Per Month That a Recipient of 
Assistance May Be Required to Work for a Public Agency or Nonprofit 
Organization.--
            ``(1) In general.--A State to which a grant is made under 
        section 403 may not require a recipient of assistance under the 
        State program funded under this part to be assigned to a work 
        experience, on-the-job training, or community service position 
        with a public agency or nonprofit organization during a month 
        for more than the allowable number of hours determined for the 
        month under paragraph (2).
            ``(2) Allowable number of hours.--
                    ``(A) General method.--Subject to this paragraph, 
                the allowable number of hours determined for a month 
                under this paragraph--
                            ``(i) for a recipient to whom the benefit 
                        described in paragraph (3)(A) is provided 
                        during the month is--
                                    ``(I) the average value of the 
                                benefit provided by the State during 
                                the month to families that the State 
                                determines are similarly situated to 
                                the family of the recipient, or (at the 
                                option of the State) the value of the 
                                benefit provided by the State to the 
                                recipient during the month; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938;
                            ``(ii) for a recipient to whom the benefits 
                        described in subparagraphs (A) and (B) of 
                        paragraph (3) are provided during the month 
                        is--
                                    ``(I) the average value of such 
                                benefits provided by the State during 
                                the month to families that the State 
                                determines are similarly situated to 
                                the family of the recipient, or (at the 
                                option of the State) the value of such 
                                benefits provided by the State to the 
                                recipient during the month; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938;
                            ``(iii) for a recipient to whom the 
                        benefits described in subparagraphs (A), (B), 
                        and (C) of paragraph (3) are provided during 
                        the month is--
                                    ``(I) the average value of such 
                                benefits provided by the State during 
                                the month to families that the State 
                                determines are similarly situated to 
                                the family of the recipient, or (at the 
                                option of the State) the value of such 
                                benefits provided by the State to the 
                                recipient during the month; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938;
                            ``(iv) for a recipient to whom the benefits 
                        described in subparagraphs (A), (B), (C), and 
                        (D) of paragraph (3) are provided during the 
                        month is--
                                    ``(I) the average value of such 
                                benefits provided by the State during 
                                the month to families that the State 
                                determines are similarly situated to 
                                the family of the recipient, or (at the 
                                option of the State) the value of such 
                                benefits provided by the State to the 
                                recipient during the month; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938; and
                            ``(v) for a recipient to whom the benefits 
                        described in subparagraphs (A), (B), (C), (D), 
                        and (E) of paragraph (3) are provided during 
                        the month is--
                                    ``(I) the average value of such 
                                benefits provided by the State during 
                                the month to families that the State 
                                determines are similarly situated to 
                                the family of the recipient, or (at the 
                                option of the State) the value of such 
                                benefits provided by the State to the 
                                recipient during the month; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938.
                    ``(B) State option to take account of certain work 
                activities.--
                            ``(i) In general.--In determining the 
                        number of hours for a month for which a 
                        sufficiently employed recipient may be 
                        determined to be engaged in work under 
                        subsection (c)(1), the State may, 
                        notwithstanding subsection (c)(2), count the 
                        number of hours during the month for which the 
                        recipient participates in a work activity 
                        described in paragraph (6), (8), (9), (10), or 
                        (11) of subsection (d).
                            ``(ii) Sufficiently employed recipient.--As 
                        used in clause (i), the term `sufficiently 
                        employed recipient' means, with respect to a 
                        month, a recipient who is in a position 
                        described in paragraph (1) during the month for 
                        a number of hours that is not less than--
                                    ``(I) the sum of the dollar value 
                                of any assistance provided to the 
                                recipient during the month under the 
                                State program funded under this part, 
                                and the dollar value equivalent of any 
                                benefits provided to the recipient 
                                during the month under the food stamp 
                                program under the Food Stamp Act of 
                                1977; divided by
                                    ``(II) the minimum wage rate in 
                                effect during the month under section 6 
                                of the Fair Labor Standards Act of 
                                1938.
            ``(3) Benefits.--As used in paragraph (2)(A), the term 
        `value of the benefits' means--
                    ``(A) in the case of assistance under the State 
                program funded under this part, the dollar value of 
                such assistance;
                    ``(B) in the case of food stamp benefits under the 
                food stamp program under the Food Stamp Act of 1977, 
                the dollar value equivalent of such benefits;
                    ``(C) at the option of the State, in the case of 
                medical assistance benefits provided under the State 
                plan approved under title XIX, the dollar value of such 
                benefits, as determined in accordance with paragraph 
                (4);
                    ``(D) at the option of the State, in the case of 
                child care assistance, the dollar value of such 
                assistance; and
                    ``(E) at the option of the State, in the case of 
                housing benefits, the dollar value of such benefits.
            ``(4) Valuation of medicaid benefits.--Annually, the 
        Secretary shall publish a table that specifies the dollar value 
        of the insurance coverage provided under title XIX to a family 
        of each size, which may take account of geographical variations 
        or other factors identified by the Secretary.
            ``(5) Treatment of recipients assigned to certain positions 
        with a public agency or nonprofit organization.--A recipient of 
        assistance under a State program funded under this part who is 
        engaged in work experience or community service with a public 
        agency or nonprofit organization shall not be considered an 
        employee of the public agency or the nonprofit organization.
    ``(k) Health and Safety.--Health and safety standards established 
under Federal and State law otherwise applicable to working conditions 
of employees shall be equally applicable to working conditions of 
participants engaged in a work activity. To the extent that a State 
workers' compensation law applies, workers' compensation shall be 
provided to participants on the same basis as the compensation is 
provided to other individuals in the State in similar employment.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 9005. PENALTY FOR FAILURE OF STATE TO REDUCE ASSISTANCE FOR 
              RECIPIENTS REFUSING WITHOUT GOOD CAUSE TO WORK.

    (a) In General.--Section 409(a) of the Social Security Act (42 
U.S.C. 609(a)) is amended by adding at the end the following:
            ``(13) Penalty for failure to reduce assistance for 
        recipients refusing without good cause to work.--
                    ``(A) In general.--If the Secretary determines that 
                a State to which a grant is made under section 403 in a 
                fiscal year has violated section 407(e) during the 
                fiscal year, the Secretary shall reduce the grant 
                payable to the State under section 403(a)(1) for the 
                immediately succeeding fiscal year by an amount equal 
                to not less than 1 percent and not more than 5 percent 
                of the State family assistance grant.
                    ``(B) Penalty based on severity of failure.--The 
                Secretary shall impose reductions under subparagraph 
                (A) with respect to a fiscal year based on the degree 
                of noncompliance.''.
    (b) Retroactivity.--The amendment made by subsection (a) of this 
section shall take effect as if included in the enactment of section 
103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

                Subtitle B--Supplemental Security Income

SEC. 9101. REQUIREMENT TO PERFORM CHILDHOOD DISABILITY REDETERMINATIONS 
              IN MISSED CASES.

    Section 211(d)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (110 Stat. 2190) is amended--
            (1) in subparagraph (A)--
                    (A) in the 1st sentence, by striking ``1 year'' and 
                inserting ``18 months''; and
                    (B) by inserting after the 1st sentence the 
                following: ``Any redetermination required by the 
                preceding sentence that is not performed before the end 
                of the period described in the preceding sentence shall 
                be performed as soon as is practicable thereafter.''; 
                and
            (2) in subparagraph (C), by adding at the end the 
        following: ``Before commencing a redetermination under the 2nd 
        sentence of subparagraph (A), in any case in which the 
        individual involved has not already been notified of the 
        provisions of this paragraph, the Commissioner of Social 
        Security shall notify the individual involved of the provisions 
        of this paragraph.''.

SEC. 9102. REPEAL OF MAINTENANCE OF EFFORT REQUIREMENTS APPLICABLE TO 
              OPTIONAL STATE PROGRAMS FOR SUPPLEMENTATION OF SSI 
              BENEFITS.

    Section 1618 of the Social Security Act (42 U.S.C. 1382g) is 
repealed.

SEC. 9103. FEES FOR FEDERAL ADMINISTRATION OF STATE SUPPLEMENTARY 
              PAYMENTS.

    (a) Fee Schedule.--
            (1) Optional state supplementary payments.--
                    (A) In general.--Section 1616(d)(2)(B) of the 
                Social Security Act (42 U.S.C. 1382e(d)(2)(B)) is 
                amended--
                            (i) by striking ``and'' at the end of 
                        clause (iii); and
                            (ii) by striking clause (iv) and inserting 
                        the following:
            ``(iv) for fiscal year 1997, $5.00;
            ``(v) for fiscal year 1998, $6.20;
            ``(vi) for fiscal year 1999, $7.60;
            ``(vii) for fiscal year 2000, $7.80;
            ``(viii) for fiscal year 2001, $8.10;
            ``(ix) for fiscal year 2002, $8.50; and
            ``(x) for fiscal year 2003 and each succeeding fiscal 
        year--
                    ``(I) the applicable rate in the preceding fiscal 
                year, increased by the percentage, if any, by which the 
                Consumer Price Index for the month of June of the 
                calendar year of the increase exceeds the Consumer 
                Price Index for the month of June of the calendar year 
                preceding the calendar year of the increase, and 
                rounded to the nearest whole cent; or
                    ``(II) such different rate as the Commissioner 
                determines is appropriate for the State.''.
                    (B) Conforming amendment.--Section 1616(d)(2)(C) of 
                such Act (42 U.S.C. 1382e(d)(2)(C)) is amended by 
                striking ``(B)(iv)'' and inserting ``(B)(x)(II)''.
            (2) Mandatory state supplementary payments.--
                    (A) In general.--Section 212(b)(3)(B)(ii) of Public 
                Law 93-66 (42 U.S.C. 1382 note) is amended--
                            (i) by striking ``and'' at the end of 
                        subclause (III); and
                            (ii) by striking subclause (IV) and 
                        inserting the following:
            ``(IV) for fiscal year 1997, $5.00;
            ``(V) for fiscal year 1998, $6.20;
            ``(VI) for fiscal year 1999, $7.60;
            ``(VII) for fiscal year 2000, $7.80;
            ``(VIII) for fiscal year 2001, $8.10;
            ``(IX) for fiscal year 2002, $8.50; and
            ``(X) for fiscal year 2003 and each succeeding fiscal 
        year--
                    ``(aa) the applicable rate in the preceding fiscal 
                year, increased by the percentage, if any, by which the 
                Consumer Price Index for the month of June of the 
                calendar year of the increase exceeds the Consumer 
                Price Index for the month of June of the calendar year 
                preceding the calendar year of the increase, and 
                rounded to the nearest whole cent; or
                    ``(bb) such different rate as the Commissioner 
                determines is appropriate for the State.''.
                    (B) Conforming amendment.--Section 
                212(b)(3)(B)(iii) of such Act (42 U.S.C. 1382 note) is 
                amended by striking ``(ii)(IV)'' and inserting 
                ``(ii)(X)(bb)''.
    (b) Use of New Fees To Defray the Social Security Administration's 
Administrative Expenses.--
            (1) Credit to special fund for fiscal year 1998 and 
        subsequent years.--
                    (A) Optional state supplementary payment fees.--
                Section 1616(d)(4) of the Social Security Act (42 
                U.S.C. 1382e(d)(4)) is amended to read as follows:
    ``(4)(A) The first $5 of each administration fee assessed pursuant 
to paragraph (2), upon collection, shall be deposited in the general 
fund of the Treasury of the United States as miscellaneous receipts.
    ``(B) That portion of each administration fee in excess of $5, and 
100 percent of each additional services fee charged pursuant to 
paragraph (3), upon collection for fiscal year 1998 and each subsequent 
fiscal year, shall be credited to a special fund established in the 
Treasury of the United States for State supplementary payment fees. The 
amounts so credited, to the extent and in the amounts provided in 
advance in appropriations Acts, shall be available to defray expenses 
incurred in carrying out this title and related laws.''.
                    (B) Mandatory state supplementary payment fees.--
                Section 212(b)(3)(D) of Public Law 93-66 (42 U.S.C. 
                1382 note) is amended to read as follows:
    ``(D)(i) The first $5 of each administration fee assessed pursuant 
to subparagraph (B), upon collection, shall be deposited in the general 
fund of the Treasury of the United States as miscellaneous receipts.
    ``(ii) The portion of each administration fee in excess of $5, and 
100 percent of each additional services fee charged pursuant to 
subparagraph (C), upon collection for fiscal year 1998 and each 
subsequent fiscal year, shall be credited to a special fund established 
in the Treasury of the United States for State supplementary payment 
fees. The amounts so credited, to the extent and in the amounts 
provided in advance in appropriations Acts, shall be available to 
defray expenses incurred in carrying out this section and title XVI of 
the Social Security Act and related laws.''.
            (2) Limitations on authorization of appropriations.--From 
        amounts credited pursuant to section 1616(d)(4)(B) of the 
        Social Security Act and section 212(b)(3)(D)(ii) of Public Law 
        93-66 to the special fund established in the Treasury of the 
        United States for State supplementary payment fees, there is 
        authorized to be appropriated an amount not to exceed 
        $35,000,000 for fiscal year 1998, and such sums as may be 
        necessary for each fiscal year thereafter.

                 Subtitle C--Child Support Enforcement

SEC. 9201. CLARIFICATION OF AUTHORITY TO PERMIT CERTAIN REDISCLOSURES 
              OF WAGE AND CLAIM INFORMATION.

    Section 303(h)(1)(C) of the Social Security Act (42 U.S.C. 
503(h)(1)(C)) is amended by striking ``section 453(i)(1) in carrying 
out the child support enforcement program under title IV'' and 
inserting ``subsections (i)(1), (i)(3), and (j) of section 453''.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

SEC. 9301. EXTENSION OF ELIGIBILITY PERIOD FOR REFUGEES AND CERTAIN 
              OTHER QUALIFIED ALIENS FROM 5 TO 7 YEARS FOR SSI AND 
              MEDICAID.

    (a) SSI.--Section 402(a)(2)(A) of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)(A)) is 
amended to read as follows:
                    ``(A) Time-limited exception for refugees and 
                asylees.--
                            ``(i) SSI.--With respect to the specified 
                        Federal program described in paragraph (3)(A) 
                        paragraph 1 shall not apply to an alien until 7 
                        years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.
                            ``(ii) Food stamps.--With respect to the 
                        specified Federal program described in 
                        paragraph (3)(B), paragraph 1 shall not apply 
                        to an alien until 5 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.''.
    (b) Medicaid.--Section 402(b)(2)(A) of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
1612(b)(2)(A)) is amended to read as follows:
                    ``(A) Time-limited exception for refugees and 
                asylees.--
                            ``(i) Medicaid.--With respect to the 
                        designated Federal program described in 
                        paragraph (3)(C), paragraph 1 shall not apply 
                        to an alien until 7 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.
                            ``(ii) Other designated federal programs.--
                        With respect to the designated Federal programs 
                        under paragraph (3) (other than subparagraph 
                        (C)), paragraph 1 shall not apply to an alien 
                        until 5 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.''.

SEC. 9302. SSI ELIGIBILITY FOR ALIENS RECEIVING SSI ON AUGUST 22, 1996.

    (a) In General.--Section 402(a)(2) of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) 
is amended by adding after subparagraph (D) the following new 
subparagraph:
                    ``(E) Aliens receiving ssi on august 22, 1996.--
                With respect to eligibility for benefits for the 
                program defined in paragraph (3)(A) (relating to the 
                supplemental security income program), paragraph (1) 
                shall not apply to an alien who was receiving such 
                benefits on August 22, 1996.''.
    (b) Status of Cuban and Haitian Entrants and Amerasian Permanent 
Resident Aliens.--For purposes of section 402(a)(2)(E) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996, the 
following aliens shall be considered qualified aliens:
            (1) An alien who is a Cuban and Haitian entrant as defined 
        in section 501(e) of the Refugee Education Assistance Act of 
        1980.
            (2) An alien admitted to the United States as an Amerasian 
        immigrant pursuant to section 584 of the Foreign Operations, 
        Export Financing, and Related Programs Appropriations Act, 
        1988, as contained in section 101(e) of Public Law 100-202, 
        (other than an alien admitted pursuant to section 
        584(b)(1)(C)).
    (c) Conforming Amendments.--Section 402(a)(2)(D) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1612(a)(D)) is amended--
            (1) by striking clause (i);
            (2) in the subparagraph heading by striking ``benefits'' 
        and inserting ``food stamps'';
            (3) by striking ``(ii) Food stamps'.--';
            (3) by redesignating subclauses (I), (II), and (III) as 
        clauses (i), (ii), and (iii).

SEC. 9303. SSI ELIGIBILITY FOR PERMANENT RESIDENT ALIENS WHO ARE 
              MEMBERS OF AN INDIAN TRIBE.

    Section 402(a)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) (as 
amended by section 9302) is amended by adding after subparagraph (E) 
the following new subparagraph:
                    ``(F) Permanent resident aliens who are members of 
                an indian tribe.--With respect to eligibility for 
                benefits for the program defined in paragraph (3)(A) 
                (relating to the supplemental security income program), 
                paragraph (1) shall not apply to an alien who--
                            ``(i) is lawfully admitted for permanent 
                        residence under the Immigration and Nationality 
                        Act; and
                            ``(ii) is a member of an Indian tribe (as 
                        defined in section 4(e) of the Indian Self-
                        Determination and Education Assistance Act).''.

SEC. 9304. VERIFICATION OF ELIGIBILITY FOR STATE AND LOCAL PUBLIC 
              BENEFITS.

    (a) In General.--The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 is amended by adding after section 412 the 
following new section:

``SEC. 413. AUTHORIZATION FOR VERIFICATION OF ELIGIBILITY FOR STATE AND 
              LOCAL PUBLIC BENEFITS.

    ``A State or political subdivision of a State is authorized to 
require an applicant for State and local public benefits (as defined in 
section 411(c)) to provide proof of eligibility.''.
    (b) Clerical Amendment.--Section 2 of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 is amended by adding 
after the item related to section 412 the following:

``Sec. 413. Authorization for verification of eligibility for state and 
                            local public benefits.''.

SEC. 9305. DERIVATIVE ELIGIBILITY FOR BENEFITS.

    (a) In General.--The Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 is amended by adding after section 435 the 
following new section:

``SEC. 436. DERIVATIVE ELIGIBILITY FOR BENEFITS.

    ``(a) Food Stamps.--Notwithstanding any other provision of law, an 
alien who under the provisions of this title is ineligible for benefits 
under the food stamp program (as defined in section 402(a)(3)(A)) shall 
not be eligible for such benefits because the alien receives benefits 
under the supplemental security income program (as defined in section 
402(a)(3)(B)).
    ``(b) Medicaid.--Notwithstanding any other provision of this title, 
an alien who under the provisions of this title is ineligible for 
benefits under the medicaid program (as defined in section 
402(b)(3)(C)) shall be eligible for such benefits if the alien is 
receiving benefits under the supplemental security income program and 
title XIX of the Social Security Act provides for such derivative 
eligibility.''.
    (b) Clerical Amendment.--Section 2 of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 is amended by adding 
after the item related to section 435 the following:

``Sec. 436. Derivative eligibility for benefits.''.

SEC. 9306. EFFECTIVE DATE.

    Except as otherwise provided, the amendments made by this subtitle 
shall be effective as if included in the enactment of title IV of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 
1996.

                 Subtitle E--Unemployment Compensation

SEC. 9401. CLARIFYING PROVISION RELATING TO BASE PERIODS.

    (a) In General.--No provision of a State law under which the base 
period for such State is defined or otherwise determined shall, for 
purposes of section 303(a)(1) of the Social Security Act (42 U.S.C. 
503(a)(1)), be considered a provision for a method of administration.
    (b) Definitions.--For purposes of this section, the terms ``State 
law'', ``base period'', and ``State'' shall have the meanings given 
them under section 205 of the Federal-State Extended Unemployment 
Compensation Act of 1970 (26 U.S.C. 3304 note).
    (c) Effective Date.--This section shall apply for purposes of any 
period beginning before, on, or after the date of the enactment of this 
Act.

SEC. 9402. INCREASE IN FEDERAL UNEMPLOYMENT ACCOUNT CEILING.

    (a) In General.--Section 902(a)(2) of the Social Security Act (42 
U.S.C. 1102(a)(2)) is amended by striking ``0.25 percent'' and 
inserting ``0.5 percent''.
    (b) Effective Date.--This section and the amendment made by this 
section--
            (1) shall take effect on October 1, 2001, and
            (2) shall apply to fiscal years beginning on or after that 
        date.

SEC. 9403. SPECIAL DISTRIBUTION TO STATES FROM UNEMPLOYMENT TRUST FUND.

    (a) In General.--Subsection (a) of section 903 of the Social 
Security Act (42 U.S.C. 1103(a)) is amended by adding at the end the 
following new paragraph:
    ``(3)(A) Notwithstanding any other provision of this section, for 
purposes of carrying out this subsection with respect to any excess 
amount (referred to in paragraph (1)) remaining in the employment 
security administration account as of the close of fiscal year 1999, 
2000, or 2001, such amount shall--
            ``(i) to the extent of any amounts not in excess of 
        $100,000,000, be subject to subparagraph (B), and
            ``(ii) to the extent of any amounts in excess of 
        $100,000,000, be subject to subparagraph (C).
    ``(B) Paragraphs (1) and (2) shall apply with respect to any 
amounts described in subparagraph (A)(i), except that--
            ``(i) in carrying out the provisions of paragraph (2)(B) 
        with respect to such amounts (to determine the portion of such 
        amounts which is to be allocated to a State for a succeeding 
        fiscal year), the ratio to be applied under such provisions 
        shall be the same as the ratio that--
                    ``(I) the amount of funds to be allocated to such 
                State for such fiscal year pursuant to title III, bears 
                to
                    ``(II) the total amount of funds to be allocated to 
                all States for such fiscal year pursuant to title III,
        as determined by the Secretary of Labor, and
            ``(ii) the amounts allocated to a State pursuant to this 
        subparagraph shall be available to such State, subject to the 
        last sentence of subsection (c)(2).
Nothing in this paragraph shall preclude the application of subsection 
(b) with respect to any allocation determined under this subparagraph.
    ``(C) Any amounts described in clause (ii) of subparagraph (A) 
(remaining in the employment security administration account as of the 
close of any fiscal year specified in such subparagraph) shall, as of 
the beginning of the succeeding fiscal year, accrue to the Federal 
unemployment account, without regard to the limit provided in section 
902(a).''
    (b) Conforming Amendment.--Paragraph (2) of section 903(c) of the 
Social Security Act is amended by adding at the end, as a flush left 
sentence, the following:
``Any amount allocated to a State under this section for fiscal year 
2000, 2001, or 2002 may be used by such State only to pay expenses 
incurred by it for the administration of its unemployment compensation 
law, and may be so used by it without regard to any of the conditions 
prescribed in any of the preceding provisions of this paragraph.''

SEC. 9404. INTEREST-FREE ADVANCES TO STATE ACCOUNTS IN UNEMPLOYMENT 
              TRUST FUND RESTRICTED TO STATES WHICH MEET FUNDING GOALS.

    (a) In General.--Paragraph (2) of section 1202(b) of the Social 
Security Act (42 U.S.C. 1322(b)) is amended--
            (1) by striking ``and'' at the end of subparagraph (A),
            (2) by striking the period at the end of subparagraph (B) 
        and inserting ``, and'', and
            (3) by adding at the end the following new subparagraph:
            ``(C) the average daily balance in the account of such 
        State in the Unemployment Trust Fund for each of 4 of the 5 
        calendar quarters preceding the calendar quarter in which such 
        advances were made exceeds the funding goal of such State (as 
        defined in subsection (d)).''
    (b) Funding Goal Defined.--Section 1202 of the Social Security Act 
is amended by adding at the end the following new subsection:
    ``(d) For purposes of subsection (b)(2)(C), the term `funding goal' 
means, for any State for any calendar quarter, the average of the 
unemployment insurance benefits paid by such State during each of the 3 
years, in the 20-year period ending with the calendar year containing 
such calendar quarter, during which the State paid the greatest amount 
of unemployment benefits.''
    (c) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after the date of the enactment of 
this Act.

SEC. 9405. EXEMPTION OF SERVICE PERFORMED BY ELECTION WORKERS FROM THE 
              FEDERAL UNEMPLOYMENT TAX.

    (a) In General.--Paragraph (3) of section 3309(b) of the Internal 
Revenue Code of 1986 (relating to exemption for certain services) is 
amended--
            (1) by striking ``or'' at the end of subparagraph (D),
            (2) by adding ``or'' at the end of subparagraph (E), and
            (3) by inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) as an election official or election worker if 
                the amount of remuneration received by the individual 
                during the calendar year for services as an election 
                official or election worker is less than $1,000;''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to service performed after the date of the enactment 
of this Act.

SEC. 9406. TREATMENT OF CERTAIN SERVICES PERFORMED BY INMATES.

    (a) In General.--Subsection (c) of section 3306 of the Internal 
Revenue Code of 1986 (defining employment) is amended--
            (1) by striking ``or'' at the end of paragraph (19),
            (2) by striking the period at the end of paragraph (20) and 
        inserting ``; or'', and
            (3) by adding at the end the following new paragraph:
            ``(21) service performed by a person committed to a penal 
        institution.''
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to service performed after March 26, 1996.

SEC. 9407. EXEMPTION OF SERVICE PERFORMED FOR AN ELEMENTARY OR 
              SECONDARY SCHOOL OPERATED PRIMARILY FOR RELIGIOUS 
              PURPOSES FROM THE FEDERAL UNEMPLOYMENT TAX.

    (a) In General.--Paragraph (1) of section 3309(b) of the Internal 
Revenue Code of 1986 (relating to exemption for certain services) is 
amended--
            (1) by striking ``or'' at the end of subparagraph (A), and
            (2) by inserting before the semicolon at the end the 
        following: ``, or (C) an elementary or secondary school which 
        is operated primarily for religious purposes, which is 
        described in section 501(c)(3), and which is exempt from tax 
        under section 501(a)''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to service performed after the date of the enactment 
of this Act.

SEC. 9408. STATE PROGRAM INTEGRITY ACTIVITIES FOR UNEMPLOYMENT 
              COMPENSATION.

    Section 901(c) of the Social Security Act (42 U.S.C. 1101(c)) is 
amended by adding at the end the following new paragraph:
    ``(5)(A) There are authorized to be appropriated out of the 
employment security administration account to carry out program 
integrity activities, in addition to any amounts available under 
paragraph (1)(A)(i)--
            ``(i) $89,000,000 for fiscal year 1998;
            ``(ii) $91,000,000 for fiscal year 1999;
            ``(iii) $93,000,000 fiscal year 2000;
            ``(iv) $96,000,000 for fiscal year 2001; and
            ``(v) $98,000,000 for fiscal year 2002.
    ``(B) In any fiscal year in which a State receives funds 
appropriated pursuant to this paragraph, the State shall expend a 
proportion of the funds appropriated pursuant to paragraph (1)(A)(i) to 
carry out program integrity activities that is not less than the 
proportion of the funds appropriated under such paragraph that was 
expended by the State to carry out program integrity activities in 
fiscal year 1997.
    ``(C) For purposes of this paragraph, the term `program integrity 
activities' means initial claims review activities, eligibility review 
activities, benefit payments control activities, and employer liability 
auditing activities.''.

               Subtitle F--Increase in Public Debt Limit

SEC. 9501. INCREASE IN PUBLIC DEBT LIMIT.

    Subsection (b) of section 3101 of title 31, United States Code, is 
amended by striking the dollar amount contained therein and inserting 
``$5,950,000,000,000''.

             TITLE X--COMMITTEE ON WAYS AND MEANS--MEDICARE

SEC. 10000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
              TABLE OF CONTENTS OF TITLE.

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

Sec. 10000. Amendments to Social Security Act and references to OBRA; 
                            table of contents of title.
                    Subtitle A--MedicarePlus Program

                   subchapter a--medicareplus program
Sec. 10001. Establishment of MedicarePlus program.
                     ``Part C--MedicarePlus Program

        ``Sec. 1851. Eligibility, election, and enrollment.
        ``Sec. 1852. Benefits and beneficiary protections.
        ``Sec. 1853. Payments to MedicarePlus organizations.
        ``Sec. 1854. Premiums.
        ``Sec. 1855. Organizational and financial requirements for 
                            MedicarePlus organizations; provider-
                            sponsored organizations.
        ``Sec. 1856. Establishment of standards.
        ``Sec. 1857. Contracts with MedicarePlus organizations.
        ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 10002. Transitional rules for current medicare HMO program.
Ssubchapter b--special rules for medicareplus medical savings accounts
Sec. 10006. MedicarePlus MSA.
  subchapter a--programs of all-inclusive care for the elderly (pace)
Sec. 10011. Coverage of PACE under the medicare program.
Sec. 10012. Establishment of PACE program as medicaid State option.
Sec. 10013. Effective date; transition.
Sec. 1001subchapter b--social health maintenance organizations
Sec. 10015. Social heasubchapter c--other programss (SHMOs).
Sec. 10018. Orderly transition of municipal health service 
                            demonstration projects.
Sec. 10019. Extension of certain medicare community nursing 
                            organization demonstration projects.
            Chapter 3--Medicare Payment Advisory Commission

Sec. 10021. Medicare Payment Advisory Commission.
                     Chapter 4--Medigap Protections

Sec. 10031. Medigap protections.
Sec. 10032. Medicare prepaid competitive pricing demonstration project.
    Chapter 5--Tax Treatment of Hospitals Participating in Provider-
                        sponsored Organizations

Sec. 10041. Tax treatment of hospitals which participate in provider-
                            sponsored organizations.
                   Subtitle B--Prevention Initiatives

Sec. 10101. Screening mammography.
Sec. 10102. Screening pap smear and pelvic exams.
Sec. 10103. Prostate cancer screening tests.
Sec. 10104. Coverage of colorectal screening.
Sec. 10105. Diabetes screening tests.
Sec. 10106. Standardization of medicare coverage of bone mass 
                            measurements.
Sec. 10107. Vaccines outreach expansion.
Sec. 10108. Study on preventive benefits.
                     Subtitle C--Rural Initiatives

Sec. 10201. Rural primary care hospital program.
Sec. 10202. Prohibiting denial of request by rural referral centers for 
                            reclassification on basis of comparability 
                            of wages.
Sec. 10203. Hospital geographic reclassification permitted for purposes 
                            of disproportionate share payment 
                            adjustments.
Sec. 10204. Medicare-dependent, small rural hospital payment extension.
Sec. 10205. Geographic reclassification for certain disproportionately 
                            large hospitals.
Sec. 10206. Floor on area wage index.
Sec. 10207. Informatics, telemedicine, and education demonstration 
                            project.
              Subtitle D--Anti-Fraud and Abuse Provisions

Sec. 10301. Permanent exclusion for those convicted of 3 health care 
                            related crimes.
Sec. 10302. Authority to refuse to enter into medicare agreements with 
                            individuals or entities convicted of 
                            felonies.
Sec. 10303. Inclusion of toll-free number to report medicare waste, 
                            fraud, and abuse in explanation of benefits 
                            forms.
Sec. 10304. Liability of medicare carriers and fiscal intermediaries 
                            for claims submitted by excluded providers.
Sec. 10305. Exclusion of entity controlled by family member of a 
                            sanctioned individual.
Sec. 10306. Imposition of civil money penalties.
Sec. 10307. Disclosure of information and surety bonds.
Sec. 10308. Provision of certain identification numbers.
Sec. 10309. Advisory opinions regarding certain physician self-referral 
                            provisions.
Sec. 10310. Other fraud and abuse related provisions.
                Subtitle E--Prospective Payment Systems

                    Chapter 1--Payment Under Part A

Sec. 10401. Prospective payment for skilled nursing facility services.
Sec. 10402. Prospective payment for inpatient rehabilitation hospital 
                            services.
   subchapter a--payment for hospital outpatient department services
Sec. 10411. Elimination of formula-driven overpayments (FDO) for 
                            certain outpatient hospital services.
Sec. 10412. Extension of reductions in payments for costs of hospital 
                            outpatient services.
Sec. 10413. Prospective payment system for hospital outpatient 
                 subchapter b--rehabilitation services
Sec. 10421. Rehabilitation agencies and services.
Sec. 10422. Comprehesubchapter c--ambulance servicesfacilities (corf).
Sec. 10431. Payments for ambulance services.
Sec. 10432. Demonstration of coverage of ambulance services under 
                            medicare through contracts with units of 
                            local government.
                 Chapter 3--Payment Under Parts A and B

Sec. 10441. Prospective payment for home health services.
               Subtitle F--Provisions Relating to Part A

                  Chapter 1--Payment Of PPS Hospitals

Sec. 10501. PPS hospital payment update.
Sec. 10502. Capital payments for PPS hospitals.
Sec. 10503. Freeze in disproportionate share.
Sec. 10504. Medicare capital asset sales price equal to book value.
Sec. 10505. Elimination of IME and DSH payments attributable to outlier 
                            payments.
Sec. 10506. Reduction in adjustment for indirect medical education.
Sec. 10507. Treatment of transfer cases.
Sec. 10508. Increase base payment rate to Puerto Rico hospitals.
               Chapter 2--Payment Of PPS Exempt Hospitals

Sec. 10511. Payment update.
Sec. 10512. Reductions to capital payments for certain PPS-exempt 
                            hospitals and units.
Sec. 10513. Cap on TEFRA limits.
Sec. 10514. Change in bonus and relief payments.
Sec. 10515. Change in payment and target amount for new providers.
Sec. 10516. Rebasing.
Sec. 10517. Treatment of certain long-term care hospitals.
Sec. 10518. Elimination of exemptions; report on exceptions and 
                            adjustments.
           Chapter 3--Provisions Related to Hospice Services

Sec. 10521. Payments for hospice services.
Sec. 10522. Payment for home hospice care based on location where care 
                            is furnished.
Sec. 10523. Hospice care benefits periods.
Sec. 10524. Other items and services included in hospice care.
Sec. 10525. Contracting with independent physicians or physician groups 
                            for hospice care services permitted.
Sec. 10526. Waiver of certain staffing requirements for hospice care 
                            programs in non-urbanized areas.
Sec. 10527. Limitation on liability of beneficiaries for certain 
                            hospice coverage denials.
Sec. 10528. Extending the period for physician certification of an 
                            individual's terminal illness.
Sec. 10529. Effective date.
         Chapter 4--Modification of Part A Home Health Benefit

Sec. 10531. Modification of part A home health benefit for individuals 
                            enrolled under part B.
                  Chapter 5--Other Payment Provisions

Sec. 10541. Reductions in payments for enrollee bad debt.
Sec. 10542. Permanent extension of hemophilia pass-through.
Sec. 10543. Reduction in part A medicare premium for certain public 
                            retirees.
             Subtitle G--Provisions Relating to Part B Only

                    Chapter 1--Physicians' Services

Sec. 10601. Establishment of single conversion factor for 1998.
Sec. 10602. Establishing update to conversion factor to match spending 
                            under sustainable growth rate.
Sec. 10603. Replacement of volume performance standard with sustainable 
                            growth rate.
Sec. 10604. Payment rules for anesthesia services.
Sec. 10605. Implementation of resource-based physician practice 
                            expense.
Sec. 10606. Dissemination of information on high per discharge relative 
                            values for in-hospital physicians' 
                            services.
Sec. 10607. No X-ray required for chiropractic services.
Sec. 10608. Temporary coverage restoration for portable 
                            electrocardiogram transportation.
                  Chapter 2--Other Payment Provisions

Sec. 10611. Payments for durable medical equipment.
Sec. 10612. Oxygen and oxygen equipment.
Sec. 10613. Reduction in updates to payment amounts for clinical 
                            diagnostic laboratory tests.
Sec. 10614. Simplification in administration of laboratory tests.
Sec. 10615. Updates for ambulatory surgical services.
Sec. 10616. Reimbursement for drugs and biologicals.
Sec. 10617. Coverage of oral anti-nausea drugs under chemotherapeutic 
                            regimen.
Sec. 10618. Rural health clinic services.
Sec. 10619. Increased medicare reimbursement for nurse practitioners 
                            and clinical nurse specialists.
Sec. 10620. Increased medicare reimbursement for physician assistants.
Sec. 10621. Renal dialysis-related services.
                       Chapter 3--Part B Premium

Sec. 10631. Part B premium.
            Subtitle H--Provisions Relating to Parts A and B

       Chapter 1--Provisions Relating to Medicare Secondary Payer

Sec. 10701. Permanent extension and revision of certain secondary payer 
                            provisions.
Sec. 10702. Clarification of time and filing limitations.
Sec. 10703. Permitting recovery against third party administrators.
                    Chapter 2--Home Health Services

Sec. 10711. Recapturing savings resulting from temporary freeze on 
                            payment increases for home health services.
Sec. 10712. Interim payments for home health services.
Sec. 10713. Clarification of part-time or intermittent nursing care.
Sec. 10714. Study of definition of homebound.
Sec. 10715. Payment based on location where home health service is 
                            furnished.
Sec. 10716. Normative standards for home health claims denials,
Sec. 10717. No home health benefits based solely on drawing blood.
          Chapter 3--Baby Boom Generation Medicare Commission

Sec. 10721. Bipartisan Commission on the Effect of the Baby Boom 
                            Generation on the Medicare Program.
  Chapter 4--Provisions Relating to Direct Graduate Medical Education

Sec. 10731. Limitation on payment based on number of residents and 
                            implementation of rolling average FTE 
                            count.
Sec. 10732. Phased-in limitation on hospital overhead and supervisory 
                            physician component of direct medical 
                            education costs.
Sec. 10733. Permitting payment to non-hospital providers.
Sec. 10734. Incentive payments under plans for voluntary reduction in 
                            number of residents.
Sec. 10735. Demonstration project on use of consortia.
Sec. 10736. Recommendations on long-term payment policies regarding 
                            financing teaching hospitals and graduate 
                            medical education.
Sec. 10737. Medicare special reimbursement rule for certain combined 
                            residency programs.
                      Chapter 5--Other Provisions

Sec. 10741. Centers of excellence.
Sec. 10742. Medicare part B special enrollment period and waiver of 
                            part B late enrollment penalty and medigap 
                            special open enrollment period for certain 
                            military retirees and dependents.
Sec. 10743. Protections under the medicare program for disabled workers 
                            who lose benefits under a group health 
                            plan.
Sec. 10744. Placement of advance directive in medical record.
                  Subtitle I--Medical Liability Reform

                     Chapter 1--General Provisions

Sec. 10801. Federal reform of health care liability actions.
Sec. 10802. Definitions.
Sec. 10803. Effective date.
     Chapter 2--Uniform Standards for Health Care Liability Actions

Sec. 10811. Statute of limitations.
Sec. 10812. Calculation and payment of damages.
Sec. 10813. Alternative dispute resolution.

                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

                   Subchapter A--MedicarePlus Program

SEC. 10001. ESTABLISHMENT OF MEDICAREPLUS PROGRAM.

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

                     ``Part C--MedicarePlus Program

                ``eligibility, election, and enrollment

    ``Sec. 1851. (a) Choice of Medicare Benefits Through MedicarePlus 
Plans.--
            ``(1) In general.--Subject to the provisions of this 
        section, each MedicarePlus eligible individual (as defined in 
        paragraph (3)) is entitled to elect to receive benefits under 
        this title--
                    ``(A) through the medicare fee-for-service program 
                under parts A and B, or
                    ``(B) through enrollment in a MedicarePlus plan 
                under this part.
            ``(2) Types of medicareplus plans that may be available.--A 
        MedicarePlus plan may be any of the following types of plans of 
        health insurance:
                    ``(A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, including 
                health maintenance organization plans and preferred 
                provider organization plans.
                    ``(B) Plans offered by provider-sponsored 
                organization.--A MedicarePlus plan offered by a 
                provider-sponsored organization, as defined in section 
                1855(e).
                    ``(C) Combination of msa plan and contributions to 
                medicareplus msa.--An MSA plan, as defined in section 
                1859(b)(2), and a contribution into a MedicarePlus 
                medical savings account (MSA).
            ``(3) MedicarePlus eligible individual.--
                    ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `MedicarePlus eligible 
                individual' means an individual who is entitled to 
                benefits under part A and enrolled under part B.
                    ``(B) Special rule for end-stage renal disease.--
                Such term shall not include an individual medically 
                determined to have end-stage renal disease, except that 
                an individual who develops end-stage renal disease 
                while enrolled in a MedicarePlus plan may continue to 
                be enrolled in that plan.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to elect a 
                MedicarePlus plan offered by a MedicarePlus 
                organization only if the organization serves the 
                geographic area in which the individual resides.
                    ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, the 
                Secretary shall provide that an individual may continue 
                enrollment in a plan, notwithstanding that the 
                individual no longer resides in the service area of the 
                plan, so long as the plan provides benefits for 
                enrollees located in the area in which the individual 
                resides.
            ``(2) Special rule for certain individuals covered under 
        fehbp or eligible for veterans or military health benefits, 
        veterans .--
                    ``(A) FEHBP.--An individual who is enrolled in a 
                health benefit plan under chapter 89 of title 5, United 
                States Code, is not eligible to enroll in an MSA plan 
                until such time as the Director of the Office of 
                Management and Budget certifies to the Secretary that 
                the Office of Personnel Management has adopted policies 
                which will ensure that the enrollment of such 
                individuals in such plans will not result in increased 
                expenditures for the Federal Government for health 
                benefit plans under such chapter.
                    ``(B) VA and dod.--The Secretary may apply rules 
                similar to the rules described in subparagraph (A) in 
                the case of individuals who are eligible for health 
                care benefits under chapter 55 of title 10, United 
                States Code, or under chapter 17 of title 38 of such 
                Code.
            ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to enroll in an 
        MSA plan.--An individual who is a qualified medicare 
        beneficiary (as defined in section 1905(p)(1)), a qualified 
        disabled and working individual (described in section 1905(s)), 
        an individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a State plan 
        under title XIX is not eligible to enroll in an MSA plan.
            ``(4) Coverage under msa plans on a demonstration basis.--
                    ``(A) In general.--An individual is not eligible to 
                enroll in an MSA plan under this part--
                            ``(i) on or after January 1, 2003, unless 
                        the enrollment is the continuation of such an 
                        enrollment in effect as of such date; or
                            ``(ii) as of any date if the number of such 
                        individuals so enrolled as of such date has 
                        reached 500,000.
                Under rules established by the Secretary, an individual 
                is not eligible to enroll (or continue enrollment) in 
                an MSA plan for a year unless the individual provides 
                assurances satisfactory to the Secretary that the 
                individual will reside in the United States for at 
                least 183 days during the year.
                    ``(B) Evaluation.--The Secretary shall regularly 
                evaluate the impact of permitting enrollment in MSA 
                plans under this part on selection (including adverse 
                selection), use of preventive care, access to care, and 
                the financial status of the Trust Funds under this 
                title.
                    ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of individuals 
                enrolled in such plans and on the evaluation being 
                conducted under subparagraph (B). The Secretary shall 
                submit such a report, by not later than March 1, 2002, 
                on whether the time limitation under subparagraph 
                (A)(i) should be extended or removed and whether to 
                change the numerical limitation under subparagraph 
                (A)(ii).
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
            ``(2) Coordination through medicareplus organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus plan 
                offered by a MedicarePlus organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicarePlus plan offered 
                by a MedicarePlus organization and who wishes to 
                terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
            ``(3) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to clause (ii), 
                        an individual who fails to make an election 
                        during an initial election period under 
                        subsection (e)(1) is deemed to have chosen the 
                        medicare fee-for-service program option.
                            ``(ii) Seamless continuation of coverage.--
                        The Secretary may establish procedures under 
                        which an individual who is enrolled in a health 
                        plan (other than MedicarePlus plan) offered by 
                        a MedicarePlus organization at the time of the 
                        initial election period and who fails to elect 
                        to receive coverage other than through the 
                        organization is deemed to have elected the 
                        MedicarePlus plan offered by the organization 
                        (or, if the organization offers more than one 
                        such plan, such plan or plans as the Secretary 
                        identifies under such procedures).
                    ``(B) Continuing periods.--An individual who has 
                made (or is deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                            ``(i) the individual changes the election 
                        under this section, or
                            ``(ii) a MedicarePlus plan is discontinued, 
                        if the individual had elected such plan at the 
                        time of the discontinuation.
    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 30 days 
                before the beginning of each annual, coordinated 
                election period (as defined in subsection (e)(3)(B)), 
                the Secretary shall mail to each MedicarePlus eligible 
                individual residing in an area the following:
                            ``(i) General information.--The general 
                        information described in paragraph (3).
                            ``(ii) List of plans and comparison of plan 
                        options.--A list identifying the MedicarePlus 
                        plans that are (or will be) available to 
                        residents of the area and information described 
                        in paragraph (4) concerning such plans. Such 
                        information shall be presented in a comparative 
                        form.
                            ``(iii) MedicarePlus monthly capitation 
                        rate.--The amount of the monthly MedicarePlus 
                        capitation rate for the area.
                            ``(iv) Additional information.--Any other 
                        information that the Secretary determines will 
                        assist the individual in making the election 
                        under this section.
                The mailing of such information shall be coordinated 
                with the mailing of any annual notice under section 
                1804.
                    ``(B) Notification to newly medicareplus eligible 
                individuals.--To the extent practicable, the Secretary 
                shall, not later than 2 months before the beginning of 
                the initial MedicarePlus enrollment period for an 
                individual described in subsection (e)(1), mail to the 
                individual the information described in subparagraph 
                (A).
                    ``(C) Form.--The information disseminated under 
                this paragraph shall be written and formatted using 
                language that is easily understandable by medicare 
                beneficiaries.
                    ``(D) Periodic updating.--The information described 
                in subparagraph (A) shall be updated on at least an 
                annual basis to reflect changes in the availability of 
                MedicarePlus plans and the benefits and monthly 
                premiums (and net monthly premiums) for such plans.
            ``(3) General information.--General information under this 
        paragraph, with respect to coverage under this part during a 
        year, shall include the following:
                    ``(A) Benefits under fee-for-service program 
                option.--A general description of the benefits covered 
                (and not covered) under the medicare fee-for-service 
                program under parts A and B, including--
                            ``(i) covered items and services,
                            ``(ii) beneficiary cost sharing, such as 
                        deductibles, coinsurance, and copayment 
                        amounts, and
                            ``(iii) any beneficiary liability for 
                        balance billing.
                    ``(B) Part b premium.--The part B premium rates 
                that will be charged for part B coverage.
                    ``(C) Election procedures.--Information and 
                instructions on how to exercise election options under 
                this section.
                    ``(D) Rights.--The general description of 
                procedural rights (including grievance and appeals 
                procedures) of beneficiaries under the medicare fee-
                for-service program and the MedicarePlus program and 
                right to be protected against discrimination based on 
                health status-related factors under section 1852(b).
                    ``(E) Information on medigap and medicare select.--
                A general description of the benefits, enrollment 
                rights, and other requirements applicable to medicare 
                supplemental policies under section 1882 and provisions 
                relating to medicare select policies described in 
                section 1882(t).
                    ``(F) Potential for contract termination.--The fact 
                that a MedicarePlus organization may terminate or 
                refuse to renew its contract under this part and the 
                effect the termination or nonrenewal of its contract 
                may have on individuals enrolled with the MedicarePlus 
                plan under this part.
            ``(4) Information comparing plan options.--Information 
        under this paragraph, with respect to a MedicarePlus plan for a 
        year, shall include the following:
                    ``(A) Benefits.--The benefits covered (and not 
                covered) under the plan, including--
                            ``(i) covered items and services beyond 
                        those provided under the medicare fee-for-
                        service program,
                            ``(ii) any beneficiary cost sharing,
                            ``(iii) any maximum limitations on out-of-
                        pocket expenses, and
                            ``(iv) in the case of an MSA plan, 
                        differences in cost sharing and balance billing 
                        under such a plan compared to under other 
                        MedicarePlus plans.
                    ``(B) Premiums.--The monthly premium (and net 
                monthly premium), if any, for the plan.
                    ``(C) Service area.--The service area of the plan.
                    ``(D) Quality and performance.--To the extent 
                available, plan quality and performance indicators for 
                the benefits under the plan (and how they compare to 
                such indicators under the medicare fee-for-service 
                program under parts A and B in the area involved), 
                including--
                            ``(i) disenrollment rates for medicare 
                        enrollees electing to receive benefits through 
                        the plan for the previous 2 years (excluding 
                        disenrollment due to death or moving outside 
                        the plan's service area),
                            ``(ii) information on medicare enrollee 
                        satisfaction,
                            ``(iii) information on health outcomes, and
                            ``(iv) the recent record regarding 
                        compliance of the plan with requirements of 
                        this part (as determined by the Secretary).
                    ``(E) Supplemental benefits options.--Whether the 
                organization offering the plan offers optional 
                supplemental benefits and the terms and conditions 
                (including premiums) for such coverage.
            ``(5) Maintaining a toll-free number and internet site.--
        The Secretary shall maintain a toll-free number for inquiries 
        regarding MedicarePlus options and the operation of this part 
        in all areas in which MedicarePlus plans are offered and an 
        Internet site through which individuals may electronically 
        obtain information on such options and MedicarePlus plans.
            ``(6) Use of nonfederal entities.--The Secretary may enter 
        into contracts with non-Federal entities to carry out 
        activities under this subsection.
            ``(7) Provision of information.--A MedicarePlus 
        organization shall provide the Secretary with such information 
        on the organization and each MedicarePlus plan it offers as may 
        be required for the preparation of the information referred to 
        in paragraph (2)(A).
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election if 
        medicareplus plans available to individual.--If, at the time an 
        individual first becomes entitled to benefits under part A and 
        enrolled under part B, there is one or more MedicarePlus plans 
        offered in the area in which the individual resides, the 
        individual shall make the election under this section during a 
        period (of a duration and beginning at a time specified by the 
        Secretary) at such time. Such period shall be specified in a 
        manner so that, in the case of an individual who elects a 
        MedicarePlus plan during the period, coverage under the plan 
        becomes effective as of the first date on which the individual 
        may receive such coverage.
            ``(2) Open enrollment and disenrollment opportunities.--
        Subject to paragraph (5)--
                    ``(A) Continuous open enrollment and disenrollment 
                through 2000.--At any time during 1998, 1999, and 2000, 
                a MedicarePlus eligible individual may change the 
                election under subsection (a)(1).
                    ``(B) Continuous open enrollment and disenrollment 
                for first 6 months during 2001.--
                            ``(i) In general.--Subject to clause (ii), 
                        at any time during the first 6 months of 2001, 
                        or, if the individual first becomes a 
                        MedicarePlus eligible individual during 2001, 
                        during the first 6 months during 2001 in which 
                        the individual is a MedicarePlus eligible 
                        individual, a MedicarePlus eligible individual 
                        may change the election under subsection 
                        (a)(1).
                            ``(ii) Limitation of one change per year.--
                        An individual may exercise the right under 
                        clause (i) only once during 2001. The 
                        limitation under this clause shall not apply to 
                        changes in elections effected during an annual, 
                        coordinated election period under paragraph (3) 
                        or during a special enrollment period under 
                        paragraph (4).
                    ``(C) Continuous open enrollment and disenrollment 
                for first 3 months in subsequent years.--
                            ``(i) In general.--Subject to clause (ii), 
                        at any time during the first 3 months of a year 
                        after 2001, or, if the individual first becomes 
                        a MedicarePlus eligible individual during a 
                        year after 2001, during the first 3 months of 
                        such year in which the individual is a 
                        MedicarePlus eligible individual, a 
                        MedicarePlus eligible individual may change the 
                        election under subsection (a)(1).
                            ``(ii) Limitation of one change per year.--
                        An individual may exercise the right under 
                        clause (i) only once a year. The limitation 
                        under this clause shall not apply to changes in 
                        elections effected during an annual, 
                        coordinated election period under paragraph (3) 
                        or during a special enrollment period under 
                        paragraph (4).
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during an annual, 
                coordinated election period.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 2001), the month of October before such 
                year.
                    ``(C) MedicarePlus health fairs.--In the month of 
                October of each year (beginning with 1998), the 
                Secretary shall provide for a nationally coordinated 
                educational and publicity campaign to inform 
                MedicarePlus eligible individuals about MedicarePlus 
                plans and the election process provided under this 
                section.
            ``(4) Special election periods.--Effective as of January 1, 
        2001, an individual may discontinue an election of a 
        MedicarePlus plan offered by a MedicarePlus organization other 
        than during an annual, coordinated election period and make a 
        new election under this section if--
                    ``(A) the organization's or plan's certification 
                under this part has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                plan;
                    ``(B) the individual is no longer eligible to elect 
                the plan because of a change in the individual's place 
                of residence or other change in circumstances 
                (specified by the Secretary, but not including 
                termination of the individual's enrollment on the basis 
                described in clause (i) or (ii) of subsection 
                (g)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--
                            ``(i) the organization offering the plan 
                        substantially violated a material provision of 
                        the organization's contract under this part in 
                        relation to the individual (including the 
                        failure to provide an enrollee on a timely 
                        basis medically necessary care for which 
                        benefits are available under the plan or the 
                        failure to provide such covered care in 
                        accordance with applicable quality standards); 
                        or
                            ``(ii) the organization (or an agent or 
                        other entity acting on the organization's 
                        behalf) materially misrepresented the plan's 
                        provisions in marketing the plan to the 
                        individual; or
                    ``(D) the individual meets such other exceptional 
                conditions as the Secretary may provide.
            ``(5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an individual--
                    ``(A) may elect an MSA plan only during--
                            ``(i) an initial open enrollment period 
                        described in paragraph (1),
                            ``(ii) an annual, coordinated election 
                        period described in paragraph (3)(B), or
                            ``(iii) the months of October 1998 and 
                        October 1999; and
                    ``(B) may not discontinue an election of an MSA 
                plan except during the periods described in clause (ii) 
                or (iii) of subparagraph (A) and under paragraph (4).
    ``(f) Effectiveness of Elections and Changes of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
            ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection (e)(2) 
        shall take effect with the first day of the first calendar 
        month following the date on which the election is made.
            ``(3) Annual, coordinated election period.--An election or 
        change of coverage made during an annual, coordinated election 
        period (as defined in subsection (e)(3)(B)) in a year shall 
        take effect as of the first day of the following year.
            ``(4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) shall take 
        effect in such manner as the Secretary provides in a manner 
        consistent (to the extent practicable) with protecting 
        continuity of health benefit coverage.
    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        MedicarePlus organization shall provide that at any time during 
        which elections are accepted under this section with respect to 
        a MedicarePlus plan offered by the organization, the 
        organization will accept without restrictions individuals who 
        are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a MedicarePlus plan 
        it offers, has a capacity limit and the number of MedicarePlus 
        eligible individuals who elect the plan under this section 
        exceeds the capacity limit, the organization may limit the 
        election of individuals of the plan under this section but only 
        if priority in election is provided--
                    ``(A) first to such individuals as have elected the 
                plan at the time of the determination, and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate, on a basis described 
                in section 1852(b), among the individuals (who seek to 
                elect the plan).
        The preceding sentence shall not apply if it would result in 
        the enrollment of enrollees substantially nonrepresentative, as 
        determined in accordance with regulations of the Secretary, of 
        the medicare population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                MedicarePlus organization may not for any reason 
                terminate the election of any individual under this 
                section for a MedicarePlus plan it offers.
                    ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an individual's 
                election under this section with respect to a 
                MedicarePlus plan it offers if--
                            ``(i) any net monthly premiums required 
                        with respect to such plan are not paid on a 
                        timely basis (consistent with standards under 
                        section 1856 that provide for a grace period 
                        for late payment of net monthly premiums),
                            ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                            ``(iii) the plan is terminated with respect 
                        to all individuals under this part in the area 
                        in which the individual resides.
                    ``(C) Consequence of termination.--
                            ``(i) Terminations for cause.--Any 
                        individual whose election is terminated under 
                        clause (i) or (ii) of subparagraph (B) is 
                        deemed to have elected the medicare fee-for-
                        service program option described in subsection 
                        (a)(1)(A).
                            ``(ii) Termination based on plan 
                        termination or service area reduction.--Any 
                        individual whose election is terminated under 
                        subparagraph (B)(iii) shall have a special 
                        election period under subsection (e)(4)(A) in 
                        which to change coverage to coverage under 
                        another MedicarePlus plan. Such an individual 
                        who fails to make an election during such 
                        period is deemed to have chosen to change 
                        coverage to the medicare fee-for-service 
                        program option described in subsection 
                        (a)(1)(A).
                    ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1857, each MedicarePlus organization receiving an 
                election form under subsection (c)(2) shall transmit to 
                the Secretary (at such time and in such manner as the 
                Secretary may specify) a copy of such form or such 
                other information respecting the election as the 
                Secretary may specify.
    ``(h) Approval of Marketing Material and Application Forms.--
            ``(1) Submission.--No marketing material or application 
        form may be distributed by a MedicarePlus organization to (or 
        for the use of) MedicarePlus eligible individuals unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of all such material or 
        form submitted and under such guidelines the Secretary shall 
        disapprove (or later require the correction of) such material 
        or form if the material or form is materially inaccurate or 
        misleading or otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material or form that is submitted under paragraph (1)(A) to 
        the Secretary or a regional office of the Department of Health 
        and Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing material or form 
        under paragraph (1)(B) with respect to a MedicarePlus plan in 
        an area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the plan and 
        organization except to the extent that such material or form is 
        specific only to an area involved.
            ``(4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair marketing 
        standards, in relation to MedicarePlus plans offered under this 
        part, included in the standards established under section 1856. 
        Such standards shall include a prohibition against a 
        MedicarePlus organization (or agent of such an organization) 
        completing any portion of any election form used to carry out 
        elections under this section on behalf of any individual.
    ``(i) Effect of Election of MedicarePlus Plan Option.--Subject to 
sections 1852(a)(5), 1857(f)(2), and 1857(g)--
            ``(1) payments under a contract with a MedicarePlus 
        organization under section 1853(a) with respect to an 
        individual electing a MedicarePlus plan offered by the 
        organization shall be instead of the amounts which (in the 
        absence of the contract) would otherwise be payable under parts 
        A and B for items and services furnished to the individual, and
            ``(2) subject to subsections (e) and (f) of section 1853, 
        only the MedicarePlus organization shall be entitled to receive 
        payments from the Secretary under this title for services 
        furnished to the individual.

                 ``benefits and beneficiary protections

    ``Sec. 1852. (a) Basic Benefits.--
            ``(1) In general.--Except as provided in section 1859(b)(2) 
        for MSA plans, each MedicarePlus plan shall provide to members 
        enrolled under this part, through providers and other persons 
        that meet the applicable requirements of this title and part A 
        of title XI--
                    ``(A) those items and services for which benefits 
                are available under parts A and B to individuals 
                residing in the area served by the plan, and
                    ``(B) additional benefits required under section 
                1854(f)(1)(A).
            ``(2) Satisfaction of requirement.--A MedicarePlus plan 
        (other than an MSA plan) offered by a MedicarePlus organization 
        satisfies paragraph (1)(A), with respect to benefits for items 
        and services furnished other than through a provider that has a 
        contract with the organization offering the plan, if the plan 
        provides (in addition to any cost sharing provided for under 
        the plan) for at least the total dollar amount of payment for 
        such items and services as would otherwise be authorized under 
        parts A and B (including any balance billing permitted under 
        such parts).
            ``(3) Supplemental benefits.--
                    ``(A) Benefits included subject to secretary's 
                approval.--Each MedicarePlus organization may provide 
                to individuals enrolled under this part, other than 
                under an MSA plan, (without affording those individuals 
                an option to decline the coverage) supplemental health 
                care benefits that the Secretary may approve. The 
                Secretary shall approve any such supplemental benefits 
                unless the Secretary determines that including such 
                supplemental benefits would substantially discourage 
                enrollment by MedicarePlus eligible individuals with 
                the organization.
                    ``(B) At enrollees' option.--A MedicarePlus 
                organization may provide to individuals enrolled under 
                this part, other than under an MSA plan, supplemental 
                health care benefits that the individuals may elect, at 
                their option, to have covered.
            ``(4) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicarePlus organization may (in the 
        case of the provision of items and services to an individual 
        under a MedicarePlus plan under circumstances in which payment 
        under this title is made secondary pursuant to section 
        1862(b)(2)) charge or authorize the provider of such services 
        to charge, in accordance with the charges allowed under such a 
        law, plan, or policy--
                    ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                    ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
            ``(5) National coverage determinations.--If there is a 
        national coverage determination made in the period beginning on 
        the date of an announcement under section 1853(b) and ending on 
        the date of the next announcement under such section and the 
        Secretary projects that the determination will result in a 
        significant change in the costs to a MedicarePlus organization 
        of providing the benefits that are the subject of such national 
        coverage determination and that such change in costs was not 
        incorporated in the determination of the annual MedicarePlus 
        capitation rate under section 1853 included in the announcement 
        made at the beginning of such period--
                    ``(A) such determination shall not apply to 
                contracts under this part until the first contract year 
                that begins after the end of such period, and
                    ``(B) if such coverage determination provides for 
                coverage of additional benefits or coverage under 
                additional circumstances, section 1851(i) shall not 
                apply to payment for such additional benefits or 
                benefits provided under such additional circumstances 
                until the first contract year that begins after the end 
                of such period,
        unless otherwise required by law.
    ``(b) Antidiscrimination.--
            ``(1) In general.--A MedicarePlus organization may not 
        deny, limit, or condition the coverage or provision of benefits 
        under this part, for individuals permitted to be enrolled with 
        the organization under this part, based on any health status-
        related factor described in section 2702(a)(1) of the Public 
        Health Service Act.
            ``(2) Construction.--Paragraph (1) shall not be construed 
        as requiring a MedicarePlus organization to enroll individuals 
        who are determined to have end-stage renal disease, except as 
        provided under section 1851(a)(3)(B).
    ``(c) Detailed Description of Plan Provisions.--A MedicarePlus 
organization shall disclose, in clear, accurate, and standardized form 
to each enrollee with a MedicarePlus plan offered by the organization 
under this part at the time of enrollment and at least annually 
thereafter, the following information regarding such plan:
            ``(1) Service area.--The plan's service area.
            ``(2) Benefits.--Benefits offered (and not offered) under 
        the plan offered, including information described in section 
        1851(d)(3)(A) and exclusions from coverage and, if it is an MSA 
        plan, a comparison of benefits under such a plan with benefits 
        under other MedicarePlus plans.
            ``(3) Access.--The number, mix, and distribution of plan 
        providers.
            ``(4) Out-of-area coverage.--Out-of-area coverage provided 
        by the plan.
            ``(5) Emergency coverage.--Coverage of emergency services 
        and urgently needed care, including--
                    ``(A) the appropriate use of emergency services, 
                including use of the 911 telephone system or its local 
                equivalent in emergency situations and an explanation 
                of what constitutes an emergency situation;
                    ``(B) the process and procedures of the plan for 
                obtaining emergency services; and
                    ``(C) the locations of (i) emergency departments, 
                and (ii) other settings, in which plan physicians and 
                hospitals provide emergency services and post-
                stabilization care.
            ``(6) Supplemental benefits.--Supplemental benefits 
        available from the organization offering the plan, including--
                    ``(A) whether the supplemental benefits are 
                optional,
                    ``(B) the supplemental benefits covered, and
                    ``(C) the premium price for the supplemental 
                benefits.
            ``(7) Prior authorization rules.--Rules regarding prior 
        authorization or other review requirements that could result in 
        nonpayment.
            ``(8) Plan grievance and appeals procedures.--Any appeal or 
        grievance rights and procedures.
            ``(9) Quality assurance program.--A description of the 
        organization's quality assurance program under subsection (e).
    ``(d) Access to Services.--
            ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus plan may select the providers from whom the 
        benefits under the plan are provided so long as--
                    ``(A) the organization makes such benefits 
                available and accessible to each individual electing 
                the plan within the plan service area with reasonable 
                promptness and in a manner which assures continuity in 
                the provision of benefits;
                    ``(B) when medically necessary the organization 
                makes such benefits available and accessible 24 hours a 
                day and 7 days a week;
                    ``(C) the plan provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                            ``(i) the services were medically necessary 
                        and immediately required because of an 
                        unforeseen illness, injury, or condition, and 
                        it was not reasonable given the circumstances 
                        to obtain the services through the 
                        organization,
                            ``(ii) the services were renal dialysis 
                        services and were provided other than through 
                        the organization because the individual was 
                        temporarily out of the plan's service area, or
                            ``(iii) the services are maintenance care 
                        or post-stabilization care covered under the 
                        guidelines established under paragraph (2);
                    ``(D) the organization provides access to 
                appropriate providers, including credentialed 
                specialists, for medically necessary treatment and 
                services; and
                    ``(E) coverage is provided for emergency services 
                (as defined in paragraph (3)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
            ``(2) Guidelines respecting coordination of post-
        stabilization care.--A MedicarePlus plan shall comply with such 
        guidelines as the Secretary may prescribe relating to promoting 
        efficient and timely coordination of appropriate maintenance 
        and post-stabilization care of an enrollee after the enrollee 
        has been determined to be stable under section 1867.
            ``(3) Definition of emergency services.--In this 
        subsection--
                    ``(A) In general.--The term `emergency services' 
                means, with respect to an individual enrolled with an 
                organization, covered inpatient and outpatient services 
                that--
                            ``(i) are furnished by a provider that is 
                        qualified to furnish such services under this 
                        title, and
                            ``(ii) are needed to evaluate or stabilize 
                        an emergency medical condition (as defined in 
                        subparagraph (B)).
                    ``(B) Emergency medical condition based on prudent 
                layperson.--The term `emergency medical condition' 
                means a medical condition manifesting itself by acute 
                symptoms of sufficient severity such that a prudent 
                layperson, who possesses an average knowledge of health 
                and medicine, could reasonably expect the absence of 
                immediate medical attention to result in--
                            ``(i) placing the health of the individual 
                        (or, with respect to a pregnant woman, the 
                        health of the woman or her unborn child) in 
                        serious jeopardy,
                            ``(ii) serious impairment to bodily 
                        functions, or
                            ``(iii) serious dysfunction of any bodily 
                        organ or part.
    ``(e) Quality Assurance Program.--
            ``(1) In general.--Each MedicarePlus organization must have 
        arrangements, consistent with any regulation, for an ongoing 
        quality assurance program for health care services it provides 
        to individuals enrolled with MedicarePlus plans of the 
        organization.
            ``(2) Elements of program.--The quality assurance program 
        shall--
                    ``(A) stress health outcomes and provide for the 
                collection, analysis, and reporting of data (in 
                accordance with a quality measurement system that the 
                Secretary recognizes) that will permit measurement of 
                outcomes and other indices of the quality of 
                MedicarePlus plans and organizations;
                    ``(B) provide for the establishment of written 
                protocols for utilization review, based on current 
                standards of medical practice;
                    ``(C) provide review by physicians and other health 
                care professionals of the process followed in the 
                provision of such health care services;
                    ``(D) monitor and evaluate high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                    ``(E) evaluate the continuity and coordination of 
                care that enrollees receive;
                    ``(F) have mechanisms to detect both 
                underutilization and overutilization of services;
                    ``(G) after identifying areas for improvement, 
                establish or alter practice parameters;
                    ``(H) take action to improve quality and assesses 
                the effectiveness of such action through systematic 
                followup;
                    ``(I) make available information on quality and 
                outcomes measures to facilitate beneficiary comparison 
                and choice of health coverage options (in such form and 
                on such quality and outcomes measures as the Secretary 
                determines to be appropriate);
                    ``(J) be evaluated on an ongoing basis as to its 
                effectiveness;
                    ``(K) include measures of consumer satisfaction; 
                and
                    ``(L) provide the Secretary with such access to 
                information collected as may be appropriate to monitor 
                and ensure the quality of care provided under this 
                part.
            ``(3) External review.--Each MedicarePlus organization 
        shall, for each MedicarePlus plan it operates, have an 
        agreement with an independent quality review and improvement 
        organization approved by the Secretary to perform functions of 
        the type described in sections 1154(a)(4)(B) and 1154(a)(14) 
        with respect to services furnished by MedicarePlus plans for 
        which payment is made under this title.
            ``(4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to meet 
        requirements of paragraphs (1) through (3) of this subsection 
        and subsection (h) (relating to confidentiality and accuracy of 
        enrollee records) if the organization is accredited (and 
        periodically reaccredited) by a private organization under a 
        process that the Secretary has determined assures that the 
        organization, as a condition of accreditation, applies and 
        enforces standards with respect to the requirements involved 
        that are no less stringent than the standards established under 
        section 1856 to carry out the respective requirements.
    ``(f) Coverage Determinations.--
            ``(1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding authorization 
        requests for nonemergency care on a timely basis, depending on 
        the urgency of the situation.
            ``(2) Reconsiderations.--
                    ``(A) In general.--Subject to subsection (g)(4), a 
                reconsideration of a determination of an organization 
                denying coverage shall be made within 30 days of the 
                date of receipt of medical information, but not later 
                than 60 days after the date of the determination.
                    ``(B) Physician decision on certain 
                reconsiderations.--A reconsideration relating to a 
                determination to deny coverage based on a lack of 
                medical necessity shall be made only by a physician 
                other than a physician involved in the initial 
                determination.
    ``(g) Grievances and Appeals.--
            ``(1) Grievance mechanism.--Each MedicarePlus organization 
        must provide meaningful procedures for hearing and resolving 
        grievances between the organization (including any entity or 
        individual through which the organization provides health care 
        services) and enrollees with MedicarePlus plans of the 
        organization under this part.
            ``(2) Appeals.--An enrollee with a MedicarePlus plan of a 
        MedicarePlus organization under this part who is dissatisfied 
        by reason of the enrollee's failure to receive any health 
        service to which the enrollee believes the enrollee is entitled 
        and at no greater charge than the enrollee believes the 
        enrollee is required to pay is entitled, if the amount in 
        controversy is $100 or more, to a hearing before the Secretary 
        to the same extent as is provided in section 205(b), and in any 
        such hearing the Secretary shall make the organization a party. 
        If the amount in controversy is $1,000 or more, the individual 
        or organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final decision 
        as provided in section 205(g), and both the individual and the 
        organization shall be entitled to be parties to that judicial 
        review. In applying sections 205(b) and 205(g) as provided in 
        this paragraph, 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.
            ``(3) Independent review of certain coverage denials.--The 
        Secretary shall contract with an independent, outside entity to 
        review and resolve reconsiderations that affirm denial of 
        coverage.
            ``(4) Expedited determinations and reconsiderations.--
                    ``(A) Receipt of requests.--An enrollee in a 
                MedicarePlus plan may request, either in writing or 
                orally, an expedited determination or reconsideration 
                by the MedicarePlus organization regarding a matter 
                described in paragraph (2). The organization shall also 
                permit the acceptance of such requests by physicians.
                    ``(B) Organization procedures.--
                            ``(i) In general.--The MedicarePlus 
                        organization shall maintain procedures for 
                        expediting organization determinations and 
                        reconsiderations when, upon request of an 
                        enrollee, the organization determines that the 
                        application of normal time frames for making a 
                        determination (or a reconsideration involving a 
                        determination) could seriously jeopardize the 
                        life or health of the enrollee or the 
                        enrollee's ability to regain maximum function.
                            ``(ii) Timely response.--In an urgent case 
                        described in clause (i), the organization shall 
                        notify the enrollee (and the physician 
                        involved, as appropriate) of the determination 
                        (or determination on the reconsideration) as 
                        expeditiously as the enrollee's health 
                        condition requires, but not later than 72 hours 
                        (or 24 hours in the case of a reconsideration) 
                        of the time of receipt of the request for the 
                        determination or reconsideration (or receipt of 
                        the information necessary to make the 
                        determination or reconsideration), or such 
                        longer period as the Secretary may permit in 
                        specified cases.
    ``(h) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
            ``(1) to safeguard the privacy of individually identifiable 
        enrollee information,
            ``(2) to maintain accurate and timely medical records and 
        other health information for enrollees, and
            ``(3) to assure timely access of enrollees to their medical 
        information.
    ``(i) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
    ``(j) Rules Regarding Physician Participation.--
            ``(1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under MedicarePlus plans offered by the 
        organization under this part. Such procedures shall include--
                    ``(A) providing notice of the rules regarding 
                participation,
                    ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                    ``(C) providing a process within the organization 
                for appealing such adverse decisions, including the 
                presentation of information and views of the physician 
                regarding such decision.
            ``(2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have entered 
        into participation agreements with the organization regarding 
        the organization's medical policy, quality, and medical 
        management procedures.
            ``(3) Prohibiting interference with provider advice to 
        enrollees.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), a MedicarePlus organization (in relation to an 
                individual enrolled under a MedicarePlus plan offered 
                by the organization under this part) shall not prohibit 
                or otherwise restrict a covered health care 
                professional (as defined in subparagraph (D)) from 
                advising such an individual who is a patient of the 
                professional about the health status of the individual 
                or medical care or treatment for the individual's 
                condition or disease, regardless of whether benefits 
                for such care or treatment are provided under the plan, 
                if the professional is acting within the lawful scope 
                of practice.
                    ``(B) Conscience protection.--Subparagraph (A) 
                shall not be construed as requiring a MedicarePlus plan 
                to provide, reimburse for, or provide coverage of a 
                counseling or referral service if the MedicarePlus 
                organization offering the plan--
                            ``(i) objects to the provision of such 
                        service on moral or religious grounds; and
                            ``(ii) in the manner and through the 
                        written instrumentalities such MedicarePlus 
                        organization deems appropriate, makes available 
                        information on its policies regarding such 
                        service to prospective enrollees before or 
                        during enrollment and to enrollees within 90 
                        days after the date that the organization or 
                        plan adopts a change in policy regarding such a 
                        counseling or referral service.
                    ``(C) Construction.--Nothing in subparagraph (B) 
                shall be construed to affect disclosure requirements 
                under State law or under the Employee Retirement Income 
                Security Act of 1974.
                    ``(D) Health care professional defined.--For 
                purposes of this paragraph, the term `health care 
                professional' means a physician (as defined in section 
                1861(r)) or other health care professional if coverage 
                for the professional's services is provided under the 
                MedicarePlus plan for the services of the professional. 
                Such term includes a podiatrist, optometrist, 
                chiropractor, psychologist, dentist, physician 
                assistant, physical or occupational therapist and 
                therapy assistant, speech-language pathologist, 
                audiologist, registered or licensed practical nurse 
                (including nurse practitioner, clinical nurse 
                specialist, certified registered nurse anesthetist, and 
                certified nurse-midwife), licensed certified social 
                worker, registered respiratory therapist, and certified 
                respiratory therapy technician.
            ``(4) Limitations on physician incentive plans.--
                    ``(A) In general.--No MedicarePlus organization may 
                operate any physician incentive plan (as defined in 
                subparagraph (B)) unless the following requirements are 
                met:
                            ``(i) No specific payment is made directly 
                        or indirectly under the plan to a physician or 
                        physician group as an inducement to reduce or 
                        limit medically necessary services provided 
                        with respect to a specific individual enrolled 
                        with the organization.
                            ``(ii) If the plan places a physician or 
                        physician group at substantial financial risk 
                        (as determined by the Secretary) for services 
                        not provided by the physician or physician 
                        group, the organization--
                                    ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk in the group or under 
                                the plan and the number of individuals 
                                enrolled with the organization who 
                                receive services from the physician or 
                                group, and
                                    ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                            ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                    ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means 
                any compensation arrangement between a MedicarePlus 
                organization and a physician or physician group that 
                may directly or indirectly have the effect of reducing 
                or limiting services provided with respect to 
                individuals enrolled with the organization under this 
                part.
            ``(5) Limitation on provider indemnification.--A 
        MedicarePlus organization may not provide (directly or 
        indirectly) for a provider (or group of providers) to indemnify 
        the organization against any liability resulting from a civil 
        action brought for any damage caused to an enrollee with a 
        MedicarePlus plan of the organization under this part by the 
        organization's denial of medically necessary care.
    ``(k) Treatment of Services Furnished by Certain Providers.--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 a MedicarePlus 
organization (other than under an MSA plan) shall accept as payment in 
full for covered services under this title 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 a payment with respect to an 
individual entitled to benefits under this title (but not enrolled with 
a MedicarePlus organization under this part) also applies with respect 
to an individual so enrolled.
    ``(l) Disclosure of Use of DSH and Teaching Hospitals.--Each 
MedicarePlus organization shall provide the Secretary with information 
on--
            ``(1) the extent to which the organization provides 
        inpatient and outpatient hospital benefits under this part--
                    ``(A) through the use of hospitals that are 
                eligible for additional payments under section 
                1886(d)(5)(F)(i) (relating to so-called DSH hospitals), 
                or
                    ``(B) through the use of teaching hospitals that 
                receive payments under section 1886(h); and
            ``(2) the extent to which differences between payment rates 
        to different hospitals reflect the disproportionate share 
        percentage of low-income patients and the presence of medical 
        residency training programs in those hospitals.

                ``payments to medicareplus organizations

    ``Sec. 1853. (a) Payments to Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under section 
                1857 and subject to subsections (e) and (f), the 
                Secretary shall make monthly payments under this 
                section in advance to each MedicarePlus organization, 
                with respect to coverage of an individual under this 
                part in a MedicarePlus payment area for a month, in an 
                amount equal to \1/12\ of the annual MedicarePlus 
                capitation rate (as calculated under subsection (c)) 
                with respect to that individual for that area, adjusted 
                for such risk factors as age, disability status, 
                gender, institutional status, and such other factors as 
                the Secretary determines to be appropriate, so as to 
                ensure actuarial equivalence. The Secretary may add to, 
                modify, or substitute for such factors, if such changes 
                will improve the determination of actuarial 
                equivalence.
                    ``(B) Special rule for end-stage renal disease.--
                The Secretary shall establish separate rates of payment 
                to a MedicarePlus organization with respect to classes 
                of individuals determined to have end-stage renal 
                disease and enrolled in a MedicarePlus plan of the 
                organization. Such rates of payment shall be 
                actuarially equivalent to rates paid to other enrollees 
                in the MedicarePlus payment area (or such other area as 
                specified by the Secretary). In accordance with 
                regulations, the Secretary shall provide for the 
                application of the seventh sentence of section 
                1881(b)(7) to payments under this section covering the 
                provision of renal dialysis treatment in the same 
                manner as such sentence applies to composite rate 
                payments described in such sentence.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicarePlus organization under 
                        a 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, except that for 
                        purposes of making such retroactive adjustments 
                        under this subparagraph, such period may not 
                        exceed 90 days.
                            ``(ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to any 
                        individual who does not certify that the 
                        organization provided the individual with the 
                        information required to be disclosed under 
                        section 1852(c) at the time the individual 
                        enrolled with the organization.
            ``(3) Establishment of risk adjustment factors.--
                    ``(A) Report.--The Secretary shall develop, and 
                submit to Congress by not later than October 1, 1999, a 
                report on a method of risk adjustment of payment rates 
                under this section that accounts for variations in per 
                capita costs based on health status. Such report shall 
                include an evaluation of such method by an outside, 
                independent actuary of the actuarial soundness of the 
                proposal.
                    ``(B) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require MedicarePlus 
                organizations (and eligible organizations with risk-
                sharing contracts under section 1876) to submit, for 
                periods beginning on or after January 1, 1998, data 
                regarding inpatient hospital services and other 
                services and other information the Secretary deems 
                necessary.
                    ``(C) Initial implementation.--The Secretary shall 
                first provide for implementation of a risk adjustment 
                methodology that accounts for variations in per capita 
                costs based on health status and other demographic 
                factors for payments by no later than January 1, 2000.
    ``(b) Annual Announcement of Payment Rates.--
            ``(1) 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--
                    ``(A) the annual MedicarePlus capitation rate for 
                each MedicarePlus payment area for the year, and
                    ``(B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) for 
                payments for months in that year.
            ``(2) Advance notice of methodological changes.--At least 
        45 days before making the announcement under paragraph (1) for 
        a year, the Secretary shall provide for notice to MedicarePlus 
        organizations of proposed changes to be made in the methodology 
        from the methodology and assumptions used in the previous 
        announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
            ``(3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include an 
        explanation of the assumptions and changes in methodology used 
        in the announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for individuals in each MedicarePlus payment 
        area which is in whole or in part within the service area of 
        such an organization.
    ``(c) Calculation of Annual MedicarePlus Capitation Rates.--
            ``(1) In General.--For purposes of this part, each annual 
        MedicarePlus capitation rate, for a MedicarePlus payment area 
        for a contract year consisting of a calendar year, is equal to 
        the largest of the amounts specified in the following 
        subparagraphs (A), (B), or (C):
                    ``(A) Blended capitation rate.--The sum of--
                            ``(i) area-specific percentage for the year 
                        (as specified under paragraph (2) for the year) 
                        of the annual area-specific MedicarePlus 
                        capitation rate for the year for the 
                        MedicarePlus payment area, as determined under 
                        paragraph (3), and
                            ``(ii) national percentage (as specified 
                        under paragraph (2) for the year) of the input-
                        price-adjusted annual national MedicarePlus 
                        capitation rate for the year, as determined 
                        under paragraph (4),
                multiplied by the payment adjustment factors described 
                in subparagraphs (A) and (B) of paragraph (5).
                    ``(B) Minimum amount.--12 multiplied by the 
                following amount:
                            ``(i) For 1998, $350 (but not to exceed, in 
                        the case of an area outside the 50 States and 
                        the District of Columbia, 150 percent of the 
                        annual per capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) for the 
                        area).
                            ``(ii) For a succeeding year, the minimum 
                        amount specified in this clause (or clause (i)) 
                        for the preceding year increased by the 
                        national per capita MedicarePlus growth 
                        percentage, specified under paragraph (6) for 
                        that succeeding year.
                    ``(C) Minimum percentage increase.--
                            ``(i) For 1998, 102 percent of the annual 
                        per capita rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the 
                        MedicarePlus payment area.
                            ``(ii) For a subsequent year, 102 percent 
                        of the annual MedicarePlus capitation rate 
                        under this paragraph for the area for the 
                        previous year.
            ``(2) Area-specific and national percentages.--For purposes 
        of paragraph (1)(A)--
                    ``(A) for 1998, the `area-specific percentage' is 
                90 percent and the `national percentage' is 10 percent,
                    ``(B) for 1999, the `area-specific percentage' is 
                80 percent and the `national percentage' is 20 percent,
                    ``(C) for 2000, the `area-specific percentage' is 
                70 percent and the `national percentage' is 30 percent,
                    ``(D) for 2001, the `area-specific percentage' is 
                60 percent and the `national percentage' is 40 percent, 
                and
                    ``(E) for a year after 2001, the `area-specific 
                percentage' is 50 percent and the `national percentage' 
                is 50 percent.
            ``(3) Annual area-specific medicareplus capitation rate.--
        For purposes of paragraph (1)(A), the annual area-specific 
        MedicarePlus capitation rate for a MedicarePlus payment area--
                    ``(A) for 1998 is the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                for the area, increased by the national per capita 
                MedicarePlus growth percentage for 1998 (as defined in 
                paragraph (6)); or
                    ``(B) for a subsequent year is the annual area-
                specific MedicarePlus capitation rate for the previous 
                year determined under this paragraph for the area, 
                increased by the national per capita MedicarePlus 
                growth percentage for such subsequent year.
            ``(4) Input-price-adjusted annual national medicareplus 
        capitation rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), the input-price-adjusted annual national 
                MedicarePlus capitation rate for a MedicarePlus payment 
                area for a year is equal to the sum, for all the types 
                of medicare services (as classified by the Secretary), 
                of the product (for each such type of service) of--
                            ``(i) the national standardized annual 
                        MedicarePlus capitation rate (determined under 
                        subparagraph (B)) for the year,
                            ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services, and
                            ``(iii) an index that reflects (for that 
                        year and that type of services) the relative 
                        input price of such services in the area 
                        compared to the national average input price of 
                        such services.
                In applying clause (iii), the Secretary shall, subject 
                to subparagraph (C), apply those indices under this 
                title that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                    ``(B) National standardized annual medicareplus 
                capitation rate.--In subparagraph (A)(i), the `national 
                standardized annual MedicarePlus capitation rate' for a 
                year is equal to--
                            ``(i) the sum (for all MedicarePlus payment 
                        areas) of the product of--
                                    ``(I) the annual area-specific 
                                MedicarePlus capitation rate for that 
                                year for the area under paragraph (3), 
                                and
                                    ``(II) the average number of 
                                medicare beneficiaries residing in that 
                                area in the year, multiplied by the 
                                average of the risk factor weights used 
                                to adjust payments under subsection 
                                (a)(1)(A) for such beneficiaries in 
                                such area; divided by
                            ``(ii) the sum of the products described in 
                        clause (i)(II) for all areas for that year.
                    ``(C) Special rules for 1998.--In applying this 
                paragraph for 1998--
                            ``(i) medicare services shall be divided 
                        into 2 types of services: part A services and 
                        part B services;
                            ``(ii) the proportions described in 
                        subparagraph (A)(ii)--
                                    ``(I) for part A services shall be 
                                the ratio (expressed as a percentage) 
                                of the national average annual per 
                                capita rate of payment for part A for 
                                1997 to the total national average 
                                annual per capita rate of payment for 
                                parts A and B for 1997, and
                                    ``(II) for part B services shall be 
                                100 percent minus the ratio described 
                                in subclause (I);
                            ``(iii) for part A services, 70 percent of 
                        payments attributable to such services shall be 
                        adjusted by the index used under section 
                        1886(d)(3)(E) to adjust payment rates for 
                        relative hospital wage levels for hospitals 
                        located in the payment area involved;
                            ``(iv) for part B services--
                                    ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                    ``(II) of the remaining 34 percent 
                                of the amount of such payments, 40 
                                percent shall be adjusted by the index 
                                described in clause (iii); and
                            ``(v) the index values shall be computed 
                        based only on the beneficiary population who 
                        are 65 years of age or older and who are not 
                        determined to have end stage renal disease.
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1999.
            ``(5) Payment adjustment budget neutrality factors.--For 
        purposes of paragraph (1)(A)--
                    ``(A) Blended rate payment adjustment factor.--For 
                each year, the Secretary shall compute a blended rate 
                payment adjustment factor such that, not taking into 
                account subparagraphs (B) and (C) of paragraph (1) and 
                the application of the payment adjustment factor 
                described in subparagraph (B), the aggregate of the 
                payments that would be made under this part is equal to 
                the aggregate payments that would have been made under 
                this part (not taking into account such subparagraphs 
                and such other adjustment factor) if the area-specific 
                percentage under paragraph (1) for the year had been 
                100 percent and the national percentage had been 0 
                percent.
                    ``(B) Floor-and-minimum-update payment adjustment 
                factor.--For each year, the Secretary shall compute a 
                floor-and-minimum-update payment adjustment factor so 
                that, taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) of 
                paragraph (1) and the application of the adjustment 
                factor under this subparagraph, the aggregate of the 
                payments under this part shall not exceed the aggregate 
                payments that would have been made under this part if 
                subparagraphs (B) and (C) of paragraph (1) did not 
                apply and if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 1.
            ``(6) National per capita medicareplus growth percentage 
        defined.--
                    ``(A) In general.--In this part, the `national per 
                capita MedicarePlus growth percentage' for a year is 
                the percentage determined by the Secretary, by April 
                30th before the beginning of the year involved, to 
                reflect the Secretary's estimate of the projected per 
                capita rate of growth in expenditures under this title 
                for an individual entitled to benefits under part A and 
                enrolled under part B, reduced by the number of 
                percentage points specified in subparagraph (B) for the 
                year. Separate determinations may be made for aged 
                enrollees, disabled enrollees, and enrollees with end-
                stage renal disease. Such percentage shall include an 
                adjustment for over or under projection in the growth 
                percentage for previous years.
                    ``(B) Adjustment.--The number of percentage points 
                specified in this subparagraph is--
                            ``(i) for 1998, 0.5 percentage points,
                            ``(ii) for 1999, 0.5 percentage points,
                            ``(iii) for 2000, 0.5 percentage points,
                            ``(iv) for 2001, 0.5 percentage points,
                            ``(v) for 2002, 0.5 percentage points, and
                            ``(vi) for a year after 2002, 0 percentage 
                        points.
    ``(d) MedicarePlus Payment Area Defined.--
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `MedicarePlus payment area' means a 
        county, or equivalent area specified by the Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal disease, 
        the MedicarePlus payment area shall be a State or such other 
        payment area as the Secretary specifies.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon written request of the 
                chief executive officer of a State for a contract year 
                (beginning after 1998) made at least 7 months before 
                the beginning of the year, the Secretary shall make a 
                geographic adjustment to a MedicarePlus payment area in 
                the State otherwise determined under paragraph (1)--
                            ``(i) to a single statewide MedicarePlus 
                        payment area,
                            ``(ii) to the metropolitan based system 
                        described in subparagraph (C), or
                            ``(iii) to consolidating into a single 
                        MedicarePlus payment area noncontiguous 
                        counties (or equivalent areas described in 
                        paragraph (1)) within a State.
                Such adjustment shall be effective for payments for 
                months beginning with January of the year following the 
                year in which the request is received.
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Secretary shall adjust the payment rates otherwise 
                established under this section for MedicarePlus payment 
                areas in the State in a manner so that the aggregate of 
                the payments under this section in the State shall not 
                exceed the aggregate payments that would have been made 
                under this section for MedicarePlus payment areas in 
                the State in the absence of the adjustment under this 
                paragraph.
                    ``(C) Metropolitan based system.--The metropolitan 
                based system described in this subparagraph is one in 
                which--
                            ``(i) all the portions of each metropolitan 
                        statistical area in the State or in the case of 
                        a consolidated metropolitan statistical area, 
                        all of the portions of each primary 
                        metropolitan statistical area within the 
                        consolidated area within the State, are treated 
                        as a single MedicarePlus payment area, and
                            ``(ii) all areas in the State that do not 
                        fall within a metropolitan statistical area are 
                        treated as a single MedicarePlus payment area.
                    ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area designated 
                as such by the Secretary of Commerce.
    ``(e) Special Rules for Individuals Electing MSA Plans.--
            ``(1) In general.--If the amount of the monthly premium for 
        an MSA plan for a MedicarePlus payment area for a year is less 
        than \1/12\ of the annual MedicarePlus capitation rate applied 
        under this section for the area and year involved, the 
        Secretary shall deposit an amount equal to 100 percent of such 
        difference in a MedicarePlus MSA established (and, if 
        applicable, designated) by the individual under paragraph (2).
            ``(2) Establishment and designation of medicareplus medical 
        savings account as requirement for payment of contribution.--In 
        the case of an individual who has elected coverage under an MSA 
        plan, no payment shall be made under paragraph (1) on behalf of 
        an individual for a month unless the individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicarePlus MSA (as defined in section 
                138(b)(2) of the Internal Revenue Code of 1986), and
                    ``(B) if the individual has established more than 
                one such MedicarePlus MSA, has designated one of such 
                accounts as the individual's MedicarePlus MSA for 
                purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing an MSA 
        plan effective beginning with a month in a year, the amount of 
        the contribution to the MedicarePlus MSA on behalf of the 
        individual for that month and all successive months in the year 
        shall be deposited during that first month. In the case of a 
        termination of such an election as of a month before the end of 
        a year, the Secretary shall provide for a procedure for the 
        recovery of deposits attributable to the remaining months in 
        the year.
    ``(f) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under this 
part with the organization and payments to a MedicarePlus MSA under 
subsection (e)(1) shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. Monthly 
payments otherwise payable under this section for October 2001 shall be 
paid on the last business day of September 2001.
    ``(g) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a MedicarePlus plan 
        offered by a MedicarePlus organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the MedicarePlus plan or the medicare 
                fee-for-service program option described in section 
                1851(a)(1)(A) (as the case may be) elected before the 
                election with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part; or
            ``(2) termination of election with respect to a 
        MedicarePlus organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by any 
                succeeding MedicarePlus organization, and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.

                               ``premiums

    ``Sec. 1854. (a) Submission and Charging of Premiums.--
            ``(1) In general.--Subject to paragraph (3), each 
        MedicarePlus organization shall file with the Secretary each 
        year, in a form and manner and at a time specified by the 
        Secretary--
                    ``(A) the amount of the monthly premium for 
                coverage for services under section 1852(a) under each 
                MedicarePlus plan it offers under this part in each 
                MedicarePlus payment area (as defined in section 
                1853(d)) in which the plan is being offered; and
                    ``(B) the enrollment capacity in relation to the 
                plan in each such area.
            ``(2) Terminology.--In this part--
                    ``(A) the term `monthly premium' means, with 
                respect to a MedicarePlus plan offered by a 
                MedicarePlus organization, the monthly premium filed 
                under paragraph (1), not taking into account the amount 
                of any payment made toward the premium under section 
                1853; and
                    ``(B) the term `net monthly premium' means, with 
                respect to such a plan and an individual enrolled with 
                the plan, the premium (as defined in subparagraph (A)) 
                for the plan reduced by the amount of payment made 
                toward such premium under section 1853.
    ``(b) Monthly Premium Charged.--The monthly amount of the premium 
charged by a MedicarePlus organization for a MedicarePlus plan offered 
in a MedicarePlus payment area to an individual under this part shall 
be equal to the net monthly premium plus any monthly premium charged in 
accordance with subsection (e)(2) for supplemental benefits.
    ``(c) Uniform Premium.--The monthly premium and monthly amount 
charged under subsection (b) of a MedicarePlus organization under this 
part may not vary among individuals who reside in the same MedicarePlus 
payment area.
    ``(d) Terms and Conditions of Imposing Premiums.--Each MedicarePlus 
organization shall permit the payment of net monthly premiums on a 
monthly basis and may terminate election of individuals for a 
MedicarePlus plan for failure to make premium payments only in 
accordance with section 1851(g)(3)(B)(i). A MedicarePlus organization 
is not authorized to provide for cash or other monetary rebates as an 
inducement for enrollment or otherwise.
    ``(e) Limitation on Enrollee Cost-Sharing.--
            ``(1) For basic and additional benefits.--Except as 
        provided in paragraph (2), in no event may--
                    ``(A) the net monthly premium (multiplied by 12) 
                and the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on average to 
                individuals enrolled under this part with a 
                MedicarePlus plan of an organization with respect to 
                required benefits described in section 1852(a)(1) and 
                additional benefits (if any) required under subsection 
                (f)(1) for a year, exceed
                    ``(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be applicable on 
                average to individuals entitled to benefits under part 
                A and enrolled under part B if they were not members of 
                a MedicarePlus organization for the year.
            ``(2) For supplemental benefits.--If the MedicarePlus 
        organization provides to its members enrolled under this part 
        supplemental benefits described in section 1852(a)(3), the sum 
        of the monthly premium rate (multiplied by 12) charged for such 
        supplemental benefits and the actuarial value of its 
        deductibles, coinsurance, and copayments charged with respect 
        to such benefits may not exceed the adjusted community rate for 
        such benefits (as defined in subsection (f)(4)).
            ``(3) Exception for msa plans.--Paragraphs (1) and (2) do 
        not apply to an MSA plan.
            ``(4) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to determine 
        the actuarial value under paragraph (1)(A) or (2), the 
        Secretary may determine such amount with respect to all 
        individuals in the MedicarePlus payment area, the State, or in 
        the United States, eligible to enroll in the MedicarePlus plan 
        involved under this part or on the basis of other appropriate 
        data.
    ``(f) Requirement for Additional Benefits.--
            ``(1) Requirement.--
                    ``(A) In general.--Each MedicarePlus organization 
                (in relation to a MedicarePlus plan it offers) shall 
                provide that if there is an excess amount (as defined 
                in subparagraph (B)) for the plan for a contract year, 
                subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify) in a value which is at least 
                equal to the adjusted excess amount (as defined in 
                subparagraph (C)).
                    ``(B) Excess amount.--For purposes of this 
                paragraph, the `excess amount', for an organization for 
                a plan, is the amount (if any) by which--
                            ``(i) the average of the capitation 
                        payments made to the organization under section 
                        1853 for the plan at the beginning of contract 
                        year, exceeds
                            ``(ii) the actuarial value of the required 
                        benefits described in section 1852(a)(1) under 
                        the plan for individuals under this part, as 
                        determined based upon an adjusted community 
                        rate described in paragraph (4) (as reduced for 
                        the actuarial value of the coinsurance and 
                        deductibles under parts A and B).
                    ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a plan, is the excess amount reduced 
                to reflect any amount withheld and reserved for the 
                organization for the year under paragraph (2).
                    ``(D) No application to msa plans.--Subparagraph 
                (A) shall not apply to an MSA plan.
                    ``(E) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a plan in a 
                MedicarePlus payment area.
                    ``(F) Construction.--Nothing in this subsection 
                shall be construed as preventing a MedicarePlus 
                organization from providing health care benefits that 
                are in addition to the benefits otherwise required to 
                be provided under this paragraph and from imposing a 
                premium for such additional benefits.
            ``(2) Stabilization fund.--A MedicarePlus organization may 
        provide that a part of the value of an excess amount described 
        in paragraph (1) be withheld and reserved in the Federal 
        Hospital Insurance Trust Fund and in the Federal Supplementary 
        Medical Insurance Trust Fund (in such proportions as the 
        Secretary determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent required to 
        stabilize and prevent undue fluctuations in the additional 
        benefits offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of the amount reserved which is not provided as 
        additional benefits described in paragraph (1)(A) to 
        individuals electing the MedicarePlus plan of the organization 
        in accordance with such paragraph prior to the end of such 
        periods, shall revert for the use of such trust funds.
            ``(3) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds that there 
        is insufficient enrollment experience (including no enrollment 
        experience in the case of a provider-sponsored organization) to 
        determine an average of the capitation payments to be made 
        under this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the enrollment 
        experience of other contracts entered into under this part.
            ``(4) Adjusted community rate.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the term `adjusted 
                community rate' for a service or services means, at the 
                election of a MedicarePlus organization, either--
                            ``(i) the rate of payment for that service 
                        or services which the Secretary annually 
                        determines would apply to an individual 
                        electing a MedicarePlus plan under this part if 
                        the rate of payment were determined under a 
                        `community rating system' (as defined in 
                        section 1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                            ``(ii) such portion of the weighted 
                        aggregate premium, which the Secretary annually 
                        estimates would apply to such an individual, as 
                        the Secretary annually estimates is 
                        attributable to that service or services,
                but adjusted for differences between the utilization 
                characteristics of the individuals electing coverage 
                under this part and the utilization characteristics of 
                the other enrollees with the plan (or, if the Secretary 
                finds that adequate data are not available to adjust 
                for those differences, the differences between the 
                utilization characteristics of individuals selecting 
                other MedicarePlus coverage, or MedicarePlus eligible 
                individuals in the area, in the State, or in the United 
                States, eligible to elect MedicarePlus coverage under 
                this part and the utilization characteristics of the 
                rest of the population in the area, in the State, or in 
                the United States, respectively).
                    ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored organization, 
                the adjusted community rate under subparagraph (A) for 
                a MedicarePlus plan of the organization may be computed 
                (in a manner specified by the Secretary) using data in 
                the general commercial marketplace or (during a 
                transition period) based on the costs incurred by the 
                organization in providing such a plan.
    ``(g) Periodic Auditing.--The Secretary shall provide for the 
annual auditing of the financial records (including data relating to 
medicare utilization, costs, and computation of the adjusted community 
rate) of at least one-third of the MedicarePlus organizations offering 
MedicarePlus plans under this part. The Comptroller General shall 
monitoring auditing activities conducted under this subsection.
    ``(h) Prohibition of State Imposition of Premium Taxes.--No State 
may impose a premium tax or similar tax with respect to premiums on 
MedicarePlus plans or the offering of such plans.

     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations

    ``Sec. 1855. (a) Organized and Licensed Under State Law.--
            ``(1) In general.--Subject to paragraphs (2) and (3), a 
        MedicarePlus organization shall be organized and licensed under 
        State law as a risk-bearing entity eligible to offer health 
        insurance or health benefits coverage in each State in which it 
        offers a MedicarePlus plan.
            ``(2) Special exception for provider-sponsored 
        organizations.--
                    ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a 
                MedicarePlus plan in a State, the Secretary shall waive 
                the requirement of paragraph (1) that the organization 
                be licensed in that State if--
                            ``(i) the organization files an application 
                        for such waiver with the Secretary, and
                            ``(ii) the Secretary determines, based on 
                        the application and other evidence presented to 
                        the Secretary, that any of the grounds for 
                        approval of the application described in 
                        subparagraph (B), (C), or (D) has been met.
                    ``(B) Failure to act on licensure application on a 
                timely basis.--A ground for approval of such a waiver 
                application is that the State has failed to complete 
                action on a licensing application of the organization 
                within 90 days of the date of the State's receipt of 
                the completed application. No period before the date of 
                the enactment of this section shall be included in 
                determining such 90-day period.
                    ``(C) Denial of application based on discriminatory 
                treatment.--A ground for approval of such a waiver 
                application is that the State has denied such a 
                licensing application and--
                            ``(i) the State has imposed documentation 
                        or information requirements not related to 
                        solvency requirements that are not generally 
                        applicable to other entities engaged in 
                        substantially similar business, or
                            ``(ii) the standards or review process 
                        imposed by the State as a condition of approval 
                        of the license imposes any material 
                        requirements, procedures, or standards (other 
                        than requirements and standards relating to 
                        solvency) to such organizations that are not 
                        generally applicable to other entities engaged 
                        in substantially similar business.
                    ``(D) Denial of application based on application of 
                solvency requirements.--A ground for approval of such a 
                waiver application is that the State has denied such a 
                licensing application based (in whole or in part) on 
                the organization's failure to meet applicable solvency 
                requirements and--
                            ``(i) such requirements are not the same as 
                        the solvency standards established under 
                        section 1856(a); or
                            ``(ii) the State has imposed as a condition 
                        of approval of the license any documentation or 
                        information requirements relating to solvency 
                        or other material requirements, procedures, or 
                        standards relating to solvency that are 
                        different from the requirements, procedures, 
                        and standards applied by the Secretary under 
                        subsection (d)(2).
                For purposes of this subparagraph, the term `solvency 
                requirements' means requirements relating to solvency 
                and other matters covered under the standards 
                established under section 1856(a).
                    ``(E) Treatment of waiver.--In the case of a waiver 
                granted under this paragraph for a provider-sponsored 
                organization--
                            ``(i) the waiver shall be effective for a 
                        36-month period, except it may be renewed based 
                        on a subsequent application filed during the 
                        last 6 months of such period, and
                            ``(ii) any provisions of State law which 
                        relate to the licensing of the organization and 
                        which prohibit the organization from providing 
                        coverage pursuant to a contract under this part 
                        shall be superseded.
                Nothing in this subparagraph shall be construed as 
                limiting the number of times such a waiver may be 
                renewed.
                    ``(F) Prompt action on application.--The Secretary 
                shall grant or deny such a waiver application within 60 
                days after the date the Secretary determines that a 
                substantially complete application has been filed. 
                Nothing in this section shall be construed as 
                preventing an organization which has had such a waiver 
                application denied from submitting a subsequent waiver 
                application.
            ``(3) Exception if required to offer more than medicareplus 
        plans.--Paragraph (1) shall not apply to a MedicarePlus 
        organization in a State if the State requires the organization, 
        as a condition of licensure, to offer any product or plan other 
        than a MedicarePlus plan.
            ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is licensed in 
        accordance with paragraph (1) does not deem the organization to 
        meet other requirements imposed under this part.
    ``(b) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to enrolled 
members under the contract under this part 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.
    ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (except, at the election 
of the organization, hospice care) for which benefits are required to 
be provided under section 1852(a)(1), except that the organization--
            ``(1) may obtain insurance or make other arrangements for 
        the cost of providing to any enrolled member such services the 
        aggregate value of which exceeds $5,000 in any year,
            ``(2) may obtain insurance or make other arrangements for 
        the cost of such services provided to its enrolled members 
        other than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
            ``(3) may obtain insurance or make other arrangements for 
        not more than 90 percent of the amount by which its costs for 
        any of its fiscal years exceed 115 percent of its income for 
        such fiscal year, and
            ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
    ``(d) Certification of Provision Against Risk of Insolvency for 
Unlicensed PSOs.--
            ``(1) In general.--Each MedicarePlus organization that is a 
        provider-sponsored organization, that is not licensed by a 
        State under subsection (a), and for which a waiver application 
        has been approved under subsection (a)(2), shall meet standards 
        established under section 1856(a) relating to the financial 
        solvency and capital adequacy of the organization.
            ``(2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the receipt 
        and approval of applications of a provider-sponsored 
        organization described in paragraph (1) for certification (and 
        periodic recertification) of the organization as meeting such 
        solvency standards. Under such process, the Secretary shall act 
        upon such an application not later than 60 days after the date 
        the application has been received.
    ``(e) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private entity--
                    ``(A) that is established or organized by a health 
                care provider, or group of affiliated health care 
                providers,
                    ``(B) that provides a substantial proportion (as 
                defined by the Secretary in accordance with paragraph 
                (2)) of the health care items and services under the 
                contract under this part directly through the provider 
                or affiliated group of providers, and
                    ``(C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at least a 
                majority financial interest in the entity.
            ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1)(B), the 
        Secretary--
                    ``(A) shall take into account (i) the need for such 
                an organization to assume responsibility for a 
                substantial proportion of services in order to assure 
                financial stability and (ii) the practical difficulties 
                in such an organization integrating a very wide range 
                of service providers; and
                    ``(B) may vary such proportion based upon relevant 
                differences among organizations, such as their location 
                in an urban or rural area.
            ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common control 
                with the other,
                    ``(B) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986, or
                    ``(C) both providers are part of an affiliated 
                service group under section 414 of such Code.
            ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
            ``(5) Health care provider defined.--In this subsection, 
        the term `health care provider' means--
                    ``(A) any individual who is engaged in the delivery 
                of health care services in a State and who is required 
                by State law or regulation to be licensed or certified 
                by the State to engage in the delivery of such services 
                in the State, and
                    ``(B) any entity that is engaged in the delivery of 
                health care services in a State and that, if it is 
                required by State law or regulation to be licensed or 
                certified by the State to engage in the delivery of 
                such services in the State, is so licensed.
            ``(6) Regulations.--The Secretary shall issue regulations 
        to carry out this subsection.

                      ``establishment of standards

    ``Sec. 1856. (a) Establishment of Solvency Standards for Provider-
Sponsored Organizations.--
            ``(1) Establishment.--
                    ``(A) In general.--The Secretary shall establish, 
                on an expedited basis and using a negotiated rulemaking 
                process under subchapter III of chapter 5 of title 5, 
                United States Code, standards described in section 
                1855(d)(1) (relating to the financial solvency and 
                capital adequacy of the organization) that entities 
                must meet to qualify as provider-sponsored 
                organizations under this part.
                    ``(B) Factors to consider for solvency standards.--
                In establishing solvency standards under subparagraph 
                (A) for provider-sponsored organizations, the Secretary 
                shall consult with interested parties and shall take 
                into account--
                            ``(i) the delivery system assets of such an 
                        organization and ability of such an 
                        organization to provide services directly to 
                        enrollees through affiliated providers, and
                            ``(ii) alternative means of protecting 
                        against insolvency, including reinsurance, 
                        unrestricted surplus, letters of credit, 
                        guarantees, organizational insurance coverage, 
                        partnerships with other licensed entities, and 
                        valuation attributable to the ability of such 
                        an organization to meet its service obligations 
                        through direct delivery of care.
                    ``(C) Enrollee protection against insolvency.--Such 
                standards shall include provisions to prevent enrollees 
                from being held liable to any person or entity for the 
                MedicarePlus organization's debts in the event of the 
                organization's insolvency.
            ``(2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the Secretary, after 
        consultation with the National Association of Insurance 
        Commissioners, the American Academy of Actuaries, organizations 
        representative of medicare beneficiaries, and other interested 
        parties, shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later than 45 
        days after the date of the enactment of this section.
            ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this 
        subsection, the `target date for publication' (referred to in 
        section 564(a)(5) of such title) shall be April 1, 1998.
            ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        `15 days' shall be substituted for `30 days'.
            ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                    ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                    ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after 
                the date of appointment of the committee.
            ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than January 1, 1998, regarding 
        the committee's progress on achieving a consensus with regard 
        to the rulemaking proceeding and whether such consensus is 
        likely to occur before one month before the target date for 
        publication of the rule. If the committee reports that the 
        committee has failed to make significant progress towards such 
        consensus or is unlikely to reach such consensus by the target 
        date, the Secretary may terminate such process and provide for 
        the publication of a rule under this subsection through such 
        other methods as the Secretary may provide.
            ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 
        one month before the target date of publication.
            ``(8) Interim, final effect.--The Secretary shall publish a 
        rule under this subsection in the Federal Register by not later 
        than the target date of publication. Such rule shall be 
        effective and final immediately on an interim basis, but is 
        subject to change and revision after public notice and 
        opportunity for a period (of not less than 60 days) for public 
        comment. In connection with such rule, the Secretary shall 
        specify the process for the timely review and approval of 
        applications of entities to be certified as provider-sponsored 
        organizations pursuant to such rules and consistent with this 
        subsection.
            ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target date of publication.
    ``(b) Establishment of Other Standards.--
            ``(1) In general.--The Secretary shall establish by 
        regulation other standards (not described in subsection (a)) 
        for MedicarePlus organizations and plans consistent with, and 
        to carry out, this part.
            ``(2) Use of current standards.--Consistent with the 
        requirements of this part, standards established under this 
        subsection shall be based on standards established under 
        section 1876 to carry out analogous provisions of such section.
            ``(3) Use of interim standards.--For the period in which 
        this part is in effect and standards are being developed and 
        established under the preceding provisions of this subsection, 
        the Secretary shall provide by not later than June 1, 1998, for 
        the application of such interim standards (without regard to 
        any requirements for notice and public comment) as may be 
        appropriate to provide for the expedited implementation of this 
        part. Such interim standards shall not apply after the date 
        standards are established under the preceding provisions of 
        this subsection.
            ``(4) Application of new standards to entities with a 
        contract.--In the case of a MedicarePlus organization with a 
        contract in effect under this part at the time standards 
        applicable to the organization under this section are changed, 
        the organization may elect not to have such changes apply to 
        the organization until the end of the current contract year 
        (or, if there is less than 6 months remaining in the contract 
        year, until 1 year after the end of the current contract year).
            ``(5) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation with respect to MedicarePlus plans which are offered 
        by MedicarePlus organizations under this part to the extent 
        such law or regulation is inconsistent with such standards.

              ``contracts with medicareplus organizations

    ``Sec. 1857. (a) In General.--The Secretary shall not permit the 
election under section 1851 of a MedicarePlus plan offered by a 
MedicarePlus organization under this part, and no payment shall be made 
under section 1853 to an organization, unless the Secretary has entered 
into a contract under this section with the organization with respect 
to the offering of such plan. Such a contract with an organization may 
cover more than one MedicarePlus plan. Such contract shall provide that 
the organization agrees to comply with the applicable requirements and 
standards of this part and the terms and conditions of payment as 
provided for in this part.
    ``(b) Minimum Enrollment Requirements.--
            ``(1) In general.--Subject to paragraphs (2) and (3), the 
        Secretary may not enter into a contract under this section with 
        a MedicarePlus organization unless the organization has at 
        least 5,000 individuals (or 1,500 individuals in the case of an 
        organization that is a provider-sponsored organization) who are 
        receiving health benefits through the organization, except that 
        the standards under section 1856 may permit the organization to 
        have a lesser number of beneficiaries (but not less than 500 in 
        the case of an organization that is a provider-sponsored 
        organization) if the organization primarily serves individuals 
        residing outside of urbanized areas.
            ``(2) Exception for msa plan.--Paragraph (1) shall not 
        apply with respect to a contract that relates only to an MSA 
        plan.
            ``(3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 contract years 
        with respect to an organization.
    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section shall be 
        for a term of at least one year, as determined by the 
        Secretary, and may be made automatically renewable from term to 
        term in the absence of notice by either party of intention to 
        terminate at the end of the current term.
            ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract if the Secretary determines that 
        the organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part; or
                    ``(C) no longer substantially meets the applicable 
                conditions of this part.
            ``(3) Effective date of contracts.--The effective date of 
        any contract executed pursuant to this section shall be 
        specified in the contract, except that in no case shall a 
        contract under this section which provides for coverage under 
        an MSA plan be effective before January 1999 with respect to 
        such coverage.
            ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a MedicarePlus organization if a previous 
        contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding five-year period, except in circumstances which 
        warrant special consideration, as determined by the Secretary.
            ``(5) Contracting authority.--The authority vested in the 
        Secretary by this part may be performed without regard to such 
        provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
    ``(d) Protections Against Fraud and Beneficiary Protections.--
            ``(1) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person or 
        organization designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the MedicarePlus organization that 
                pertain (i) to the ability of the organization to bear 
                the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
            ``(2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the organization to 
        provide (and pay for) written notice in advance of the 
        contract's termination, as well as a description of 
        alternatives for obtaining benefits under this title, to each 
        individual enrolled with the organization under this part.
            ``(3) Disclosure.--
                    ``(A) In general.--Each MedicarePlus organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                            ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                            ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                            ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                    ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                    ``(III) any lending of money or 
                                other extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                    ``(B) Party in interest defined.--For the purposes 
                of this paragraph, the term `party in interest' means--
                            ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a MedicarePlus organization, 
                        any person who is directly or indirectly the 
                        beneficial owner of more than 5 percent of the 
                        equity of the organization, any person who is 
                        the beneficial owner of a mortgage, deed of 
                        trust, note, or other interest secured by, and 
                        valuing more than 5 percent of the 
                        organization, and, in the case of a 
                        MedicarePlus organization organized as a 
                        nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                            ``(ii) any entity in which a person 
                        described in clause (i)--
                                    ``(I) is an officer or director;
                                    ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                    ``(III) has directly or indirectly 
                                a beneficial interest of more than 5 
                                percent of the equity; or
                                    ``(IV) has a mortgage, deed of 
                                trust, note, or other interest valuing 
                                more than 5 percent of the assets of 
                                such entity;
                            ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                            ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                    ``(C) Access to information.--Each MedicarePlus 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
            ``(4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
    ``(e) Additional Contract Terms.--
            ``(1) In general.--The contract shall contain such other 
        terms and conditions not inconsistent with this part (including 
        requiring the organization to provide the Secretary with such 
        information) as the Secretary may find necessary and 
        appropriate.
            ``(2) Cost-sharing in enrollment-related costs.--The 
        contract with a MedicarePlus organization shall require the 
        payment to the Secretary for the organization's pro rata share 
        (as determined by the Secretary) of the estimated costs to be 
        incurred by the Secretary in carrying out section 1851 
        (relating to enrollment and dissemination of information). Such 
        payments are appropriated to defray the costs described in the 
        preceding sentence, to remain available until expended.
    ``(f) Prompt Payment by MedicarePlus Organization.--
            ``(1) Requirement.--A contract under this part shall 
        require a MedicarePlus 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 the 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 a MedicarePlus 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 covered services and supplies furnished to 
        individuals enrolled under this part under the contract. If the 
        Secretary provides for the 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 the Secretary's 
        costs in making the payments).
    ``(g) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this section--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                    ``(B) imposes net monthly premiums on individuals 
                enrolled under this part in excess of the net monthly 
                premiums permitted;
                    ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                    ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                    ``(E) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary under this part, or
                            ``(ii) to an individual or to any other 
                        entity under this part;
                    ``(F) fails to comply with the requirements of 
                section 1852(j)(3); or
                    ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
            ``(2) Remedies.--The remedies described in this paragraph 
        are--
                    ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph (1) or, 
                with respect to a determination under subparagraph (D) 
                or (E)(i) of such paragraph, of not more than $100,000 
                for each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                    ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for 
                such determination has been corrected and is not likely 
                to recur, or
                    ``(C) suspension of payment to the organization 
                under this part for individuals enrolled after the date 
                the Secretary notifies the organization of a 
                determination under paragraph (1) and until the 
                Secretary is satisfied that the basis for such 
                determination has been corrected and is not likely to 
                recur.
            ``(3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                    ``(A) Civil money penalties of not more than 
                $25,000 for each determination under subsection (c)(2) 
                if the deficiency that is the basis of the 
                determination has directly adversely affected (or has 
                the substantial likelihood of adversely affecting) an 
                individual covered under the organization's contract
                    ``(B) Civil money penalties of not more than 
                $10,000 for each week beginning after the initiation of 
                procedures by the Secretary under subsection (g) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists.
                    ``(C) Suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                and until the Secretary is satisfied that the 
                deficiency that is the basis for the determination has 
                been corrected and is not likely to recur.
    ``(h) Procedures for Termination.--
            ``(1) In general.--The Secretary may terminate a contract 
        with a MedicarePlus organization under this section in 
        accordance with formal investigation and compliance procedures 
        established by the Secretary under which--
                    ``(A) the Secretary provides the organization with 
                the reasonable opportunity to develop and implement a 
                corrective action plan to correct the deficiencies that 
                were the basis of the Secretary's determination under 
                subsection (c)(2);
                    ``(B) the Secretary provides the organization with 
                reasonable notice and opportunity for hearing 
                (including the right to appeal an initial decision) 
                before terminating the contract.
            ``(2) Civil money penalties.--The provisions of section 
        1128A (other than subsections (a) and (b)) shall apply to a 
        civil money penalty under subsection (f) or under paragraph (2) 
        or (3) of subsection (g) in the same manner as they apply to a 
        civil money penalty or proceeding under section 1128A(a).
            ``(3) Exception for imminent and serious risk to health.--
        Paragraph (1) shall not apply if the Secretary determines that 
        a delay in termination, resulting from compliance with the 
        procedures specified in such paragraph prior to termination, 
        would pose an imminent and serious risk to the health of 
        individuals enrolled under this part with the organization.

                ``definitions; miscellaneous provisions

    ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
Organizations.--In this part--
            ``(1) MedicarePlus organization.--The term `MedicarePlus 
        organization' means a public or private entity that is 
        certified under section 1856 as meeting the requirements and 
        standards of this part for such an organization.
            ``(2) Provider-sponsored organization.--The term `provider-
        sponsored organization' is defined in section 1855(e)(1).
    ``(b) Definitions Relating to MedicarePlus Plans.--
            ``(1) MedicarePlus plan.--The term `MedicarePlus plan' 
        means health benefits coverage offered under a policy, 
        contract, or plan by a MedicarePlus organization pursuant to 
        and in accordance with a contract under section 1857.
            ``(2) MSA plan.--
                    ``(A) In general.--The term `MSA plan' means a 
                MedicarePlus plan that--
                            ``(i) provides reimbursement for at least 
                        the items and services described in section 
                        1852(a)(1) in a year but only after the 
                        enrollee incurs countable expenses (as 
                        specified under the plan) equal to the amount 
                        of an annual deductible (described in 
                        subparagraph (B));
                            ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least all 
                        amounts that would have been payable under 
                        parts A and B, and that would have been payable 
                        by the enrollee as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected to 
                        receive benefits through the provisions of such 
                        parts; and
                            ``(iii) provides, after such deductible is 
                        met for a year and for all subsequent expenses 
                        for items and services referred to in clause 
                        (i) in the year, for a level of reimbursement 
                        that is not less than--
                                    ``(I) 100 percent of such expenses, 
                                or
                                    ``(II) 100 percent of the amounts 
                                that would have been paid (without 
                                regard to any deductibles or 
                                coinsurance) under parts A and B with 
                                respect to such expenses,
                        whichever is less.
                    ``(B) Deductible.--The amount of annual deductible 
                under an MSA plan--
                            ``(i) for contract year 1999 shall be not 
                        more than $6,000; and
                            ``(ii) for a subsequent contract year shall 
                        be not more than the maximum amount of such 
                        deductible for the previous contract year under 
                        this subparagraph increased by the national per 
                        capita MedicarePlus growth percentage under 
                        section 1853(c)(6) for the year.
                If the amount of the deductible under clause (ii) is 
                not a multiple of $50, the amount shall be rounded to 
                the nearest multiple of $50.
    ``(c) Other References to Other Terms.--
            ``(1) MedicarePlus eligible individual.--The term 
        `MedicarePlus eligible individual' is defined in section 
        1851(a)(3).
            ``(2) MedicarePlus payment area.--The term `MedicarePlus 
        payment area' is defined in section 1853(d).
            ``(3) National per capita medicareplus growth percentage.--
        The `national per capita MedicarePlus growth percentage' is 
        defined in section 1853(c)(6).
            ``(4) Monthly premium; net monthly premium.--The terms 
        `monthly premium' and `net monthly premium' are defined in 
        section 1854(a)(2).
    ``(d) Coordinated Acute and Long-term Care Benefits Under a 
MedicarePlus Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid plan 
under title XIX with those provided under a MedicarePlus plan in a 
manner that assures continuity of a full-range of acute care and long-
term care services to poor elderly or disabled individuals eligible for 
benefits under this title and under such plan.
    ``(e) Restriction on Enrollment for Certain MedicarePlus Plans.--
            ``(1) In general.--In the case of a MedicarePlus religious 
        fraternal benefit society plan described in paragraph (2), 
        notwithstanding any other provision of this part to the 
        contrary and in accordance with regulations of the Secretary, 
        the society offering the plan may restrict the enrollment of 
        individuals under this part to individuals who are members of 
        the church, convention, or group described in paragraph (3)(B) 
        with which the society is affiliated.
            ``(2) Medicareplus religious fraternal benefit society plan 
        described.--For purposes of this subsection, a MedicarePlus 
        religious fraternal benefit society plan described in this 
        paragraph is a MedicarePlus plan described in section 
        1851(a)(2)(A) that--
                    ``(A) is offered by a religious fraternal benefit 
                society described in paragraph (3) only to members of 
                the church, convention, or group described in paragraph 
                (3)(B); and
                    ``(B) permits all such members to enroll under the 
                plan without regard to health status-related factors.
        Nothing in this subsection shall be construed as waiving any 
        plan requirements relating to financial solvency. In developing 
        solvency standards under section 1856, the Secretary shall take 
        into account open contract and assessment features 
        characteristic of fraternal insurance certificates.
            ``(3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a `religious fraternal benefit 
        society' described in this section is an organization that--
                    ``(A) is exempt from Federal income taxation under 
                section 501(c)(8) of the Internal Revenue Code of 1986;
                    ``(B) is affiliated with, carries out the tenets 
                of, and shares a religious bond with, a church or 
                convention or association of churches or an affiliated 
                group of churches;
                    ``(C) offers, in addition to a MedicarePlus 
                religious fraternal benefit society plan, health 
                coverage to individuals not entitled to benefits under 
                this title who are members of such church, convention, 
                or group; and
                    ``(D) does not impose any limitation on membership 
                in the society based on any health status-related 
                factor.
            ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under this part 
        under a MedicarePlus religious fraternal benefit society plan 
        described in paragraph (2), the Secretary shall provide for 
        such adjustment to the payment amounts otherwise established 
        under section 1854 as may be appropriate to assure an 
        appropriate payment level, taking into account the actuarial 
        characteristics and experience of such individuals.''.
    (b) Report on Coverage of Beneficiaries with End-Stage Renal 
Disease.--The Secretary of Health and Human Services shall provide for 
a study on the feasibility and impact of removing the limitation under 
section 1851(b)(3)(B) of the Social Security Act (as inserted by 
subsection (a)) on eligibility of most individuals medically determined 
to have end-stage renal disease to enroll in MedicarePlus plans. By not 
later than October 1, 1998, the Secretary shall submit to Congress a 
report on such study and shall include in the report such 
recommendations regarding removing or restricting the limitation as may 
be appropriate.
    (c) Report on MedicarePlus Teaching Programs and Use of DSH and 
Teaching Hospitals.--Based on the information provided to the Secretary 
of Health and Human Services under section 1852(k) of the Social 
Security Act and such information as the Secretary may obtain, by not 
later than October 1, 1999, the Secretary shall submit to Congress a 
report on graduate medical education programs operated by MedicarePlus 
organizations and the extent to which MedicarePlus organizations are 
providing for payments to hospitals described in such section.

SEC. 10002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 1876(f) 
(42 U.S.C. 1395mm(f)) is amended--
            (1) in paragraph (2), by striking ``The Secretary'' and 
        inserting ``Subject to paragraph (4), the Secretary'', and
            (2) by adding at the end the following new paragraph:
    ``(4) Effective for contract periods beginning after December 31, 
1996, the Secretary may waive or modify the requirement imposed by 
paragraph (1) to the extent the Secretary finds that it is in the 
public interest.''.
    (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended by 
adding at the end the following new subsection:
    ``(k)(1) Except as provided in paragraph (3), the Secretary shall 
not enter into, renew, or continue any risk-sharing contract under this 
section with an eligible organization for any contract year beginning 
on or after--
            ``(A) the date standards for MedicarePlus organizations and 
        plans are first established under section 1856 with respect to 
        MedicarePlus organizations that are insurers or health 
        maintenance organizations, or
            ``(B) in the case of such an organization with such a 
        contract in effect as of the date such standards were first 
        established, 1 year after such date.
    ``(2) The Secretary shall not enter into, renew, or continue any 
risk-sharing contract under this section with an eligible organization 
for any contract year beginning on or after January 1, 2000.
    ``(3) An individual who is enrolled in part B only and is enrolled 
in an eligible organization with a risk-sharing contract under this 
section on December 31, 1998, may continue enrollment in such 
organization in accordance with regulations issued by not later then 
July 1, 1998.
    ``(4) Notwithstanding subsection (a), the Secretary shall provide 
that payment amounts under risk-sharing contracts under this section 
for months in a year (beginning with January 1998) shall be computed--
            ``(A) with respect to individuals entitled to benefits 
        under both parts A and B, by substituting payment rates under 
        section 1853(a) for the payment rates otherwise established 
        under subsection 1876(a), and
            ``(B) with respect to individuals only entitled to benefits 
        under part B, by substituting an appropriate proportion of such 
        rates (reflecting the relative proportion of payments under 
        this title attributable to such part) for the payment rates 
        otherwise established under subsection (a).
For purposes of carrying out this paragraph for payments for months in 
1998, the Secretary shall compute, announce, and apply the payment 
rates under section 1853(a) (notwithstanding any deadlines specified in 
such section) in as timely a manner as possible and may (to the extent 
necessary) provide for retroactive adjustment in payments made under 
this section not in accordance with such rates.''.
    (c) Enrollment Transition Rule.--An individual who is enrolled on 
December 31, 1998, 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, 1999, under part C of 
title XVIII of such Act if that organization has a contract under that 
part for providing services on January 1, 1999 (unless the individual 
has disenrolled effective on that date).
    (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
            (1) in paragraph (1)--
                    (A) by inserting ``1855(i),'' after ``1833(s),'', 
                and
                    (B) by inserting ``, MedicarePlus organization,'' 
                after ``provider of services''; and
            (2) in paragraph (2)(E), by inserting ``or a MedicarePlus 
        organization'' after ``section 1833(a)(1)(A)''.
    (e) Extension of Provider Requirement.--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'';
            (3) by inserting ``with a MedicarePlus organization under 
        part C or'' after ``any individual enrolled''; and
            (4) by striking ``(in the case of hospitals) or limits (in 
        the case of skilled nursing facilities)''.
    (f) Additional Conforming Changes.--
            (1) Conforming references to previous part C.--Any 
        reference in law (in effect before the date of the enactment of 
        this Act) to part C of title XVIII of the Social Security Act 
        is deemed a reference to part D of such title (as in effect 
        after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 90 days after the date of the enactment of this Act, 
        the Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this chapter.
    (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the enrollment 
process comparative materials) applies to demonstrations with respect 
to which enrollment is effected or coordinated under section 1851 of 
such Act.
    (h) Use of Interim, Final Regulations.--In order to carry out the 
amendments made by this chapter in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
    (i) Transition Rule for PSO Enrollment.--In applying subsection 
(g)(1) of section 1876 of the Social Security Act (42 U.S.C. 1395mm) to 
a risk-sharing contract entered into with an eligible organization that 
is a provider-sponsored organization (as defined in section 1855(e)(1) 
of such Act, as inserted by section 10001) for a contract year 
beginning on or after January 1, 1998, there shall be substituted for 
the minimum number of enrollees provided under such section the minimum 
number of enrollees permitted under section 1857(b)(1) of such Act (as 
so inserted).

SEC. 10003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

    (a) Conforming Amendments to MedicarePlus Changes.--
            (1) In general.--Section 1882(d)(3)(A)(i) (42 U.S.C. 
        1395ss(d)(3)(A)(i)) is amended--
                    (A) in the matter before subclause (I), by 
                inserting ``(including an individual electing a 
                MedicarePlus plan under section 1851)'' after ``of this 
                title''; and
                    (B) in subclause (II)--
                            (i) by inserting ``in the case of an 
                        individual not electing a MedicarePlus plan'' 
                        after ``(II)'', and
                            (ii) by inserting before the comma at the 
                        end the following: ``or in the case of an 
                        individual electing a MedicarePlus plan, a 
                        medicare supplemental policy with knowledge 
                        that the policy duplicates health benefits to 
                        which the individual is otherwise entitled 
                        under the MedicarePlus plan or under another 
                        medicare supplemental policy''.
            (2) Conforming amendments.--Section 1882(d)(3)(B)(i)(I) (42 
        U.S.C. 1395ss(d)(3)(B)(i)(I)) is amended by inserting 
        ``(including any MedicarePlus plan)'' after ``health insurance 
        policies''.
            (3) MedicarePlus plans not treated as medicare 
        supplementary policies.--Section 1882(g)(1) (42 U.S.C. 
        1395ss(g)(1)) is amended by inserting ``or a MedicarePlus plan 
        or'' after ``does not include''
    (b) Additional Rules Relating to Individuals Enrolled in MSA 
Plans.--Section 1882 (42 U.S.C. 1395ss) is further amended by adding at 
the end the following new subsection:
    ``(u)(1) It is unlawful for a person to sell or issue a policy 
described in paragraph (2) to an individual with knowledge that the 
individual has in effect under section 1851 an election of an MSA plan.
    ``(2) A policy described in this subparagraph is a health insurance 
policy that provides for coverage of expenses that are otherwise 
required to be counted toward meeting the annual deductible amount 
provided under the MSA plan.''.

 Subchapter B--Special Rules for MedicarePlus Medical Savings Accounts

SEC. 10006. MEDICAREPLUS MSA.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 138 as 
section 139 and by inserting after section 137 the following new 
section:

``SEC. 138. MEDICAREPLUS MSA.

    ``(a) Exclusion.--Gross income shall not include any payment to the 
MedicarePlus MSA of an individual by the Secretary of Health and Human 
Services under part C of title XVIII of the Social Security Act.
    ``(b) MedicarePlus MSA.--For purposes of this section, the term 
`MedicarePlus MSA' means a medical savings account (as defined in 
section 220(d))--
            ``(1) which is designated as a MedicarePlus MSA,
            ``(2) with respect to which no contribution may be made 
        other than--
                    ``(A) a contribution made by the Secretary of 
                Health and Human Services pursuant to part C of title 
                XVIII of the Social Security Act, or
                    ``(B) a trustee-to-trustee transfer described in 
                subsection (c)(4),
            ``(3) the governing instrument of which provides that 
        trustee-to-trustee transfers described in subsection (c)(4) may 
        be made to and from such account, and
            ``(4) which is established in connection with an MSA plan 
        described in section 1859(b)(2) of the Social Security Act.
    ``(c) Special Rules for Distributions.--
            ``(1) Distributions for qualified medical expenses.--In 
        applying section 220 to a MedicarePlus MSA--
                    ``(A) qualified medical expenses shall not include 
                amounts paid for medical care for any individual other 
                than the account holder, and
                    ``(B) section 220(d)(2)(C) shall not apply.
            ``(2) Penalty for distributions from medicareplus msa not 
        used for qualified medical expenses if minimum balance not 
        maintained.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder shall be increased by 50 percent of 
                the excess (if any) of--
                            ``(i) the amount of such payment or 
                        distribution, over
                            ``(ii) the excess (if any) of--
                                    ``(I) the fair market value of the 
                                assets in such MSA as of the close of 
                                the calendar year preceding the 
                                calendar year in which the taxable year 
                                begins, over
                                    ``(II) an amount equal to 60 
                                percent of the deductible under the 
                                MedicarePlus MSA plan covering the 
                                account holder as of January 1 of the 
                                calendar year in which the taxable year 
                                begins.
                Section 220(f)(2) shall not apply to any payment or 
                distribution from a MedicarePlus MSA.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                            ``(i) becomes disabled within the meaning 
                        of section 72(m)(7), or
                            ``(ii) dies.
                    ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all MedicarePlus MSAs of the account 
                        holder shall be treated as 1 account,
                            ``(ii) all payments and distributions not 
                        used exclusively to pay the qualified medical 
                        expenses of the account holder during any 
                        taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(3) Withdrawal of erroneous contributions.--Section 
        220(f)(2) and paragraph (2) of this subsection shall not apply 
        to any payment or distribution from a MedicarePlus MSA to the 
        Secretary of Health and Human Services of an erroneous 
        contribution to such MSA and of the net income attributable to 
        such contribution.
            ``(4) Trustee-to-trustee transfers.--Section 220(f)(2) and 
        paragraph (2) of this subsection shall not apply to any 
        trustee-to-trustee transfer from a MedicarePlus MSA of an 
        account holder to another MedicarePlus MSA of such account 
        holder.
    ``(d) Special Rules for Treatment of Account After Death of Account 
Holder.--In applying section 220(f)(8)(A) to an account which was a 
MedicarePlus MSA of a decedent, the rules of section 220(f) shall apply 
in lieu of the rules of subsection (c) of this section with respect to 
the spouse as the account holder of such MedicarePlus MSA.
    ``(e) Reports.--In the case of a MedicarePlus MSA, the report under 
section 220(h)--
            ``(1) shall include the fair market value of the assets in 
        such MedicarePlus MSA as of the close of each calendar year, 
        and
            ``(2) shall be furnished to the account holder--
                    ``(A) not later than January 31 of the calendar 
                year following the calendar year to which such reports 
                relate, and
                    ``(B) in such manner as the Secretary prescribes in 
                such regulations.
    ``(f) Coordination With Limitation on Number of Taxpayers Having 
Medical Savings Accounts.--Subsection (i) of section 220 shall not 
apply to an individual with respect to a MedicarePlus MSA, and 
MedicarePlus MSA's shall not be taken into account in determining 
whether the numerical limitations under section 220(j) are exceeded.''
    (b) Technical Amendments.--
            (1) The last sentence of section 4973(d) of such Code is 
        amended by inserting ``or section 138(c)(3)'' after ``section 
        220(f)(3)''.
            (2) Subsection (b) of section 220 of such Code is amended 
        by adding at the end the following new paragraph:
            ``(7) Medicare eligible individuals.--The limitation under 
        this subsection for any month with respect to an individual 
        shall be zero for the first month such individual is entitled 
        to benefits under title XVIII of the Social Security Act and 
        for each month thereafter.''
            (3) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 138. MedicarePlus MSA.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1998.

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

  Subchapter A--Programs of All-inclusive Care for the Elderly (PACE)

SEC. 10011. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

    Title XVIII (42 U.S.C. 1395 et seq.) is amended by adding at the 
end the following new section:

    ``payments to, and coverage of benefits under, programs of all-
                 inclusive care for the elderly (pace)

    ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
            ``(1) Benefits through enrollment in a pace program.--In 
        accordance with this section, in the case of an individual who 
        is entitled to benefits under part A or enrolled under part B 
        and who is a PACE program eligible individual (as defined in 
        paragraph (5)) with respect to a PACE program offered by a PACE 
        provider under a PACE program agreement--
                    ``(A) the individual may enroll in the program 
                under this section; and
                    ``(B) so long as the individual is so enrolled and 
                in accordance with regulations--
                            ``(i) the individual shall receive benefits 
                        under this title solely through such program, 
                        and
                            ``(ii) the PACE provider is entitled to 
                        payment under and in accordance with this 
                        section and such agreement for provision of 
                        such benefits.
            ``(2) PACE program defined.--For purposes of this section 
        and section 1932, the term `PACE program' means a program of 
        all-inclusive care for the elderly that meets the following 
        requirements:
                    ``(A) Operation.--The entity operating the program 
                is a PACE provider (as defined in paragraph (3)).
                    ``(B) Comprehensive benefits.--The program provides 
                comprehensive health care services to PACE program 
                eligible individuals in accordance with the PACE 
                program agreement and regulations under this section.
                    ``(C) Transition.--In the case of an individual who 
                is enrolled under the program under this section and 
                whose enrollment ceases for any reason (including the 
                individual no longer qualifies as a PACE program 
                eligible individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining necessary 
                transitional care through appropriate referrals and 
                making the individual's medical records available to 
                new providers.
            ``(3) PACE provider defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `PACE provider' means an entity that--
                            ``(i) subject to subparagraph (B), is (or 
                        is a distinct part of) a public entity or a 
                        private, nonprofit entity organized for 
                        charitable purposes under section 501(c)(3) of 
                        the Internal Revenue Code of 1986, and
                            ``(ii) has entered into a PACE program 
                        agreement with respect to its operation of a 
                        PACE program.
                    ``(B) Treatment of private, for-profit providers.--
                Clause (i) of subparagraph (A) shall not apply--
                            ``(i) to entities subject to a 
                        demonstration project waiver under subsection 
                        (h); and
                            ``(ii) after the date the report under 
                        section 10014(b) of the Balanced Budget Act of 
                        1997 is submitted, unless the Secretary 
                        determines that any of the findings described 
                        in subparagraph (A), (B), (C) or (D) of 
                        paragraph (2) of such section are true.
            ``(4) PACE program agreement defined.--For purposes of this 
        section, the term `PACE program agreement' means, with respect 
        to a PACE provider, an agreement, consistent with this section, 
        section 1932 (if applicable), and regulations promulgated to 
        carry out such sections, between the PACE provider and the 
        Secretary, or an agreement between the PACE provider and a 
        State administering agency for the operation of a PACE program 
        by the provider under such sections.
            ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program eligible 
        individual' means, with respect to a PACE program, an 
        individual who--
                    ``(A) is 55 years of age or older;
                    ``(B) subject to subsection (c)(4), is determined 
                under subsection (c) to require the level of care 
                required under the State medicaid plan for coverage of 
                nursing facility services;
                    ``(C) resides in the service area of the PACE 
                program; and
                    ``(D) meets such other eligibility conditions as 
                may be imposed under the PACE program agreement for the 
                program under subsection (e)(2)(A)(ii).
            ``(6) PACE protocol.--For purposes of this section, the 
        term `PACE protocol' means the Protocol for the Program of All-
        inclusive Care for the Elderly (PACE), as published by On Lok, 
        Inc., as of April 14, 1995.
            ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration waiver 
        program' means a demonstration program under either of the 
        following sections (as in effect before the date of their 
        repeal):
                    ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as extended by 
                section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            ``(8) State administering agency defined.--For purposes of 
        this section, the term `State administering agency' means, with 
        respect to the operation of a PACE program in a State, the 
        agency of that State (which may be the single agency 
        responsible for administration of the State plan under title 
        XIX in the State) responsible for administering PACE program 
        agreements under this section and section 1932 in the State.
            ``(9) Trial period defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `trial period' means, with respect to a PACE 
                program operated by a PACE provider under a PACE 
                program agreement, the first 3 contract years under 
                such agreement with respect to such program.
                    ``(B) Treatment of entities previously operating 
                pace demonstration waiver programs.--Each contract year 
                (including a year occurring before the effective date 
                of this section) during which an entity has operated a 
                PACE demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year during which 
                the entity operated a PACE program as a PACE provider 
                under a PACE program agreement.
            ``(10) Regulations.--For purposes of this section, the term 
        `regulations' refers to interim final or final regulations 
        promulgated under subsection (f) to carry out this section and 
        section 1932.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
            ``(1) In general.--Under a PACE program agreement, a PACE 
        provider shall--
                    ``(A) provide to PACE program eligible individuals, 
                regardless of source of payment and directly or under 
                contracts with other entities, at a minimum--
                            ``(i) all items and services covered under 
                        this title (for individuals enrolled under this 
                        section) and all items and services covered 
                        under title XIX, but without any limitation or 
                        condition as to amount, duration, or scope and 
                        without application of deductibles, copayments, 
                        coinsurance, or other cost-sharing that would 
                        otherwise apply under this title or such title, 
                        respectively; and
                            ``(ii) all additional items and services 
                        specified in regulations, based upon those 
                        required under the PACE protocol;
                    ``(B) provide such enrollees access to necessary 
                covered items and services 24 hours per day, every day 
                of the year;
                    ``(C) provide services to such enrollees through a 
                comprehensive, multidisciplinary health and social 
                services delivery system which integrates acute and 
                long-term care services pursuant to regulations; and
                    ``(D) specify the covered items and services that 
                will not be provided directly by the entity, and to 
                arrange for delivery of those items and services 
                through contracts meeting the requirements of 
                regulations.
            ``(2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to have in 
        effect at a minimum--
                    ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such plan, in 
                accordance with regulations, and
                    ``(B) written safeguards of the rights of enrolled 
                participants (including a patient bill of rights and 
                procedures for grievances and appeals) in accordance 
                with regulations and with other requirements of this 
                title and Federal and State law designed for the 
                protection of patients.
    ``(c) Eligibility Determinations.--
            ``(1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                    ``(A) shall be made under and in accordance with 
                the PACE program agreement, and
                    ``(B) who is entitled to medical assistance under 
                title XIX, shall be made (or who is not so entitled, 
                may be made) by the State administering agency.
            ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined, in accordance with regulations, to be comparable to 
        the health status of individuals who have participated in the 
        PACE demonstration waiver programs. Such determination shall be 
        based upon information on health status and related indicators 
        (such as medical diagnoses and measures of activities of daily 
        living, instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible individuals.
            ``(3) Annual eligibility recertifications.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                determination described in subsection (a)(5)(B) for an 
                individual shall be reevaluated at least once a year.
                    ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be waived 
                during a period in accordance with regulations in those 
                cases where the State administering agency determines 
                that there is no reasonable expectation of improvement 
                or significant change in an individual's condition 
                during the period because of the advanced age, severity 
                of the advanced age, severity of chronic condition, or 
                degree of impairment of functional capacity of the 
                individual involved.
            ``(4) Continuation of eligibility.--An individual who is a 
        PACE program eligible individual may be deemed to continue to 
        be such an individual notwithstanding a determination that the 
        individual no longer meets the requirement of subsection 
        (a)(5)(B) if, in accordance with regulations, in the absence of 
        continued coverage under a PACE program the individual 
        reasonably would be expected to meet such requirement within 
        the succeeding 6-month period.
            ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a PACE 
        program shall be pursuant to regulations and the PACE program 
        agreement and shall permit enrollees to voluntarily disenroll 
        without cause at any time.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
            ``(1) In general.--In the case of a PACE provider with a 
        PACE program agreement under this section, except as provided 
        in this subsection or by regulations, the Secretary shall make 
        prospective monthly payments of a capitation amount for each 
        PACE program eligible individual enrolled under the agreement 
        under this section in the same manner and from the same sources 
        as payments are made to a MedicarePlus organization under 
        section 1854 (or, for periods beginning before January 1, 1999, 
        to an eligible organization under a risk-sharing contract under 
        section 1876). Such payments shall be subject to adjustment in 
        the manner described in section 1854(a)(2) or section 
        1876(a)(1)(E), as the case may be.
            ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a contract 
        year shall be an amount specified in the PACE program agreement 
        for the year. Such amount shall be based upon payment rates 
        established for purposes of payment under section 1854 (or, for 
        periods before January 1, 1999, for purposes of risk-sharing 
        contracts under section 1876) and shall be adjusted to take 
        into account the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be appropriate. 
        Such amount under such an agreement shall be computed in a 
        manner so that the total payment level for all PACE program 
        eligible individuals enrolled under a program is less than the 
        projected payment under this title for a comparable population 
        not enrolled under a PACE program.
    ``(e) PACE Program Agreement.--
            ``(1) Requirement.--
                    ``(A) In general.--The Secretary, in close 
                cooperation with the State administering agency, shall 
                establish procedures for entering into, extending, and 
                terminating PACE program agreements for the operation 
                of PACE programs by entities that meet the requirements 
                for a PACE provider under this section, section 1932, 
                and regulations.
                    ``(B) Numerical limitation.--
                            ``(i) In general.--The Secretary shall not 
                        permit the number of PACE providers with which 
                        agreements are in effect under this section or 
                        under section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                    ``(I) 40 as of the date of the 
                                enactment of this section, or
                                    ``(II) as of each succeeding 
                                anniversary of such date, the numerical 
                                limitation under this subparagraph for 
                                the preceding year plus 20.
                        Subclause (II) shall apply without regard to 
                        the actual number of agreements in effect as of 
                        a previous anniversary date.
                            ``(ii) Treatment of certain private, for-
                        profit providers.--The numerical limitation in 
                        clause (i) shall not apply to a PACE provider 
                        that--
                                    ``(I) is operating under a 
                                demonstration project waiver under 
                                subsection (h), or
                                    ``(II) was operating under such a 
                                waiver and subsequently qualifies for 
                                PACE provider status pursuant to 
                                subsection (a)(3)(B)(ii).
            ``(2) Service area and eligibility.--
                    ``(A) In general.--A PACE program agreement for a 
                PACE program--
                            ``(i) shall designate the service area of 
                        the program;
                            ``(ii) may provide additional requirements 
                        for individuals to qualify as PACE program 
                        eligible individuals with respect to the 
                        program;
                            ``(iii) shall be effective for a contract 
                        year, but may be extended for additional 
                        contract years in the absence of a notice by a 
                        party to terminate and is subject to 
                        termination by the Secretary and the State 
                        administering agency at any time for cause (as 
                        provided under the agreement);
                            ``(iv) shall require a PACE provider to 
                        meet all applicable State and local laws and 
                        requirements; and
                            ``(v) shall have such additional terms and 
                        conditions as the parties may agree to 
                        consistent with this section and regulations.
                    ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement under 
                subparagraph (A)(i), the Secretary (in consultation 
                with the State administering agency) may exclude from 
                designation an area that is already covered under 
                another PACE program agreement, in order to avoid 
                unnecessary duplication of services and avoid impairing 
                the financial and service viability of an existing 
                program.
            ``(3) Data collection.--
                    ``(A) In general.--Under a PACE program agreement, 
                the PACE provider shall--
                            ``(i) collect data,
                            ``(ii) maintain, and afford the Secretary 
                        and the State administering agency access to, 
                        the records relating to the program, including 
                        pertinent financial, medical, and personnel 
                        records, and
                            ``(iii) make to the Secretary and the State 
                        administering agency reports that the Secretary 
                        finds (in consultation with State administering 
                        agencies) necessary to monitor the operation, 
                        cost, and effectiveness of the PACE program 
                        under this title and title XIX.
                    ``(B) Requirements during trial period.--During the 
                first three years of operation of a PACE program 
                (either under this section or under a PACE 
                demonstration waiver program), the PACE provider shall 
                provide such additional data as the Secretary specifies 
                in regulations in order to perform the oversight 
                required under paragraph (4)(A).
            ``(4) Oversight.--
                    ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE program 
                operated by a PACE provider, the Secretary (in 
                cooperation with the State administering agency) shall 
                conduct a comprehensive annual review of the operation 
                of the PACE program by the provider in order to assure 
                compliance with the requirements of this section and 
                regulations. Such a review shall include--
                            ``(i) an on-site visit to the program site;
                            ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                            ``(iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                            ``(iv) detailed analysis of the entity's 
                        substantial compliance with all significant 
                        requirements of this section and regulations; 
                        and
                            ``(v) any other elements the Secretary or 
                        State agency considers necessary or 
                        appropriate.
                    ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the State 
                administering agency) shall continue to conduct such 
                review of the operation of PACE providers and PACE 
                programs as may be appropriate, taking into account the 
                performance level of a provider and compliance of a 
                provider with all significant requirements of this 
                section and regulations.
                    ``(C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to the PACE 
                provider, along with any recommendations for changes to 
                the provider's program, and shall be made available to 
                the public upon request.
            ``(5) Termination of pace provider agreements.--
                    ``(A) In general.--Under regulations--
                            ``(i) the Secretary or a State 
                        administering agency may terminate a PACE 
                        program agreement for cause, and
                            ``(ii) a PACE provider may terminate such 
                        an agreement after appropriate notice to the 
                        Secretary, the State agency, and enrollees.
                    ``(B) Causes for termination.--In accordance with 
                regulations establishing procedures for termination of 
                PACE program agreements, the Secretary or a State 
                administering agency may terminate a PACE program 
                agreement with a PACE provider for, among other 
                reasons, the fact that--
                            ``(i) the Secretary or State administering 
                        agency determines that--
                                    ``(I) there are significant 
                                deficiencies in the quality of care 
                                provided to enrolled participants; or
                                    ``(II) the provider has failed to 
                                comply substantially with conditions 
                                for a program or provider under this 
                                section or section 1932; and
                            ``(ii) the entity has failed to develop and 
                        successfully initiate, within 30 days of the 
                        date of the receipt of written notice of such a 
                        determination, and continue implementation of a 
                        plan to correct the deficiencies.
                    ``(C) Termination and transition procedures.--An 
                entity whose PACE provider agreement is terminated 
                under this paragraph shall implement the transition 
                procedures required under subsection (a)(2)(C).
            ``(6) Secretary's oversight; enforcement authority.--
                    ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with the State 
                administering agency) that a PACE provider is failing 
                substantially to comply with the requirements of this 
                section and regulations, the Secretary (and the State 
                administering agency) may take any or all of the 
                following actions:
                            ``(i) Condition the continuation of the 
                        PACE program agreement upon timely execution of 
                        a corrective action plan.
                            ``(ii) Withhold some or all further 
                        payments under the PACE program agreement under 
                        this section or section 1932 with respect to 
                        PACE program services furnished by such 
                        provider until the deficiencies have been 
                        corrected.
                            ``(iii) Terminate such agreement.
                    ``(B) Application of intermediate sanctions.--Under 
                regulations, the Secretary may provide for the 
                application against a PACE provider of remedies 
                described in section 1857(f)(2) (or, for periods before 
                January 1, 1999, section 1876(i)(6)(B)) or 
                1903(m)(5)(B) in the case of violations by the provider 
                of the type described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 1903(m)(5)(A), 
                respectively (in relation to agreements, enrollees, and 
                requirements under this section or section 1932, 
                respectively).
            ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of section 
        1857(g) (or for periods before January 1, 1999, section 
        1876(i)(9)) shall apply to termination and sanctions respecting 
        a PACE program agreement and PACE provider under this 
        subsection in the same manner as they apply to a termination 
        and sanctions with respect to a contract and a MedicarePlus 
        organization under part C (or for such periods an eligible 
        organization under section 1876).
            ``(8) Timely consideration of applications for pace program 
        provider status.--In considering an application for PACE 
        provider program status, the application shall be deemed 
        approved unless the Secretary, within 90 days after the date of 
        the submission of the application to the Secretary, either 
        denies such request in writing or informs the applicant in 
        writing with respect to any additional information that is 
        needed in order to make a final determination with respect to 
        the application. After the date the Secretary receives such 
        additional information, the application shall be deemed 
        approved unless the Secretary, within 90 days of such date, 
        denies such request.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall issue interim final 
        or final regulations to carry out this section and section 
        1932.
            ``(2) Use of pace protocol.--
                    ``(A) In general.--In issuing such regulations, the 
                Secretary shall, to the extent consistent with the 
                provisions of this section, incorporate the 
                requirements applied to PACE demonstration waiver 
                programs under the PACE protocol.
                    ``(B) Flexibility.--The Secretary (in close 
                consultation with State administering agencies) may 
                modify or waive such provisions of the PACE protocol in 
                order to provide for reasonable flexibility in adapting 
                the PACE service delivery model to the needs of 
                particular organizations (such as those in rural areas 
                or those that may determine it appropriate to use non-
                staff physicians accordingly to State licensing law 
                requirements) under this section and section 1932 where 
                such flexibility is not inconsistent with and would not 
                impair the essential elements, objectives, and 
                requirements of the this section, including--
                            ``(i) the focus on frail elderly qualifying 
                        individuals who require the level of care 
                        provided in a nursing facility;
                            ``(ii) the delivery of comprehensive, 
                        integrated acute and long-term care services;
                            ``(iii) the interdisciplinary team approach 
                        to care management and service delivery;
                            ``(iv) capitated, integrated financing that 
                        allows the provider to pool payments received 
                        from public and private programs and 
                        individuals; and
                            ``(v) the assumption by the provider over 
                        time of full financial risk.
            ``(3) Application of certain additional beneficiary and 
        program protections.--
                    ``(A) In general.--In issuing such regulations and 
                subject to subparagraph (B), the Secretary may apply 
                with respect to PACE programs, providers, and 
                agreements such requirements of part C (or, for periods 
                before January 1, 1999, section 1876) and section 
                1903(m) relating to protection of beneficiaries and 
                program integrity as would apply to MedicarePlus 
                organizations under part C (or for such periods 
                eligible organizations under risk-sharing contracts 
                under section 1876) and to health maintenance 
                organizations under prepaid capitation agreements under 
                section 1903(m).
                    ``(B) Considerations.--In issuing such regulations, 
                the Secretary shall--
                            ``(i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under part C 
                        (or, for periods before January 1, 1999, 
                        section 1876) and section 1903(m);
                            ``(ii) not include any requirement that 
                        conflicts with carrying out PACE programs under 
                        this section; and
                            ``(iii) not include any requirement 
                        restricting the proportion of enrollees who are 
                        eligible for benefits under this title or title 
                        XIX.
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) are waived and shall 
not apply:
            ``(1) Section 1812, insofar as it limits coverage of 
        institutional services.
            ``(2) Sections 1813, 1814, 1833, and 1886, insofar as such 
        sections relate to rules for payment for benefits.
            ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of extended care 
        services or home health services.
            ``(4) Section 1861(i), insofar as it imposes a 3-day prior 
        hospitalization requirement for coverage of extended care 
        services.
            ``(5) Sections 1862(a)(1) and 1862(a)(9), insofar as they 
        may prevent payment for PACE program services to individuals 
enrolled under PACE programs.
    ``(h) Demonstration Project for For-Profit Entities.--
            ``(1) In general.--In order to demonstrate the operation of 
        a PACE program by a private, for-profit entity, the Secretary 
        (in close consultation with State administering agencies) shall 
        grant waivers from the requirement under subsection (a)(3) that 
        a PACE provider may not be a for-profit, private entity.
            ``(2) Similar terms and conditions.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms and 
                conditions for operation of a PACE program by a 
                provider under this subsection shall be the same as 
                those for PACE providers that are nonprofit, private 
                organizations.
                    ``(B) Numerical limitation.--The number of programs 
                for which waivers are granted under this subsection 
                shall not exceed 10. Programs with waivers granted 
                under this subsection shall not be counted against the 
                numerical limitation specified in subsection (e)(1)(B).
    ``(i) Construction.--Nothing in this section or section 1932 shall 
be construed as preventing a PACE provider from entering into contracts 
with other governmental or nongovernmental payers for the care of PACE 
program eligible individuals who are not eligible for benefits under 
part A, or enrolled under part B, or eligible for medical assistance 
under title XIX.''.

SEC. 10012. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

    (a) In General.--Title XIX is amended--
            (1) in section 1905(a) (42 U.S.C. 1396d(a))--
                    (A) by striking ``and'' at the end of paragraph 
                (24);
                    (B) by redesignating paragraph (25) as paragraph 
                (26); and
                    (C) by inserting after paragraph (24) the following 
                new paragraph:
            ``(25) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals enrolled 
        under the program under such section; and'';
            (2) by redesignating section 1932, as redesignated by 
        section 114(a) of Public Law 104-193, as section 1933, and
            (3) by inserting after section 1931 the following new 
        section:

``SEC. 1932. PROGRAM OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE).

    ``(a) Option.--
            ``(1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE program 
        services to PACE program eligible individuals who are eligible 
        for medical assistance under the State plan and who are 
        enrolled in a PACE program under a PACE program agreement. Such 
        individuals need not be eligible for benefits under part A, or 
        enrolled under part B, of title XVIII to be eligible to enroll 
        under this section.
            ``(2) Benefits through enrollment in pace program.--In the 
        case of an individual enrolled with a PACE program pursuant to 
        such an election--
                    ``(A) the individual shall receive benefits under 
                the plan solely through such program, and
                    ``(B) the PACE provider shall receive payment in 
                accordance with the PACE program agreement for 
                provision of such benefits.
            ``(3) Application of definitions.--The definitions of terms 
        under section 1894(a) shall apply under this section in the 
        same manner as they apply under section 1894.
    ``(b) Application of Medicare Terms and Conditions.--Except as 
provided in this section, the terms and conditions for the operation 
and participation of PACE program eligible individuals in PACE programs 
offered by PACE providers under PACE program agreements under section 
1894 shall apply for purposes of this section.
    ``(c) Adjustment in Payment Amounts.--In the case of individuals 
enrolled in a PACE program under this section, the amount of payment 
under this section shall not be the amount calculated under section 
1894(d), but shall be an amount, specified under the PACE agreement, 
which is less than the amount that would otherwise have been made under 
the State plan if the individuals were not so enrolled. The payment 
under this section shall be in addition to any payment made under 
section 1894 for individuals who are enrolled in a PACE program under 
such section.
    ``(d) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) shall not apply:
            ``(1) Section 1902(a)(1), relating to any requirement that 
        PACE programs or PACE program services be provided in all areas 
        of a State.
            ``(2) Section 1902(a)(10), insofar as such section relates 
        to comparability of services among different population groups.
            ``(3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
            ``(4) Section 1903(m)(2)(A), insofar as it restricts a PACE 
        provider from receiving prepaid capitation payments.
    ``(e) Post-Eligibility Treatment of Income.--A State may provide 
for post-eligibility treatment of income for individuals enrolled in 
PACE programs under this section in the same manner as a State treats 
post-eligibility income for individuals receiving services under a 
waiver under section 1915(c).''.
    (b) Conforming Amendments.--
            (1) Section 1902(j) (42 U.S.C. 1396a(j)) is amended by 
        striking ``(25)'' and inserting ``(26)''.
            (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
        amended--
                    (A) in the heading, by striking ``from 
                organizations receiving certain waivers'' and inserting 
                ``under pace programs'', and
                    (B) by striking ``from any organization'' and all 
                that follows and inserting ``under a PACE demonstration 
                waiver program (as defined in subsection (a)(7) of 
                section 1894) or under a PACE program under section 
                1932.''.
            (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) is 
        amended by inserting ``or who is a PACE program eligible 
        individual enrolled in a PACE program under section 1932,'' 
        after ``section 1902(a)(10)(A),''.

SEC. 10013. EFFECTIVE DATE; TRANSITION.

    (a) Timely Issuance of Regulations; Effective Date.--The Secretary 
of Health and Human Services shall promulgate regulations to carry out 
this subchapter in a timely manner. Such regulations shall be designed 
so that entities may establish and operate PACE programs under sections 
1894 and 1932 for periods beginning not later than 1 year after the 
date of the enactment of this Act.
    (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
            (1) Expansion in current number and extension of 
        demonstration projects.--Section 9412(b) of the Omnibus Budget 
        Reconciliation Act of 1986, as amended by section 4118(g) of 
        the Omnibus Budget Reconciliation Act of 1987, is amended--
                    (A) in paragraph (1), by inserting before the 
                period at the end the following: ``, except that the 
                Secretary shall grant waivers of such requirements to 
                up to the applicable numerical limitation specified in 
                section 1894(e)(1)(B) of the Social Security Act''; and
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by striking ``, 
                        including permitting the organization to assume 
                        progressively (over the initial 3-year period 
                        of the waiver) the full financial risk''; and
                            (ii) in subparagraph (C), by adding at the 
                        end the following: ``In granting further 
                        extensions, an organization shall not be 
                        required to provide for reporting of 
                        information which is only required because of 
                        the demonstration nature of the project.''.
            (2) Elimination of replication requirement.--Subparagraph 
        (B) of paragraph (2) of such section shall not apply to waivers 
        granted under such section after the date of the enactment of 
        this Act.
            (3) Timely consideration of applications.--In considering 
        an application for waivers under such section before the 
        effective date of repeals under subsection (c), subject to the 
        numerical limitation under the amendment made by paragraph (1), 
        the application shall be deemed approved unless the Secretary 
        of Health and Human Services, within 90 days after the date of 
        its submission to the Secretary, either denies such request in 
        writing or informs the applicant in writing with respect to any 
        additional information which is needed in order to make a final 
        determination with respect to the application. After the date 
        the Secretary receives such additional information, the 
        application shall be deemed approved unless the Secretary, 
        within 90 days of such date, denies such request.
    (c) Priority and Special Consideration in Application.--During the 
3-year period beginning on the date of the enactment of this Act:
            (1) Provider status.--The Secretary of Health and Human 
        Services shall give priority, in processing applications of 
        entities to qualify as PACE programs under section 1894 or 1932 
        of the Social Security Act--
                    (A) first, to entities that are operating a PACE 
                demonstration waiver program (as defined in section 
                1894(a)(7) of such Act), and
                    (B) then entities that have applied to operate such 
                a program as of May 1, 1997.
            (2) New waivers.--The Secretary shall give priority, in the 
        awarding of additional waivers under section 9412(b) of the 
        Omnibus Budget Reconciliation Act of 1986--
                    (A) to any entities that have applied for such 
                waivers under such section as of May 1, 1997; and
                    (B) to any entity that, as of May 1, 1997, has 
                formally contracted with a State to provide services 
                for which payment is made on a capitated basis with an 
                understanding that the entity was seeking to become a 
                PACE provider.
            (3) Special consideration.--The Secretary shall give 
        special consideration, in the processing of applications 
        described in paragraph (1) and the awarding of waivers 
        described in paragraph (2), to an entity which as of May 1, 
        1997 through formal activities (such as entering into contracts 
        for feasibility studies) has indicated a specific intent to 
        become a PACE provider.
    (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
            (1) In general.--Subject to paragraph (2), the following 
        provisions of law are repealed:
                    (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21).
                    (B) Section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    (C) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            (2) Delay in application.--
                    (A) In general.--Subject to subparagraph (B), the 
                repeals made by paragraph (1) shall not apply to 
                waivers granted before the initial effective date of 
                regulations described in subsection (a).
                    (B) Application to approved waivers.--Such repeals 
                shall apply to waivers granted before such date only 
                after allowing such organizations a transition period 
                (of up to 24 months) in order to permit sufficient time 
                for an orderly transition from demonstration project 
                authority to general authority provided under the 
                amendments made by this subchapter.

SEC. 10014. STUDY AND REPORTS.

    (a) Study.--
            (1) In general.--The Secretary of Health and Human Services 
        (in close consultation with State administering agencies, as 
        defined in section 1894(a)(8) of the Social Security Act) shall 
        conduct a study of the quality and cost of providing PACE 
        program services under the medicare and medicaid programs under 
        the amendments made by this subchapter.
            (2) Study of private, for-profit providers.--Such study 
        shall specifically compare the costs, quality, and access to 
        services by entities that are private, for-profit entities 
        operating under demonstration projects waivers granted under 
        section 1894(h) of the Social Security Act with the costs, 
        quality, and access to services of other PACE providers.
    (b) Report.--
            (1) In general.--Not later than 4 years after the date of 
        the enactment of this Act, the Secretary shall provide for a 
        report to Congress on the impact of such amendments on quality 
        and cost of services. The Secretary shall include in such 
        report such recommendations for changes in the operation of 
        such amendments as the Secretary deems appropriate.
            (2) Treatment of private, for-profit providers.--The report 
        shall include specific findings on whether any of the following 
        findings is true:
                    (A) The number of covered lives enrolled with 
                entities operating under demonstration project waivers 
                under section 1894(h) of the Social Security Act is 
                fewer than 800 (or such lesser number as the Secretary 
                may find statistically sufficient to make 
                determinations respecting findings described in the 
                succeeding subparagraphs).
                    (B) The population enrolled with such entities is 
                less frail than the population enrolled with other PACE 
                providers.
                    (C) Access to or quality of care for individuals 
                enrolled with such entities is lower than such access 
                or quality for individuals enrolled with other PACE 
                providers.
                    (D) The application of such section has resulted in 
                an increase in expenditures under the medicare or 
                medicaid programs above the expenditures that would 
                have been made if such section did not apply.
    (c) Information Included in Annual Recommendations.--The Medicare 
Payment Advisory Commission shall include in its annual report under 
section 1805(b)(1)(B) of the Social Security Act recommendations on the 
methodology and level of payments made to PACE providers under section 
1894(d) of such Act and on the treatment of private, for-profit 
entities as PACE providers.

         Subchapter B--Social Health Maintenance Organizations

SEC. 10015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

    (a) Extension of Demonstration Project Authorities.--Section 
4018(b) of the Omnibus Budget Reconciliation Act of 1987 is amended--
            (1) in paragraph (1), by striking ``1997'' and inserting 
        ``2000'', and
            (2) in paragraph (4), by striking ``1998'' and inserting 
        ``2001''.
    (b) Expansion of Cap.--Section 13567(c) of the Omnibus Budget 
Reconciliation Act of 1993 is amended by striking ``12,000'' and 
inserting ``36,000''.
    (b) Report on Integration and Transition.--
            (1) In general.--The Secretary of Health and Human Services 
        shall submit to Congress, by not later than January 1, 1999, a 
        plan for the integration of health plans offered by social 
        health maintenance organizations (including SHMO I and SHMO II 
        sites developed under section 2355 of the Deficit Reduction Act 
        of 1984 and under the amendment made by section 
        4207(b)(3)(B)(i) of OBRA-1990, respectively) and similar plans 
        as an option under the MedicarePlus program under part C of 
        title XVIII of the Social Security Act.
            (2) Provision for transition.--Such plan shall include a 
        transition for social health maintenance organizations 
        operating under demonstration project authority under such 
        section.
            (3) Payment policy.--The report shall also include 
        recommendations on appropriate payment levels for plans offered 
        by such organizations, including an analysis of the application 
        of risk adjustment factors appropriate to the population served 
        by such organizations.

                      Subchapter C--Other Programs

SEC. 10018. ORDERLY TRANSITION OF MUNICIPAL HEALTH SERVICE 
              DEMONSTRATION PROJECTS.

    Section 9215 of the Consolidated Omnibus Budget Reconciliation Act 
of 1985, as amended by section 6135 of OBRA-1989 and section 13557 of 
OBRA-1993, is further amended--
            (1) by inserting ``(a)'' before ``The Secretary'', and
            (2) by adding at the end the following: ``Subject to 
        subsection (c), the Secretary may further extend such 
        demonstration projects through December 31, 2000, but only with 
        respect to individuals are enrolled with such projects before 
        January 1, 1998.
    ``(b) The Secretary shall work with each such demonstration project 
to develop a plan, to be submitted to the Committee on Ways and Means 
of the House of Representatives and the Committee on Finance of the 
Senate by March 31, 1998, for the orderly transition of demonstration 
projects and the project enrollees to a non-demonstration project 
health care delivery system, such as through integration with private 
or public health plan, including a medicaid managed care or 
MedicarePlus plan.
    ``(c) A demonstration project under subsection (a) which does not 
develop and submit a transition plan under subsection (b) by March 31, 
1998, or, if later, 6 months after the date of the enactment of this 
Act, shall be discontinued as of December 31, 1998. The Secretary shall 
provide appropriate technical assistance to assist in the transition so 
that disruption of medical services to project enrollees may be 
minimized.''.

SEC. 10019. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING 
              ORGANIZATION DEMONSTRATION PROJECTS.

    Notwithstanding any other provision of law, demonstration projects 
conducted under section 4079 of the Omnibus Budget Reconciliation Act 
of 1987 may be conducted for an additional period of 2 years, and the 
deadline for any report required relating to the results of such 
projects shall be not later than 6 months before the end of such 
additional period.

            CHAPTER 3--MEDICARE PAYMENT ADVISORY COMMISSION

SEC. 10021. MEDICARE PAYMENT ADVISORY COMMISSION.

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

                 ``medicare payment advisory commission

    ``Sec. 1805. (a) Establishment.--There is hereby established the 
Medicare Payment Advisory Commission (in this section referred to as 
the `Commission').
    ``(b) Duties.--
            ``(1) Review of payment policies and annual reports.--The 
        Commission shall--
                    ``(A) review payment policies under this title, 
                including the topics described in paragraph (2);
                    ``(B) make recommendations to Congress concerning 
                such payment policies;
                    ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing the results of such reviews and its 
                recommendations concerning such policies; and
                    ``(D) by not later than June 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing an examination of issues affecting the 
                medicare program, including the implications of changes 
                in health care delivery in the United States and in the 
                market for health care services on the medicare 
                program.
            ``(2) Specific topics to be reviewed.--
                    ``(A) Medicareplus program.--Specifically, the 
                Commission shall review, with respect to the 
                MedicarePlus program under part C, the following:
                            ``(i) The methodology for making payment to 
                        plans under such program, including the making 
                        of differential payments and the distribution 
                        of differential updates among different payment 
                        areas.
                            ``(ii) The mechanisms used to adjust 
                        payments for risk and the need to adjust such 
                        mechanisms to take into account health status 
                        of beneficiaries.
                            ``(iii) The implications of risk selection 
                        both among MedicarePlus organizations and 
                        between the MedicarePlus option and the 
                        medicare fee-for-service option.
                            ``(iv) The development and implementation 
                        of mechanisms to assure the quality of care for 
                        those enrolled with MedicarePlus organizations.
                            ``(v) The impact of the MedicarePlus 
                        program on access to care for medicare 
                        beneficiaries.
                            ``(vi) Other major issues in implementation 
                        and further development of the MedicarePlus 
                        program.
                    ``(B) Fee-for-service system.--Specifically, the 
                Commission shall review payment policies under parts A 
                and B, including--
                            ``(i) the factors affecting expenditures 
                        for services in different sectors, including 
                        the process for updating hospital, skilled 
                        nursing facility, physician, and other fees,
                            ``(ii) payment methodologies, and
                            ``(iii) their relationship to access and 
                        quality of care for medicare beneficiaries.
                    ``(C) Interaction of medicare payment policies with 
                health care delivery generally.--Specifically, the 
                Commission shall review the effect of payment policies 
                under this title on the delivery of health care 
                services other than under this title and assess the 
                implications of changes in health care delivery in the 
                United States and in the general market for health care 
                services on the medicare program.
            ``(3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of Congress) a 
        report that is required by law and that relates to payment 
        policies under this title, the Secretary shall transmit a copy 
        of the report to the Commission. The Commission shall review 
        the report and, not later than 6 months after the date of 
        submittal of the Secretary's report to Congress, shall submit 
        to the appropriate committees of Congress written comments on 
        such report. Such comments may include such recommendations as 
        the Commission deems appropriate.
            ``(4) Agenda and additional reviews.--The Commission shall 
        consult periodically with the chairmen and ranking minority 
        members of the appropriate committees of Congress regarding the 
        Commission's agenda and progress towards achieving the agenda. 
        The Commission may conduct additional reviews, and submit 
        additional reports to the appropriate committees of Congress, 
        from time to time on such topics relating to the program under 
        this title as may be requested by such chairmen and members and 
        as the Commission deems appropriate.
            ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report submitted under 
        this subsection and shall make such reports available to the 
        public.
            ``(6) Appropriate committees.--For purposes of this 
        section, the term `appropriate committees of Congress' means 
        the Committees on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the Senate.
    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall be 
        composed of 19 members appointed by the Comptroller General.
            ``(2) Qualifications.--
                    ``(A) In general.--The membership of the Commission 
                shall include individuals with national recognition for 
                their expertise in health finance and economics, 
                actuarial science, health facility management, health 
                plans and integrated delivery systems, reimbursement of 
                health facilities, allopathic and osteopathic 
                physicians, and other providers of health services, and 
                other related fields, who provide a mix of different 
                professionals, broad geographic representation, and a 
                balance between urban and rural representatives.
                    ``(B) Inclusion.--The membership of the Commission 
                shall include (but not be limited to) physicians and 
                other health professionals, employers, third party 
                payers, individuals skilled in the conduct and 
                interpretation of biomedical, health services, and 
                health economics research and expertise in outcomes and 
                effectiveness research and technology assessment. Such 
                membership shall also include representatives of 
                consumers and the elderly.
                    ``(C) Majority nonproviders.--Individuals who are 
                directly involved in the provision, or management of 
                the delivery, of items and services covered under this 
                title shall not constitute a majority of the membership 
                of the Commission.
                    ``(D) Ethical disclosure.--The Comptroller General 
                shall establish a system for public disclosure by 
                members of the Commission of financial and other 
                potential conflicts of interest relating to such 
                members.
            ``(3) Terms.--
                    ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                    ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
            ``(4) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and member's regular place of business, 
        a member may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician comparability 
        allowance by the Commission in the same manner as Government 
        physicians may be provided such an allowance by an agency under 
        section 5948 of title 5, United States Code, and for such 
        purpose subsection (i) of such section shall apply to the 
        Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
            ``(5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
            ``(6) Meetings.--The Commission shall meet at the call of 
        the Chairman.
    ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
            ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
            ``(2) seek such assistance and support as may be required 
        in the performance of its duties from appropriate Federal 
        departments and agencies;
            ``(3) enter into contracts or make other arrangements, as 
        may be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
            ``(4) make advance, progress, and other payments which 
        relate to the work of the Commission;
            ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
            ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
            ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                    ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                    ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                    ``(C) adopt procedures allowing any interested 
                party to submit information for the Commission's use in 
                making reports and recommendations.
            ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all deliberations, 
        records, and nonproprietary data of the Commission, immediately 
        upon request.
            ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the Comptroller General.
    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out the 
        provisions of this section. 60 percent of such appropriation 
        shall be payable from the Federal Hospital Insurance Trust 
        Fund, and 40 percent of such appropriation shall be payable 
        from the Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Abolition of ProPAC and PPRC.--
            (1) Propac.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                            (i) by striking paragraphs (2) and (6); and
                            (ii) in paragraph (3), by striking ``(A) 
                        The Commission'' and all that follows through 
                        ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Advisory Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                    (B) Elimination of certain reports.--Section 1848 
                (42 U.S.C. 1395w-4) is amended--
                            (i) by striking subparagraph (F) of 
                        subsection (d)(2),
                            (ii) by striking subparagraph (B) of 
                        subsection (f)(1), and
                            (iii) in subsection (f)(3), by striking 
                        ``Physician Payment Review Commission,''.
                    (C) Conforming amendments.--Section 1848 (42 U.S.C. 
                1395w-4) is amended by striking ``Physician Payment 
                Review Commission'' and inserting ``Medicare Payment 
                Advisory Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
    (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare Payment 
        Advisory Commission (in this subsection referred to as 
        ``MedPAC'') by not later than September 30, 1997.
            (2) Transition.--As quickly as possible after the date a 
        majority of members of MedPAC are first appointed, the 
        Comptroller General, in consultation with the Prospective 
        Payment Assessment Commission (in this subsection referred to 
        as ``ProPAC'') and the Physician Payment Review Commission (in 
        this subsection referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date of 
        termination of the respective Commissions, the amendments made 
        by paragraphs (1) and (2), respectively, of subsection (b) 
        become effective. The Comptroller General, to the extent 
        feasible, shall provide for the transfer to the MedPAC of 
        assets and staff of the ProPAC and the PPRC, without any loss 
        of benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or the PPRC for any period 
        shall be available to the MedPAC for such period for like 
        purposes.
            (3) Continuing responsibility for reports.--The MedPAC 
        shall be responsible for the preparation and submission of 
        reports required by law to be submitted (and which have not 
        been submitted by the date of establishment of the MedPAC) by 
        the ProPAC and the PPRC, and, for this purpose, any reference 
        in law to either such Commission is deemed, after the 
        appointment of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 10031. MEDIGAP PROTECTIONS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
            (1) in paragraph (3), by striking ``paragraphs (1) and 
        (2)'' and inserting ``this subsection'',
            (2) by redesignating paragraph (3) as paragraph (4), and
            (3) by inserting after paragraph (2) the following new 
        paragraph:
    ``(3)(A) The issuer of a medicare supplemental policy--
            ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy described in 
        subparagraph (C) that is offered and is available for issuance 
        to new enrollees by such issuer;
            ``(ii) may not discriminate in the pricing of such policy, 
        because of health status, claims experience, receipt of health 
        care, or medical condition; and
            ``(iii) may not impose an exclusion of benefits based on a 
        pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who seeks to 
enroll under the policy not later than 63 days after the date of the 
termination of enrollment described in such subparagraph and who 
submits evidence of the date of termination or disenrollment along with 
the application for such medicare supplemental policy.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
            ``(i) The individual is enrolled under an employee welfare 
        benefit plan that provides health benefits that supplement the 
        benefits under this title and the plan terminates or ceases to 
        provide all such supplemental health benefits to the 
        individual.
            ``(ii) The individual is enrolled with a MedicarePlus 
        organization under a MedicarePlus plan under part C, and there 
        are circumstances permitting discontinuance of the individual's 
        election of the plan under section 1851(c)(4).
            ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a similar 
        organization operating under demonstration project authority, 
        with an organization under an agreement under section 
        1833(a)(1)(A), or with an organization under a policy described 
        in subsection (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 1851(c)(4) and, 
        in the case of a policy described in subsection (t), there is 
        no provision under applicable State law for the continuation of 
        coverage under such policy.
            ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such enrollment 
        ceases because--
                    ``(I) of the bankruptcy or insolvency of the issuer 
                or because of other involuntary termination of coverage 
                or enrollment under such policy and there is no 
                provision under applicable State law for the 
                continuation of such coverage;
                    ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                    ``(III) the issuer (or an agent or other entity 
                acting on the issuer's behalf) materially 
                misrepresented the policy's provisions in marketing the 
                policy to the individual.
            ``(v) The individual--
                    ``(I) was enrolled under a medicare supplemental 
                policy under this section,
                    ``(II) subsequently terminates such enrollment and 
                enrolls, for the first time, with any MedicarePlus 
                organization under a MedicarePlus plan under part C, 
                any eligible organization under a contract under 
                section 1876, any similar organization operating under 
                demonstration project authority, any organization under 
                an agreement under section 1833(a)(1)(A), or any policy 
                described in subsection (t), and
                    ``(III) the subsequent enrollment under subclause 
                (II) is terminated by the enrollee during the first 6 
                months (or 3 months for terminations occurring on or 
                after January 1, 2003) of such enrollment.
    ``(C)(i) Subject to clauses (ii) and (iii), a medicare supplemental 
policy described in this subparagraph has a benefit package classified 
as `A', `B', `C', or `F' under the standards established under 
subsection (p)(2).
    ``(ii) Only for purposes of an individual described in subparagraph 
(B)(v), a medicare supplemental policy described in this subparagraph 
also includes (if available from the same issuer) the same medicare 
supplemental policy referred to in such subparagraph in which the 
individual was most recently previously enrolled.
    ``(iii) For purposes of applying this paragraph in the case of a 
State that provides for offering of benefit packages other than under 
the classification referred to in clause (i), the references to benefit 
packages in such clause are deemed references to comparable benefit 
packages offered in such State.
    ``(D) At the time of an event described in subparagraph (B) because 
of which an individual ceases enrollment or loses coverage or benefits 
under a contract or agreement, policy, or plan, the organization that 
offers the contract or agreement, the insurer offering the policy, or 
the administrator of the plan, respectively, shall notify the 
individual of the rights of the individual, and obligations of issuers 
of medicare supplemental policies, under subparagraph (A).''.
    (b) Limitation on Imposition of Preexisting Condition Exclusion 
During Initial Open Enrollment Period.--Section 1882(s)(2) (42 U.S.C. 
1395ss(s)(2)) is amended--
            (1) in subparagraph (B), by striking ``subparagraph (C)'' 
        and inserting ``subparagraphs (C) and (D)'', and
            (2) by adding at the end the following new subparagraph:
    ``(D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years of age 
or older as of the date of issuance and who as of the date of the 
application for enrollment has a continuous period of creditable 
coverage (as defined in 2701(c) of the Public Health Service Act) of--
            ``(i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
            ``(ii) of less than 6 months, if the policy excludes 
        benefits based on a preexisting condition, the policy shall 
        reduce the period of any preexisting condition exclusion by the 
        aggregate of the periods of creditable coverage (if any, as so 
        defined) applicable to the individual as of the enrollment 
        date.
The Secretary shall specify the manner of the reduction under clause 
(ii), based upon the rules used by the Secretary in carrying out 
section 2701(a)(3) of such Act.''.
    (c) Effective Dates.--
            (1) Guaranteed issue.--The amendment made by subsection (a) 
        shall take effect on July 1, 1998.
            (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to policies issued 
        on or after July 1, 1998.
    (d) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to 
        the changes made by this section, the State regulatory program 
        shall not be considered to be out of compliance with the 
        requirements of section 1882 of the Social Security Act due 
        solely to failure to make such change until the date specified 
        in paragraph (4).
            (2) NAIC standards.--If, within 9 months after the date of 
        the enactment of this Act, the National Association of 
        Insurance Commissioners (in this subsection referred to as the 
        ``NAIC'') modifies its NAIC Model Regulation relating to 
        section 1882 of the Social Security Act (referred to in such 
        section as the 1991 NAIC Model Regulation, as modified pursuant 
        to section 171(m)(2) of the Social Security Act Amendments of 
        1994 (Public Law 103-432) and as modified pursuant to section 
        1882(d)(3)(A)(vi)(IV) of the Social Security Act, as added by 
        section 271(a) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191) to conform to 
        the amendments made by this section, such revised regulation 
        incorporating the modifications shall be considered to be the 
        applicable NAIC model regulation (including the revised NAIC 
        model regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        Regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State changes its statutes 
                        or regulations to conform its regulatory 
                        program to the changes made by this section, or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first makes the modifications under 
                        paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) to conform its 
                        regulatory program to the changes made in this 
                        section, but
                            (ii) having a legislature which is not 
                        scheduled to meet in 1999 in a legislative 
                        session in which such legislation may be 
                        considered,
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after July 1, 1999. For 
                purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

SEC. 10032. MEDICARE PREPAID COMPETITIVE PRICING DEMONSTRATION PROJECT.

    (a) Establishment of Project.--The Secretary of Health and Human 
Services shall provide, beginning not later than 1 year after the date 
of the enactment of this Act, for implementation of a project (in this 
section referred to as the ``project'') to demonstrate the application 
of, and the consequences of applying, a market-oriented pricing system 
for the provision of a full range of medicare benefits in a geographic 
area.
    (b) Research Design Advisory Committee.--
            (1) In general.--Before implementing the project under this 
        section, the Secretary shall appoint a national advisory 
        committee, including independent actuaries and individuals with 
        expertise in competitive health plan pricing, to make 
        recommendations to the Secretary concerning the appropriate 
        research design for implementing the project.
            (2) Initial recommendations.--The committee initially shall 
        submit recommendations respecting the method for area 
        selection, benefit design among plans offered, structuring 
        choice among health plans offered, methods for setting the 
        price to be paid to plans, collection of plan information 
        (including information concerning quality and access to care), 
        information dissemination, and methods of evaluating the 
        results of the project.
            (3) Advice during implementation.--Upon implementation of 
        the project, the committee shall continue to advise the 
        Secretary on the application of the design in different areas 
        and changes in the project based on experience with its 
        operations.
    (c) Area Selection.--
            (1) In general.--Taking into account the recommendations of 
        the advisory committee submitted under subsection (b), the 
        Secretary shall designate areas in which the project will 
        operate.
            (2) Appointment of area advisory committee.--Upon the 
        designation of an area for inclusion in the project, the 
        Secretary shall appoint an area advisory committee, composed of 
        representatives of health plans, providers, and medicare 
        beneficiaries in the area, to advise the Secretary concerning 
        how the project will actually be implemented in the area. Such 
        advice may include advice concerning the marketing and pricing 
        of plans in the area and other salient factors relating.
    (d) Monitoring and Report.--
            (1) Monitoring impact.--Taking into consideration the 
        recommendations of the general advisory committee (appointed 
        under subsection (b)), the Secretary shall closely monitor the 
        impact of projects in areas on the price and quality of, and 
        access to, medicare covered services, choice of health plan, 
        changes in enrollment, and other relevant factors.
            (2) Report.--The Secretary shall periodically report to 
        Congress on the progress under the project under this section.
    (e) Waiver Authority.--The Secretary of Health and Human Services 
may waive such requirements of section 1876 (and such requirements of 
part C of title XVIII, as amended by chapter 1), of the Social Security 
Act as may be necessary for the purposes of carrying out the project.

    CHAPTER 5--TAX TREATMENT OF HOSPITALS PARTICIPATING IN PROVIDER-
                        SPONSORED ORGANIZATIONS

SEC. 10041. TAX TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
              SPONSORED ORGANIZATIONS.

    (a) In General.--Section 501 of the Internal Revenue Code of 1986 
(relating to exemption from tax on corporations, certain trusts, etc.) 
is amended by redesignating subsection (o) as subsection (p) and by 
inserting after subsection (n) the following new subsection:
    ``(o) Treatment of Hospitals Participating in Provider-Sponsored 
Organizations.--An organization shall not fail to be treated as 
organized and operated exclusively for a charitable purpose for 
purposes of subsection (c)(3) solely because a hospital which is owned 
and operated by such organization participates in a provider-sponsored 
organization (as defined in section 1853(e) of the Social Security 
Act), whether or not the provider-sponsored organization is exempt from 
tax. For purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization shall be 
treated as a private shareholder or individual with respect to the 
hospital.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

                   Subtitle B--Prevention Initiatives

SEC. 10101. SCREENING MAMMOGRAPHY.

    (a) Providing Annual Screening Mammography for Women Over Age 39.--
Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) is amended--
            (1) in clause (iii), to read as follows:
                            ``(iii) In the case of a woman over 39 
                        years of age, payment may not be made under 
                        this part for screening mammography performed 
                        within 11 months following the month in which a 
                        previous screening mammography was 
                        performed.''; and
            (2) by striking clauses (iv) and (v).
    (b) 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 before the period at the end the 
        following: ``, and (5) such deductible shall not apply with 
        respect to screening mammography (as described in section 
        1861(jj))''.
    (c) Conforming Amendment.--Section 1834(c)(1)(C) of such Act (42 
U.S.C. 1395m(c)(1)(C)) is amended by striking ``, subject to the 
deductible established under section 1833(b),''.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10102. SCREENING PAP SMEAR AND PELVIC EXAMS.

    (a) Coverage of Pelvic Exam; Increasing Frequency of Coverage of 
Pap Smear.--Section 1861(nn) (42 U.S.C. 1395x(nn)) is amended--
            (1) in the heading, by striking ``Smear'' and inserting 
        ``Smear; Screening Pelvic Exam'';
            (2) by inserting ``or vaginal'' after ``cervical'' each 
        place it appears;
            (3) by striking ``(nn)'' and inserting ``(nn)(1)'';
            (4) by striking ``3 years'' and all that follows and 
        inserting ``3 years, or during the preceding year in the case 
        of a woman described in paragraph (3).''; and
            (5) by adding at the end the following new paragraphs:
    ``(2) The term `screening pelvic exam' means an pelvic examination 
provided to a woman if the woman involved has not had such an 
examination during the preceding 3 years, or during the preceding year 
in the case of a woman described in paragraph (3), and includes a 
clinical breast examination.
    ``(3) A woman described in this paragraph is a woman who--
            ``(A) is of childbearing age and has not had a test 
        described in this subsection during each of the preceding 3 
        years that did not indicate the presence of cervical or vaginal 
        cancer; or
            ``(B) is at high risk of developing cervical or vaginal 
        cancer (as determined pursuant to factors identified by the 
        Secretary).''.
    (b) Waiver of Deductible.--The first sentence of section 1833(b) 
(42 U.S.C. 1395l(b)), as amended by section 10101(b), is amended--
            (1) by striking ``and'' before ``(5)'', and
            (2) by inserting before the period at the end the 
        following: ``, and (6) such deductible shall not apply with 
        respect to screening pap smear and screening pelvic exam (as 
        described in section 1861(nn))''.
    (c) Conforming Amendments.--Sections 1861(s)(14) and 1862(a)(1)(F) 
(42 U.S.C. 1395x(s)(14), 1395y(a)(1)(F)) are each amended by inserting 
``and screening pelvic exam'' after ``screening pap smear''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3)(42 
U.S.C. 1395w-4(j)(3)) is amended by striking ``and (4)'' and inserting 
``(4) and (14) (with respect to services described in section 
1861(nn)(2))''.
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10103. PROSTATE CANCER SCREENING TESTS.

    (a) Coverage.--Section 1861 (42 U.S.C. 1395x) is amended--
            (1) in subsection (s)(2)--
                    (A) by striking ``and'' at the end of subparagraphs 
                (N) and (O), and
                    (B) by inserting after subparagraph (O) the 
                following new subparagraph:
            ``(P) prostate cancer screening tests (as defined in 
        subsection (oo)); and''; and
            (2) by adding at the end the following new subsection:

                   ``Prostate Cancer Screening Tests

    ``(oo)(1) The term `prostate cancer screening test' means a test 
that consists of any (or all) of the procedures described in paragraph 
(2) provided for the purpose of early detection of prostate cancer to a 
man over 50 years of age who has not had such a test during the 
preceding year.
    ``(2) The procedures described in this paragraph are as follows:
            ``(A) A digital rectal examination.
            ``(B) A prostate-specific antigen blood test.
            ``(C) For years beginning after 2001, such other procedures 
        as the Secretary finds appropriate for the purpose of early 
        detection of prostate cancer, taking into account changes in 
        technology and standards of medical practice, availability, 
        effectiveness, costs, and such other factors as the Secretary 
        considers appropriate.''.
    (b) Payment for Prostate-specific Antigen Blood Test Under Clinical 
Diagnostic Laboratory Test Fee Schedules.--Section 1833(h)(1)(A) (42 
U.S.C. 1395l(h)(1)(A)) is amended by inserting after ``laboratory 
tests'' the following: ``(including prostate cancer screening tests 
under section 1861(oo) consisting of prostate-specific antigen blood 
tests)''.
    (c) Conforming Amendment.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (E), by striking ``and'' at the 
                end,
                    (B) in subparagraph (F), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
            ``(G) in the case of prostate cancer screening tests (as 
        defined in section 1861(oo)), which are performed more 
        frequently than is covered under such section;''; and
            (2) in paragraph (7), by striking ``paragraph (1)(B) or 
        under paragraph (1)(F)'' and inserting ``subparagraphs (B), 
        (F), or (G) of paragraph (1)''.
    (d) Payment Under Physician Fee Schedule.--Section 1848(j)(3)(42 
U.S.C. 1395w-4(j)(3)), as amended by section 10102, is amended by 
inserting ``, (2)(P) (with respect to services described in 
subparagraphs (A) and (C) of section 1861(oo)'' after ``(2)(G)''
    (e) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10104. COVERAGE OF COLORECTAL SCREENING.

    (a) Coverage.--
            (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended 
        by section 10103(a), is amended--
                    (A) in subsection (s)(2)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (P);
                            (ii) by adding ``and'' at the end of 
                        subparagraph (Q); and
                            (iii) by adding at the end the following 
                        new subparagraph:
            ``(R) colorectal cancer screening tests (as defined in 
        subsection (pp)); and''; and
                    (B) by adding at the end the following new 
                subsection:

                  ``Colorectal Cancer Screening Tests

    ``(pp)(1) The term `colorectal cancer screening test' means any of 
the following procedures furnished to an individual for the purpose of 
early detection of colorectal cancer:
            ``(A) Screening fecal-occult blood test.
            ``(B) Screening flexible sigmoidoscopy.
            ``(C) In the case of an individual at high risk for 
        colorectal cancer, screening colonoscopy.
            ``(D) Screening barium enema, if found by the Secretary to 
        be an appropriate alternative to screening flexible 
        sigmoidoscopy under subparagraph (B) or screening colonoscopy 
        under subparagraph (C).
            ``(E) For years beginning after 2002, such other procedures 
        as the Secretary finds appropriate for the purpose of early 
        detection of colorectal cancer, taking into account changes in 
        technology and standards of medical practice, availability, 
        effectiveness, costs, and such other factors as the Secretary 
        considers appropriate.
    ``(2) In paragraph (1)(C), an `individual at high risk for 
colorectal cancer' is an individual who, because of family history, 
prior experience of cancer or precursor neoplastic polyps, a history of 
chronic digestive disease condition (including inflammatory bowel 
disease, Crohn's Disease, or ulcerative colitis), the presence of any 
appropriate recognized gene markers for colorectal cancer, or other 
predisposing factors, faces a high risk for colorectal cancer.''.
            (2) Deadline for decision on coverage of screening barium 
        enema.--Not later than 2 years after the date of the enactment 
        of this section, the Secretary of Health and Human Services 
        shall issue and publish a determination on the treatment of 
        screening barium enema as a colorectal cancer screening test 
        under section 1861(pp) (as added by subparagraph (B)) as an 
        alternative procedure to a screening flexible sigmoidoscopy or 
        screening colonoscopy.
    (b) Frequency and Payment Limits.--
            (1) In general.--Section 1834 (42 U.S.C. 1395m) is amended 
        by inserting after subsection (c) the following new subsection:
    ``(d) Frequency and Payment Limits for Colorectal Cancer Screening 
Tests.--
            ``(1) Screening fecal-occult blood tests.--
                    ``(A) Payment limit.--In establishing fee schedules 
                under section 1833(h) with respect to colorectal cancer 
                screening tests consisting of screening fecal-occult 
                blood tests, except as provided by the Secretary under 
                paragraph (4)(A), the payment amount established for 
                tests performed--
                            ``(i) in 1998 shall not exceed $5; and
                            ``(ii) in a subsequent year, shall not 
                        exceed the limit on the payment amount 
                        established under this subsection for such 
                        tests for the preceding year, adjusted by the 
                        applicable adjustment under section 1833(h) for 
                        tests performed in such year.
                    ``(B) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for colorectal cancer screening 
                test consisting of a screening fecal-occult blood 
                test--
                            ``(i) if the individual is under 50 years 
                        of age; or
                            ``(ii) if the test is performed within the 
                        11 months after a previous screening fecal-
                        occult blood test.
            ``(2) Screening flexible sigmoidoscopies.--
                    ``(A) Fee schedule.--The Secretary shall establish 
                a payment amount under section 1848 with respect to 
                colorectal cancer screening tests consisting of 
                screening flexible sigmoidoscopies that is consistent 
                with payment amounts under such section for similar or 
                related services, except that such payment amount shall 
                be established without regard to subsection (a)(2)(A) 
                of such section.
                    ``(B) Payment limit.--In the case of screening 
                flexible sigmoidoscopy services--
                            ``(i) the payment amount may not exceed 
                        such amount as the Secretary specifies, based 
                        upon the rates recognized under this part for 
                        diagnostic flexible sigmoidoscopy services; and
                            ``(ii) that, in accordance with 
                        regulations, may be performed in an ambulatory 
                        surgical center and for which the Secretary 
                        permits ambulatory surgical center payments 
                        under this part and that are performed in an 
                        ambulatory surgical center or hospital 
                        outpatient department, the payment amount under 
                        this part may not exceed the lesser of (I) the 
                        payment rate that would apply to such services 
                        if they were performed in a hospital outpatient 
                        department, or (II) the payment rate that would 
                        apply to such services if they were performed 
                        in an ambulatory surgical center.
                    ``(C) Special rule for detected lesions.--If during 
                the course of such screening flexible sigmoidoscopy, a 
                lesion or growth is detected which results in a biopsy 
                or removal of the lesion or growth, payment under this 
                part shall not be made for the screening flexible 
                sigmoidoscopy but shall be made for the procedure 
                classified as a flexible sigmoidoscopy with such biopsy 
                or removal.
                    ``(D) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for a colorectal cancer screening 
                test consisting of a screening flexible sigmoidoscopy--
                            ``(i) if the individual is under 50 years 
                        of age; or
                            ``(ii) if the procedure is performed within 
                        the 47 months after a previous screening 
                        flexible sigmoidoscopy.
            ``(3) Screening colonoscopy for individuals at high risk 
        for colorectal cancer.--
                    ``(A) Fee schedule.--The Secretary shall establish 
                a payment amount under section 1848 with respect to 
                colorectal cancer screening test consisting of a 
                screening colonoscopy for individuals at high risk for 
                colorectal cancer (as defined in section 1861(pp)(2)) 
                that is consistent with payment amounts under such 
                section for similar or related services, except that 
                such payment amount shall be established without regard 
                to subsection (a)(2)(A) of such section.
                    ``(B) Payment limit.--In the case of screening 
                colonoscopy services--
                            ``(i) the payment amount may not exceed 
                        such amount as the Secretary specifies, based 
                        upon the rates recognized under this part for 
                        diagnostic colonoscopy services; and
                            ``(ii) that are performed in an ambulatory 
                        surgical center or hospital outpatient 
                        department, the payment amount under this part 
                        may not exceed the lesser of (I) the payment 
                        rate that would apply to such services if they 
                        were performed in a hospital outpatient 
                        department, or (II) the payment rate that would 
                        apply to such services if they were performed 
                        in an ambulatory surgical center.
                    ``(C) Special rule for detected lesions.--If during 
                the course of such screening colonoscopy, a lesion or 
                growth is detected which results in a biopsy or removal 
                of the lesion or growth, payment under this part shall 
                not be made for the screening colonoscopy but shall be 
                made for the procedure classified as a colonoscopy with 
                such biopsy or removal.
                    ``(D) Frequency limit.--Subject to revision by the 
                Secretary under paragraph (4)(B), no payment may be 
                made under this part for a colorectal cancer screening 
                test consisting of a screening colonoscopy for 
                individuals at high risk for colorectal cancer if the 
                procedure is performed within the 23 months after a 
                previous screening colonoscopy.
            ``(4) Reductions in payment limit and revision of 
        frequency.--
                    ``(A) Reductions in payment limit for screening 
                fecal-occult blood tests.--The Secretary shall review 
                from time to time the appropriateness of the amount of 
                the payment limit established for screening fecal-
                occult blood tests under paragraph (1)(A). The 
                Secretary may, with respect to tests performed in a 
                year after 2000, reduce the amount of such limit as it 
                applies nationally or in any area to the amount that 
                the Secretary estimates is required to assure that such 
                tests of an appropriate quality are readily and 
                conveniently available during the year.
                    ``(B) Revision of frequency.--
                            ``(i) Review.--The Secretary shall review 
                        periodically the appropriate frequency for 
                        performing colorectal cancer screening tests 
                        based on age and such other factors as the 
                        Secretary believes to be pertinent.
                            ``(ii) Revision of frequency.--The 
                        Secretary, taking into consideration the review 
                        made under clause (i), may revise from time to 
                        time the frequency with which such tests may be 
                        paid for under this subsection, but no such 
                        revision shall apply to tests performed before 
                        January 1, 2001.
            ``(5) Limiting charges of nonparticipating physicians.--
                    ``(A) In general.--In the case of a colorectal 
                cancer screening test consisting of a screening 
                flexible sigmoidoscopy or a screening colonoscopy 
                provided to an individual at high risk for colorectal 
                cancer for which payment may be made under this part, 
                if a nonparticipating physician provides the procedure 
                to an individual enrolled under this part, the 
                physician may not charge the individual more than the 
                limiting charge (as defined in section 1848(g)(2)).
                    ``(B) Enforcement.--If a physician or supplier 
                knowing and willfully imposes a charge in violation of 
                subparagraph (A), the Secretary may apply sanctions 
                against such physician or supplier in accordance with 
                section 1842(j)(2).''.
            (2) Special rule for screening barium enema.--If the 
        Secretary of Health and Human Services issues a determination 
        under subsection (a)(2) that screening barium enema should be 
        covered as a colorectal cancer screening test under section 
        1861(pp) (as added by subsection (a)(1)(B)), the Secretary 
        shall establish frequency limits (including revisions of 
        frequency limits) for such procedure consistent with the 
        frequency limits for other colorectal cancer screening tests 
        under section 1834(d) (as added by subsection (b)(1)), and 
        shall establish payment limits (including limits on charges of 
        nonparticipating physicians) for such procedure consistent with 
        the payment limits under part B of title XVIII for diagnostic 
        barium enema procedures.
    (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) of 
section 1833(a) (42 U.S.C. 1395l(a)) are each amended by inserting ``or 
section 1834(d)(1)'' after ``subsection (h)(1)''.
    (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
striking ``The Secretary'' and inserting ``Subject to paragraphs (1) 
and (4)(A) of section 1834(d), the Secretary''.
    (3) Clauses (i) and (ii) of section 1848(a)(2)(A) (42 U.S.C. 1395w-
4(a)(2)(A)) are each amended by inserting after ``a service'' the 
following: ``(other than a colorectal cancer screening test consisting 
of a screening colonoscopy provided to an individual at high risk for 
colorectal cancer or a screening flexible sigmoidoscopy)''.
    (4) Section 1862(a) (42 U.S.C. 1395y(a)), as amended by section 
10103(c), is amended--
            (A) in paragraph (1)--
                    (i) in subparagraph (F), by striking ``and'' at the 
                end,
                    (ii) in subparagraph (G), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (iii) by adding at the end the following new 
                subparagraph:
            ``(H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered under 
        section 1834(d);''; and
            (B) in paragraph (7), by striking ``or (G)'' and inserting 
        ``(G), or (H)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10105. DIABETES SCREENING TESTS.

    (a) Coverage of Diabetes Outpatient Self-management Training 
Services.--
            (1) In general.--Section 1861 (42 U.S.C. 1395x), as amended 
        by sections 10103(a) and 10104(a), is amended--
                    (A) in subsection (s)(2)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (Q);
                            (ii) by adding ``and'' at the end of 
                        subparagraph (R); and
                            (iii) by adding at the end the following 
                        new subparagraph:
            ``(S) diabetes outpatient self-management training services 
        (as defined in subsection (qq)); and''; and
                    (B) by adding at the end the following new 
                subsection:

        ``Diabetes Outpatient Self-Management Training Services

    ``(qq)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished to an 
individual with diabetes by 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-administration of injectable drugs) to participate 
in the management of the individual's condition.
    ``(2) In paragraph (1)--
            ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, 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) a physician, or such other individual or entity, 
        meets the quality standards described in this paragraph if the 
        physician, or individual or entity, meets quality standards 
        established by the Secretary, except that the physician or 
        other individual or entity shall be deemed to have met such 
        standards if the physician or other 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 an organization 
        that represents individuals (including individuals under this 
        title) with diabetes as meeting standards for furnishing the 
        services.''.
            (2) Payment Under Physician Fee Schedule.--Section 
        1848(j)(3)(42 U.S.C. 1395w-4(j)(3)) as amended in sections 
        10102 and 10103, is amended by inserting ``(2)(S),'' before 
        ``(3),''.
            (3) Consultation with organizations in establishing payment 
        amounts for services provided by physicians.--In establishing 
        payment amounts under section 1848 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 such organizations representing individuals or 
        medicare beneficiaries with diabetes, in determining the 
        relative value for such services under section 1848(c)(2) of 
        such Act.
    (b) Blood-testing Strips for Individuals With Diabetes.--
            (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 U.S.C. 
        1395x(n)) is amended by inserting before the semicolon the 
        following: ``, and includes blood-testing strips and 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 
        appropriate organizations)''.
            (2) 10 percent reduction in payments for testing strips.--
        Section 1834(a)(2)(B)(iv) (42 U.S.C. 1395m(a)(2)(B)(iv)) is 
        amended by adding before the period the following: ``(reduced 
        by 10 percent, in the case of a blood glucose testing strip 
        furnished after 1997 for an individual with diabetes)''.
    (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
            (1) In general.--The Secretary of Health and Human 
        Services, in consultation with appropriate organizations, shall 
        establish outcome measures, including glysolated hemoglobin 
        (past 90-day average blood sugar levels), for purposes of 
        evaluating the improvement of the health status of medicare 
        beneficiaries with diabetes mellitus.
            (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the health status 
        of medicare beneficiaries with diabetes mellitus as measured 
        under the outcome measures established under subparagraph (A), 
        the Secretary shall from time to time submit recommendations to 
        Congress regarding modifications to the coverage of services 
        for such beneficiaries under the medicare program.
    (d) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10106. STANDARDIZATION OF MEDICARE COVERAGE OF BONE MASS 
              MEASUREMENTS.

    (a) In General.--Section 1861 (42 U.S.C. 1395x), as amended by 
sections 10103(a), 10104(a), 10105(a), is amended--
            (1) in subsection (s)--
                    (A) in paragraph (12)(C), by striking ``and'' at 
                the end,
                    (B) by striking the period at the end of paragraph 
                (14) and inserting ``; and'',
                    (C) by redesignating paragraphs (15) and (16) as 
                paragraphs (16) and (17), respectively, and
                    (D) by inserting after paragraph (14) the following 
                new paragraph:
            ``(15) bone mass measurement (as defined in subsection 
        (rr)).''; and
            (2) by inserting after subsection (qq) the following new 
        subsection:

                        ``Bone Mass Measurement

    ``(rr)(1) The term `bone mass measurement' means a radiologic or 
radioisotopic procedure or other procedure approved by the Food and 
Drug Administration performed on a qualified individual (as defined in 
paragraph (2)) for the purpose of identifying bone mass or detecting 
bone loss or determining bone quality, and includes a physician's 
interpretation of the results of the procedure.
    ``(2) For purposes of this subsection, the term `qualified 
individual' means an individual who is (in accordance with regulations 
prescribed by the Secretary)--
            ``(A) an estrogen-deficient woman at clinical risk for 
        osteoporosis;
            ``(B) an individual with vertebral abnormalities;
            ``(C) an individual receiving long-term glucocorticoid 
        steroid therapy;
            ``(D) an individual with primary hyperparathyroidism; or
            ``(E) an individual being monitored to assess the response 
        to or efficacy of an approved osteoporosis drug therapy.
    ``(3) The Secretary shall establish such standards regarding the 
frequency with which a qualified individual shall be eligible to be 
provided benefits for bone mass measurement under this title.''.
    (b) Payment under Physician Fee Schedule.--Section 1848(j)(3) (42 
U.S.C. 1395w-4(j)(3)), as amended by sections 10102, 10103, and 10105, 
is amended--
            (1) by striking ``(4) and (14)'' and inserting ``(4), 
        (14)'' and
            (2) by inserting `` and (15)'' after ``1861(nn)(2))''.
    (c) Conforming Amendments.--Sections 1864(a), 1902(a)(9)(C), and 
1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 1396a(a)(9)(C), and 
1396n(a)(1)(B)(ii)(I)) are amended by striking ``paragraphs (15) and 
(16)'' each place it appears and inserting ``paragraphs (16) and 
(17)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to bone mass measurements performed on or after July 1, 1998.

SEC. 10107. VACCINES OUTREACH EXPANSION.

    (a) Extension of Influenza and Pneumococcal Vaccination Campaign.--
In order to increase utilization of pneumococcal and influenza vaccines 
in medicare beneficiaries, the Influenza and Pneumococcal Vaccination 
Campaign carried out by the Health Care Financing Administration in 
conjunction with the Centers for Disease Control and Prevention and the 
National Coalition for Adult Immunization, is extended until the end of 
fiscal year 2002.
    (b) Authorization of Appropriation.--There are hereby authorized to 
be appropriated for each of fiscal years 1998 through 2002, $8,000,000 
for the Campaign described in subsection (a). Of the amount so 
authorized to be appropriated in each fiscal year, 60 percent of the 
amount so appropriated shall be payable from the Federal Hospital 
Insurance Trust Fund, and 40 percent shall be payable from the Federal 
Supplementary Medical Insurance Trust Fund.

SEC. 10108. STUDY ON PREVENTIVE BENEFITS.

    (a) Study.--The Secretary of Health and Human Services shall 
request the National Academy of Sciences, in conjunction with the 
United States Preventive Services Task Force, to analyze the expansion 
or modification of preventive benefits provided to medicare 
beneficiaries under title XVIII of the Social Security Act. The 
analysis shall consider both the short term and long term benefits, and 
costs to the medicare program, of such expansion or modification,
    (b) Report.--
            (1) Initial report.--Not later than 2 years after the date 
        of the enactment of this Act, the Secretary shall submit a 
        report on the findings of the analysis conducted under 
        subsection (a) to the Committee on Ways and Means and the 
        Committee on Commerce of the House of Representatives and the 
        Committee on Finance of the Senate.
            (2) Contents.--Such report shall include specific findings 
        with respect to coverage of the following preventive benefits:
                    (A) Nutrition therapy, including parenteral and 
                enteral nutrition.
                    (B) Medically necessary dental care.
                    (C) Routine patient care costs for beneficiaries 
                enrolled in approved clinical trial programs.
                    (D) Elimination of time limitation for coverage of 
                immunosuppressive drugs for transplant patients.
            (3) Funding.--From funds appropriated to the Department of 
        Health and Human Services for fiscal years 1998 and 1999, the 
        Secretary shall provide for such funding as may be necessary 
        for the conduct of the analysis by the National Academy of 
        Sciences under this section.

                     Subtitle C--Rural Initiatives

SEC. 10201. RURAL PRIMARY CARE HOSPITAL PROGRAM.

    (a) Rural Primary Care Hospital Program.--Section 1820 (42 U.S.C. 
1395i-4) is amended to read as follows:

             ``medicare rural primary care hospital program

    ``Sec. 1820. (a) State Designation of Facilities.--
            ``(1) In general.--A State may designate one or more 
        facilities as a rural primary care hospital in accordance with 
        paragraph (2).
            ``(2) Criteria for designation as rural primary care 
        hospital.--A State may designate a facility as a rural primary 
        care hospital if the facility--
                    ``(A) is a nonprofit or public hospital, and is 
                located in a county (or equivalent unit of local 
                government) in a rural area (as defined in section 
                1886(d)(2)(D)) that--
                            ``(i) is located a distance that 
                        corresponds to a travel time of greater than 30 
                        minutes (using the guidelines specified under 
                        part IB1(b) of Appendix A to part 5 of title 
                        42, Code of Federal Regulations, as in effect 
                        on October 1, 1996), from a hospital, or 
                        another facility described in this subsection, 
                        or
                            ``(ii) 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;
                    ``(B) makes available 24-hour emergency care 
                services;
                    ``(C) provides at any time not more than 15 acute 
                care inpatient beds (meeting such standards as the 
                Secretary may establish) for providing inpatient care 
                for a period not to exceed 96 hours (unless a longer 
                period is required because transfer to a hospital is 
                precluded because of inclement weather or other 
                emergency conditions), except that a peer review 
                organization or equivalent entity may, on request, 
                waive the 96-hour restriction on a case-by-case basis;
                    ``(D) meets such staffing requirements as would 
                apply under section 1861(e) to a hospital located in a 
                rural area, except that--
                            ``(i) the facility need not meet hospital 
                        standards relating to the number of hours 
                        during a day, or days during a week, in which 
                        the facility must be open and fully staffed, 
                        except insofar as the facility is required to 
                        make available emergency care services as 
                        determined under subparagraph (B) and must have 
                        nursing services available on a 24-hour basis, 
                        but need not otherwise staff the facility 
                        except when an inpatient is present,
                            ``(ii) the facility may provide any 
                        services otherwise required to be provided by a 
                        full-time, on-site dietitian, pharmacist, 
                        laboratory technician, medical technologist, 
                        and radiological technologist on a part-time, 
                        off-site basis under arrangements as defined in 
                        section 1861(w)(1), and
                            ``(iii) the inpatient care described in 
                        subparagraph (C) may be provided by a 
                        physician's assistant, nurse practitioner, or 
                        clinical nurse specialist subject to the 
                        oversight of a physician who need not be 
                        present in the facility;
                    ``(E) meets the requirements of subparagraph (I) of 
                paragraph (2) of section 1861(aa); and
                    ``(F) has executed and in effect an agreement 
                described in subsection (b)(1).
    ``(b) Agreements.--
            ``(1) In general.--Each rural primary care hospital shall 
        have an agreement with respect to each item described in 
        paragraph (2) with at least 1 hospital (as defined in section 
        1861(e)).
            ``(2) Items described.--The items described in this 
        paragraph are the following:
                    ``(A) Patient referral and transfer.
                    ``(B) The development and use of communications 
                systems including (where feasible)--
                            ``(i) telemetry systems, and
                            ``(ii) systems for electronic sharing of 
                        patient data.
                    ``(C) The provision of emergency and non-emergency 
                transportation between the facility and the hospital.
            ``(3) Credentialing and quality assurance.--Each rural 
        primary care hospital shall have an agreement with respect to 
        credentialing and quality assurance with at least 1--
                    ``(A) hospital,
                    ``(B) peer review organization or equivalent 
                entity, or
                    ``(C) other appropriate and qualified entity 
                identified by the State.
    ``(c) Certification by the Secretary.--The Secretary shall certify 
a facility as a rural primary care hospital if the facility--
            ``(1) is designated as a rural primary care hospital by the 
        State in which it is located; and
            ``(2) meets such other criteria as the Secretary may 
        require.
    ``(d) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a State from designating or the 
Secretary from certifying a facility as a rural primary care hospital 
solely because, at the time the facility applies to the State for 
designation as a rural primary care hospital, there is in effect an 
agreement between the facility and the Secretary under section 1883 
under which the facility's inpatient hospital facilities are used for 
the provision of extended care services, so long as the total number of 
beds that may be used at any time for the furnishing of either such 
services or acute care inpatient services does not exceed 25 beds and 
the number of beds used at any time for acute care inpatient services 
does not exceed 15 beds. For purposes of the previous sentence, any bed 
of a unit of the facility that is licensed as a distinct-part skilled 
nursing facility at the time the facility applies to the State for 
designation as a rural primary care hospital shall not be counted.
    ``(e) Waiver of Conflicting Part A Provisions.--The Secretary is 
authorized to waive such provisions of this part and part C as are 
necessary to conduct the program established under this section.''.
    (b) Payment on a Reasonable Cost Basis.--
            (1) Medicare part a.--Section 1814(l) (42 U.S.C. 1395f(l)) 
        is amended to read as follows:
    ``(l) Payment for Inpatient Rural Primary Care Hospital Services.--
The amount of payment under this part for inpatient rural primary care 
hospital services is the reasonable costs of the rural primary care 
hospital in providing such services.''.
            (2) Medicare part b.--Section 1834(g) (42 U.S.C. 1395m(g)) 
        is amended to read as follows:
    ``(g) Payment for Outpatient Rural Primary Care Hospital 
Services.--The amount of payment under this part for outpatient rural 
primary care hospital services is the reasonable costs of the rural 
primary care hospital in providing such services.''.
    (c) Lengthening Maximum Period of Permitted Inpatient Stay.--
Section 1814(a)(8) (42 U.S.C. 1395f(a)(8)) is amended by striking ``72 
hours'' and inserting ``96 hours''.
    (d) Payment Continued to Designated Essential Access Community 
Hospitals and Designated Rural Primary Care Hospitals.--
            (1) Essential access community hospitals.--Section 
        1886(d)(5)(D) (42 U.S.C. 1395ww(d)(5)(D)) is amended--
                    (A) in clause (iii)(III), by inserting ``as in 
                effect on September 30, 1997'' before the period at the 
                end; and
                    (B) in clause (v), by inserting ``as in effect on 
                September 30, 1997'' after ``1820(i)(1)'' and after 
                ``1820(g)''.
            (2) Rural primary care hospitals.--Section 1861(mm)(1) (42 
        U.S.C. 1395x(mm)(1)) is amended by striking ``1820(i)(2).'' and 
        inserting ``1820(c), and includes a facility designated by the 
        Secretary under section 1820(i)(2) as in effect on September 
        30, 1997.''.
            (3) Medical assistance facility.--Any facility that, as of 
        March 1, 1997, operated as a limited service rural hospital 
        under a demonstration described in section 4008(i)(1) of the 
        Omnibus Budget Reconciliation Act of 1990 (42 U.S.C. 1395b-1 
        note) shall be treated as a rural primary care hospital for the 
        purposes of title XVIII of the Social Security Act so long as 
        it continues to meet the requirements of the demonstration 
        protocol relating to staffing, services, quality assurance, and 
        related factors.
    (e) Conforming Amendment.--Section 1883(a)(1) (42 U.S.C. 
1395tt(a)(1)) is amended by inserting ``or rural primary care 
hospital'' after ``Any hospital''.
    (f) Effective Date.--The amendments made by this section shall 
apply to services furnished in cost reporting periods beginning on or 
after October 1, 1997.

SEC. 10202. PROHIBITING DENIAL OF REQUEST BY RURAL REFERRAL CENTERS FOR 
              RECLASSIFICATION ON BASIS OF COMPARABILITY OF WAGES.

    (a) In General.--Section 1886(d)(10)(D) (42 U.S.C. 
1395ww(d)(10)(D)) is amended--
            (1) by redesignating clause (iii) as clause (iv); and
            (2) by inserting after clause (ii) the following new 
        clause:
    ``(iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which has ever been classified by 
the Secretary as a rural referral center under paragraph (5)(C), the 
Board may not reject the application of the hospital under this 
paragraph on the basis of any comparison between the average hourly 
wage of the hospital and the average hourly wage of hospitals in the 
area in which it is located.''.
    (b) Continuing Treatment of Previously Designated Centers.--
            (1) In general.--Any hospital classified as a rural 
        referral center by the Secretary of Health and Human Services 
        under section 1886(d)(5)(C) of the Social Security Act for 
        fiscal year 1991 shall be classified as such a rural referral 
        center for fiscal year 1998 and each subsequent fiscal year.
            (2) Budget neutrality.--The provisions of section 
        1886(d)(8)(D) of the Social Security Act shall apply to 
        reclassifications made pursuant to paragraph (1) in the same 
        manner as such provisions apply to a reclassification under 
        section 1886(d)(10) of such Act.

SEC. 10203. HOSPITAL GEOGRAPHIC RECLASSIFICATION PERMITTED FOR PURPOSES 
              OF DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

    (a) In General.--Section 1886(d)(10)(C)(i) (42 U.S.C. 
1395ww(d)(10)(C)(i)) is amended--
            (1) by striking ``or'' at the end of subclause (I);
            (2) by striking the period at the end of subclause (II) and 
        inserting ``, or''; and
            (3) by inserting after subclause (II) the following:
            ``(III) eligibility for and amount of additional payment 
        amounts under paragraph (5)(F).''.
    (b) Applicable Guidelines.--Such Board shall apply the guidelines 
established for reclassification under subclause (I) of section 
1886(d)(10)(C)(i) of such Act to reclassification under subclause (III) 
of such section until the Secretary of Health and Human Services 
promulgates separate guidelines for reclassification under such 
subclause (III).

SEC. 10204. 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, 1997, and before October 1, 2001,''; 
                and
                    (B) in clause (ii)(II), by striking ``October 1, 
                1994,'' and inserting ``October 1, 1994, or beginning 
                on or after October 1, 1997, and before October 1, 
                2001,''.
            (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, 1997, and before October 1, 2001,'';
                    (B) in clause (ii), by striking ``and'' at the end;
                    (C) in clause (iii), by striking the period at the 
                end and inserting ``, and''; and
                    (D) by adding after clause (iii) the following new 
                clause:
            ``(iv) with respect to discharges occurring during fiscal 
        year 1998 through fiscal year 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 1998, fiscal year 1999, or fiscal 
        year 2000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to discharges occurring on or after October 1, 1997.

SEC. 10205. GEOGRAPHIC RECLASSIFICATION FOR CERTAIN DISPROPORTIONATELY 
              LARGE HOSPITALS.

    (a) New Guidelines for Reclassification.--Notwithstanding the 
guidelines published under subparagraph (D)(i)(I) of section 
1886(d)(10) of the Social Security Act (42 U.S.C. 1395ww(d)(10)), the 
Secretary of Health and Human Services shall publish and use 
alternative guidelines under which a hospital described in subsection 
(b) qualifies for geographic reclassification under such section for a 
fiscal year beginning with fiscal year 1998.
    (b) Hospitals Covered.--A hospital described in this subsection is 
a hospital that demonstrates that--
            (1) the average hourly wage paid by the hospital is not 
        less than 108 percent of the average hourly wage paid by all 
        other hospitals located in the Metropolitan Statistical Area 
        (or the New England County Metropolitan Area) in which the 
        hospital is located; and
    (2) not less than 40 percent of the adjusted uninflated wages paid 
by all hospitals located in such Area is attributable to wages paid by 
the hospital.

SEC. 10206. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of the 
Social Security Act for discharges occurring on or after October 1, 
1997, the area wage index applicable under such section to any hospital 
which is not located in a rural area (as defined in section 
1886(d)(2)(D) of such Act) may not be less than the area wage indices 
applicable under such section to hospitals located in rural areas in 
the State in which the hospital is located.
    (b) Implementation.--The Secretary of Health and Human Services 
shall adjust the area wage indices referred to in subsection (a) for 
hospitals not described in such subsection in a manner which assures 
that the aggregate payments made under section 1886(d) of the Social 
Security Act in a fiscal year for the operating costs of inpatient 
hospital services are not greater or less than those which would have 
been made in the year if this section did not apply.

SEC. 10207. INFORMATICS, TELEMEDICINE, AND EDUCATION DEMONSTRATION 
              PROJECT.

    (a) Purpose and Authorization.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this section, the Secretary of Health and Human 
        Services shall provide for a demonstration project described in 
        paragraph (2).
            (2) Description of project.--
                    (A) In general.--The demonstration project 
                described in this paragraph is a single demonstration 
                project to use eligible health care provider 
                telemedicine networks to apply high-capacity computing 
                and advanced networks to improve primary care (and 
                prevent health care complications) to medicare 
                beneficiaries with diabetes mellitus who are residents 
                of medically underserved rural areas or residents of 
                medically underserved inner-city areas.
                    (B) Medically underserved defined.--As used in this 
                paragraph, the term ``medically underserved'' has the 
                meaning given such term in section 330(b)(3) of the 
                Public Health Service Act (42 U.S.C. 254b(b)(3)).
            (3) Waiver.--The Secretary shall waive such provisions of 
        title XVIII of the Social Security Act as may be necessary to 
        provide for payment for services under the project in 
        accordance with subsection (d).
            (4) Duration of project.--The project shall be conducted 
        over a 4-year period.
    (b) Objectives of Project.--The objectives of the project include 
the following:
            (1) Improving patient access to and compliance with 
        appropriate care guidelines for individuals with diabetes 
        mellitus through direct telecommunications link with 
        information networks in order to improve patient quality-of-
        life and reduce overall health care costs.
            (2) Developing a curriculum to train, and providing 
        standards for credentialing and licensure of, health 
        professionals (particularly primary care health professionals) 
        in the use of medical informatics and telecommunications.
            (3) Demonstrating the application of advanced technologies, 
        such as video-conferencing from a patient's home, remote 
        monitoring of a patient's medical condition, interventional 
        informatics, and applying individualized, automated care 
        guidelines, to assist primary care providers in assisting 
        patients with diabetes in a home setting.
            (4) Application of medical informatics to residents with 
        limited English language skills.
            (5) Developing standards in the application of telemedicine 
        and medical informatics.
            (6) Developing a model for the cost-effective delivery of 
        primary and related care both in a managed care environment and 
        in a fee-for-service environment.
    (c) Eligible Health Care Provider Telemedicine Network Defined.--
For purposes of this section, the term ``eligible health care provider 
telemedicine network'' means a consortium that includes at least one 
tertiary care hospital (but no more than 2 such hospitals), at least 
one medical school, no more than 4 facilities in rural or urban areas, 
and at least one regional telecommunications provider and that meets 
the following requirements:
            (1) The consortium is located in an area with one of the 
        highest concentrations of medical schools and tertiary care 
        facilities in the United States and has appropriate 
        arrangements (within or outside the consortium) with such 
        schools and facilities, universities, and telecommunications 
        providers, in order to conduct the project.
            (2) The consortium submits to the Secretary an application 
        at such time, in such manner, and containing such information 
        as the Secretary may require, including a description of the 
        use to which the consortium would apply any amounts received 
        under the project and the source and amount of non-Federal 
        funds used in the project.
            (3) The consortium guarantees that it will be responsible 
        for payment for all costs of the project that are not paid 
        under this section and that the maximum amount of payment that 
        may be made to the consortium under this section shall not 
        exceed the amount specified in subsection (d)(3).
    (d) Coverage as Medicare Part B Services.--
            (1) In general.--Subject to the succeeding provisions of 
        this subsection, services related to the treatment or 
        management of (including prevention of complications from) 
        diabetes for medicare beneficiaries furnished under the project 
        shall be considered to be services covered under part B of 
        title XVIII of the Social Security Act.
            (2) Payments.--
                    (A) In general.--Subject to paragraph (3), payment 
                for such services shall be made at a rate of 50 percent 
                of the costs that are reasonable and related to the 
                provision of such services. In computing such costs, 
                the Secretary shall include costs described in 
                subparagraph (B), but may not include costs described 
                in subparagraph (C).
                    (B) Costs that may be included.--The costs 
                described in this subparagraph are the permissible 
                costs (as recognized by the Secretary) for the 
                following:
                            (i) The acquisition of telemedicine 
                        equipment for use in patients' homes (but only 
                        in the case of patients located in medically 
                        underserved areas).
                            (ii) Curriculum development and training of 
                        health professionals in medical informatics and 
                        telemedicine.
                            (iii) Payment of telecommunications costs 
                        (including salaries and maintenance of 
                        equipment), including costs of 
                        telecommunications between patients' homes and 
                        the eligible network and between the network 
                        and other entities under the arrangements 
                        described in subsection (c)(1).
                            (iv) Payments to practitioners and 
                        providers under the medicare programs.
                    (C) Costs not included.--The costs described in 
                this subparagraph are costs for any of the following:
                            (i) The purchase or installation of 
                        transmission equipment (other than such 
                        equipment used by health professionals to 
                        deliver medical informatics services under the 
                        project).
                            (ii) The establishment or operation of a 
                        telecommunications common carrier network.
                            (iii) Construction (except for minor 
                        renovations related to the installation of 
                        reimbursable equipment) or the acquisition or 
                        building of real property.
            (3) Limitation.--The total amount of the payments that may 
        be made under this section shall not exceed $30,000,000.
            (4) Limitation on cost-sharing.--The project may not impose 
        cost sharing on a medicare beneficiary for the receipt of 
        services under the project in excess of 20 percent of the 
        recognized costs of the project attributable to such services.
    (e) Reports.--The Secretary shall submit to the Committees on Ways 
and Means and Commerce of the House of Representatives and the 
Committee on Finance of the Senate interim reports on the project and a 
final report on the project within 6 months after the conclusion of the 
project. The final report shall include an evaluation of the impact of 
the use of telemedicine and medical informatics on improving access of 
medicare beneficiaries to health care services, on reducing the costs 
of such services, and on improving the quality of life of such 
beneficiaries.
    (f) Definitions.--For purposes of this section:
            (1) Interventional informatics.--The term ``interventional 
        informatics'' means using information technology and virtual 
        reality technology to intervene in patient care.
            (2) Medical informatics.--The term ``medical informatics'' 
        means the storage, retrieval, and use of biomedical and related 
        information for problem solving and decision-making through 
        computing and communications technologies.
            (3) Project.--The term ``project'' means the demonstration 
        project under this section.

              Subtitle D--Anti-Fraud and Abuse Provisions

SEC. 10301. PERMANENT EXCLUSION FOR THOSE CONVICTED OF 3 HEALTH CARE 
              RELATED CRIMES.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended--
            (1) in subparagraph (A), by inserting ``or in the case 
        described in subparagraph (G)'' after ``subsection (b)(12)'';
            (2) in subparagraphs (B) and (D), by striking ``In the 
        case'' and inserting ``Subject to subparagraph (G), in the 
        case''; and
            (3) by adding at the end the following new subparagraph:
    ``(G) In the case of an exclusion of an individual under subsection 
(a) based on a conviction occurring on or after the date of the 
enactment of this subparagraph, if the individual has (before, on, or 
after such date and before the date of the conviction for which the 
exclusion is imposed) been convicted--
            ``(i) on one previous occasion of one or more offenses for 
        which an exclusion may be effected under such subsection, the 
        period of the exclusion shall be not less than 10 years, or
            ``(ii) on 2 or more previous occasions of one or more 
        offenses for which an exclusion may be effected under such 
        subsection, the period of the exclusion shall be permanent.''.

SEC. 10302. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
              INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

    (a) Medicare Part A.--Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) 
is amended--
            (1) by striking ``or'' at the end of subparagraph (B);
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``, or''; and
            (3) by adding after subparagraph (C) the following new 
        subparagraph:
                    ``(D) has ascertained that the provider has been 
                convicted of a felony under Federal or State law for an 
                offense which the Secretary determines is inconsistent 
                with the best interests of program beneficiaries.''.
    (b) Medicare Part B.--Section 1842 (42 U.S.C. 1395u) is amended by 
adding after subsection (r) the following new subsection:
    ``(s) The Secretary may refuse to enter into an agreement with a 
physician or supplier under subsection (h) or may terminate or refuse 
to renew such agreement, in the event that such physician or supplier 
has been convicted of a felony under Federal or State law for an 
offense which the Secretary determines is inconsistent with the best 
interests of program beneficiaries.''.
    (c) Medicaid.--For provisions amending title XIX of the Social 
Security Act to provide similar treatment under the medicaid program, 
see section ____.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and apply to the entry 
and renewal of contracts on or after such date.

SEC. 10303. INCLUSION OF TOLL-FREE NUMBER TO REPORT MEDICARE WASTE, 
              FRAUD, AND ABUSE IN EXPLANATION OF BENEFITS FORMS.

    (a) In General.--Section 1842(h)(7) (42 U.S.C. 1395u(h)(7)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (C),
            (2) by striking the period at the end of subparagraph (D) 
        and inserting ``; and'', and
            (3) by adding at the end the following new subparagraph:
            ``(E) a toll-free telephone number maintained by the 
        Inspector General in the Department of Health and Human 
        Services for the receipt of complaints and information about 
        waste, fraud, and abuse in the provision or billing of services 
        under this title.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to explanations of benefits provided on or after such date (not 
later than January 1, 1999) as the Secretary of Health and Human 
Services shall provide.

SEC. 10304. LIABILITY OF MEDICARE CARRIERS AND FISCAL INTERMEDIARIES 
              FOR CLAIMS SUBMITTED BY EXCLUDED PROVIDERS.

    (a) Reimbursement to the Secretary for Amounts Paid to Excluded 
Providers.--
            (1) Requirements for fiscal intermediaries.--
                    (A) In general.--Section 1816 (42 U.S.C. 1395h) is 
                amended by adding at the end the following new 
                subsection:
    ``(m) An agreement with an agency or organization under this 
section shall require that such agency or organization reimburse the 
Secretary for any amounts paid by the agency or organization for a 
service under this title which is furnished, directed, or prescribed by 
an individual or entity during any period for which the individual or 
entity is excluded pursuant to section 1128, 1128A, or 1156, from 
participation in the program under this title, if the amounts are paid 
after the Secretary notifies the agency or organization of the 
exclusion.''.
                    (B) Conforming amendment.--Subsection (i) of such 
                section is amended by adding at the end the following 
                new paragraph:
    ``(4) Nothing in this subsection shall be construed to prohibit 
reimbursement by an agency or organization under subsection (m).''.
            (2) Requirements for carriers.--Section 1842(b)(3) (42 
        U.S.C. 1395u(b)(3)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (I); and
                    (B) by inserting after subparagraph (I) the 
                following new subparagraph:
            ``(J) will reimburse the Secretary for any amounts paid by 
        the carrier for an item or service under this part which is 
        furnished, directed, or prescribed by an individual or entity 
        during any period for which the individual or entity is 
        excluded pursuant to section 1128, 1128A, or 1156, from 
        participation in the program under this title, if the amounts 
        are paid after the Secretary notifies the carrier of the 
        exclusion, and''.
            (3) Reference to medicaid provision.--For provision 
        imposing similar restrictions on States under the medicaid 
        program under title XIX of the Social Security Act, see section 
        ____.
    (b) Conforming Repeal of Mandatory Payment Rule.--Paragraph (2) of 
section 1862(e) (42 U.S.C. 1395y(e)) is amended to read as follows:
    ``(2) No individual or entity may bill (or collect any amount from) 
any individual for any item or service for which payment is denied 
under paragraph (1). No person is liable for payment of any amounts 
billed for such an item or service in violation of the previous 
sentence.''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to contracts and agreements entered into, renewed, or extended 
after the date of the enactment of this Act, but only with respect to 
claims submitted on or after the later of January 1, 1998, or the date 
such entry, renewal, or extension becomes effective.

SEC. 10305. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
              SANCTIONED INDIVIDUAL.

    (a) In General.--Section 1128 (42 U.S.C. 1320a-7) is amended--
            (1) in subsection (b)(8)(A)--
                    (A) by striking ``or'' at the end of clause (i), 
                and
                    (B) by striking the dash at the end of clause (ii) 
                and inserting ``; or'', and
                    (C) by inserting after clause (ii) the following:
                    ``(iii) who was described in clause (i) but is no 
                longer so described because of a transfer of ownership 
                or control interest, in anticipation of (or following) 
                a conviction, assessment, or exclusion described in 
                subparagraph (B) against the person, to an immediate 
                family member (as defined in subsection (j)(1)) or a 
                member of the household of the person (as defined in 
                subsection (j)(2)) who continues to maintain an 
                interest described in such clause--''; and
            (2) by adding after subsection (i) the following new 
        subsection:
    ``(j) Definition of Immediate Family Member and Member of 
Household.--For purposes of subsection (b)(8)(A)(iii):
            ``(1) The term `immediate family member' means, with 
        respect to a person--
                    ``(A) the husband or wife of the person;
                    ``(B) the natural or adoptive parent, child, or 
                sibling of the person;
                    ``(C) the stepparent, stepchild, stepbrother, or 
                stepsister of the person;
                    ``(D) the father-, mother-, daughter-, son-, 
                brother-, or sister-in-law of the person;
                    ``(E) the grandparent or grandchild of the person; 
                and
                    ``(F) the spouse of a grandparent or grandchild of 
                the person.
            ``(2) The term `member of the household' means, with 
        respect to an person, any individual sharing a common abode as 
        part of a single family unit with the person, including 
        domestic employees and others who live together as a family 
        unit, but not including a roomer or boarder.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
take effect on the date that is 45 days after the date of the enactment 
of this Act.

SEC. 10306. IMPOSITION OF CIVIL MONEY PENALTIES.

    (a) Civil Money Penalties for Persons That Contract With Excluded 
Individuals.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by adding ``or'' at the end of paragraph (5); and
            (3) by adding after paragraph (5) the following new 
        paragraph:
            ``(6) arranges or contracts (by employment or otherwise) 
        with an individual or entity that the person knows or should 
        know is excluded from participation in a Federal health care 
        program (as defined in section 1128B(f)), for the provision of 
        items or services for which payment may be made under such a 
        program;''.
    (b) Civil Money Penalties for Services Ordered or Prescribed by an 
Excluded Individual or Entity.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)) is amended--
            (1) in subparagraph (D)--
                    (A) by inserting ``, ordered, or prescribed by such 
                person'' after ``other item or service furnished'';
                    (B) by inserting ``(pursuant to this title or title 
                XVIII)'' after ``period in which the person was 
                excluded''; and
                    (C) by striking ``pursuant to a determination by 
                the Secretary'' and all that follows through ``the 
                provisions of section 1842(j)(2)''; and
                    (D) by striking ``or'' at the end;
            (2) by redesignating subparagraph (E) as subparagraph (F); 
        and
            (3) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) is for a medical or other item or service 
                ordered or prescribed by a person excluded (pursuant to 
                this title or title XVIII) from the program under which 
                the claim was made, and the person furnishing such item 
                or service knows or should know of such exclusion, 
                or''.
    (c) Effective Dates.--
            (1) Contracts with excluded persons.--The amendments made 
        by subsection (a) shall apply to arrangements and contracts 
        entered into after the date of the enactment of this Act.
            (2) Services ordered or prescribed.--The amendments made by 
        subsection (b) shall apply to items and services furnished 
        ordered or prescribed after the date of the enactment of this 
        Act.

SEC. 10307. DISCLOSURE OF INFORMATION AND SURETY BONDS.

    (a) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--Section 1834(a) (42 U.S.C. 
1395m(a)) is amended by inserting after paragraph (15) the following 
new paragraph:
            ``(16) Conditions for issuance of provider number.--The 
        Secretary shall not provide for the issuance (or renewal) of a 
        provider number for a supplier of durable medical equipment, 
        for purposes of payment under this part for durable medical 
        equipment furnished by the supplier, unless the supplier 
        provides the Secretary on a continuing basis with--
                    ``(A)(i) full and complete information as to the 
                identity of each person with an ownership or control 
                interest (as defined in section 1124(a)(3)) in the 
                supplier or in any subcontractor (as defined by the 
                Secretary in regulations) in which the supplier 
                directly or indirectly has a 5 percent or more 
                ownership interest, and
                    ``(ii) to the extent determined to be feasible 
                under regulations of the Secretary, the name of any 
                disclosing entity (as defined in section 1124(a)(2)) 
                with respect to which a person with such an ownership 
                or control interest in the supplier is a person with 
                such an ownership or control interest in the disclosing 
                entity; and
                    ``(B) a surety bond in a form specified by the 
                Secretary and in an amount that is not less than 
                $50,000.
        The Secretary may waive the requirement of a bond under 
        subparagraph (B) in the case of a supplier that provides a 
        comparable surety bond under State law.''.
    (b) Surety Bond Requirement for Home Health Agencies.--
            (1) In general.--Section 1861(o) (42 U.S.C. 1395x(o)) is 
        amended--
                    (A) in paragraph (7), by inserting ``and including 
                providing the Secretary on a continuing basis with a 
                surety bond in a form specified by the Secretary and in 
                an amount that is not less than $50,000'' after 
                ``financial security of the program'', and
                    (B) by adding at the end the following: ``The 
                Secretary may waive the requirement of a bond under 
                paragraph (7) in the case of an agency or organization 
                that provides a comparable surety bond under State 
                law.''.
            (2) Conforming amendments.--Section 1861(v)(1)(H) (42 
        U.S.C. 1395x(v)(1)(H)) is amended--
                    (A) in clause (i), by striking ``the financial 
                security requirement'' and inserting ``the financial 
                security and surety bond requirements''; and
                    (B) in clause (ii), by striking ``the financial 
                security requirement described in subsection (o)(7) 
                applies'' and inserting ``the financial security and 
                surety bond requirements described in subsection (o)(7) 
                apply''.
            (3) Reference to current disclosure requirement.--For 
        provision of current law requiring home health agencies to 
        disclose information on ownership and control interests, see 
        section 1124 of the Social Security Act.
    (c) Authorizing Application of Disclosure and Surety Bond 
Requirements to Ambulance Services and Certain Clinics.--Section 
1834(a)(16) (42 U.S.C. 1395m(a)(16)), as added by subsection (a), is 
amended by adding at the end the following: ``The Secretary, in the 
Secretary's discretion, may impose the requirements of the previous 
sentence with respect to some or all classes of suppliers of ambulance 
services described in section 1861(s)(7) and clinics that furnish 
medical and other health services (other than physicians' services) 
under this part.''.
    (d) Application to Comprehensive Outpatient Rehabilitation 
Facilities (CORFs).--Section 1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is 
amended--
            (1) in subparagraph (I), by inserting before the period at 
        the end the following: ``and providing the Secretary on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000'', and
            (2) by adding after and below subparagraph (I) the 
        following:
``The Secretary may waive the requirement of a bond under subparagraph 
(I) in the case of a facility that provides a comparable surety bond 
under State law.''.
    (e) Application to Rehabilitation Agencies.--Section 1861(p) (42 
U.S.C. 1395x(p)) is amended--
            (1) in paragraph (4)(A)(v), by inserting after ``as the 
        Secretary may find necessary,'' the following: ``and provides 
        the Secretary, to the extent required by the Secretary, on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000,'', 
        and
            (2) by adding at the end the following: ``The Secretary may 
        waive the requirement of a bond under paragraph (4)(A)(v) in 
        the case of a clinic or agency that provides a comparable 
        surety bond under State law.''.
    (f) Effective Dates.--(1) The amendment made by subsection (a) 
shall apply to suppliers of durable medical equipment with respect to 
such equipment furnished on or after January 1, 1998.
    (2) The amendments made by subsection (b) shall apply to home 
health agencies with respect to services furnished on or after such 
date. The Secretary of Health and Human Services shall modify 
participation agreements under section 1866(a)(1) of the Social 
Security Act with respect to home health agencies to provide for 
implementation of such amendments on a timely basis.
    (3) The amendments made by subsections (c) through (e) shall take 
effect on the date of the enactment of this Act and may be applied with 
respect to items and services furnished on or after the date specified 
in paragraph (1).

SEC. 10308. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

    (a) Requirements to Disclose Employer Identification Numbers (EINS) 
and Social Security Account Numbers (SSNs).--Section 1124(a)(1) (42 
U.S.C. 1320a-3(a)(1)) is amended by inserting before the period at the 
end the following: ``and supply the Secretary with the both the 
employer identification number (assigned pursuant to section 6109 of 
the Internal Revenue Code of 1986) and social security account number 
(assigned under section 205(c)(2)(B)) of the disclosing entity, each 
person with an ownership or control interest (as defined in subsection 
(a)(3)), and any subcontractor in which the entity directly or 
indirectly has a 5 percent or more ownership interest''.
    (b) Other Medicare Providers.--Section 1124A (42 U.S.C. 1320a-3a) 
is amended--
            (1) in subsection (a)--
                    (A) by striking ``and'' at the end of paragraph 
                (1);
                    (B) by striking the period at the end of paragraph 
                (2) and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(3) including the employer identification number 
        (assigned pursuant to section 6109 of the Internal Revenue Code 
        of 1986) and social security account number (assigned under 
        section 205(c)(2)(B)) of the disclosing part B provider and any 
        person, managing employee, or other entity identified or 
        described under paragraph (1) or (2).''; and
            (2) in subsection (c) by inserting ``(or, for purposes of 
        subsection (a)(3), any entity receiving payment)'' after ``on 
        an assignment-related basis''.
    (c) Verification by Social Security Administration (ssa).--Section 
1124A (42 U.S.C. 1320a-3a) is amended--
            (1) by redesignating subsection (c) as subsection (d); and
            (2) by inserting after subsection (b) the following new 
        subsection:
    ``(c) Verification.--
            ``(1) Transmittal by hhs.--The Secretary shall transmit--
                    ``(A) to the Commissioner of Social Security 
                information concerning each social security account 
                number (assigned under section 205(c)(2)(B)), and
                    ``(B) to the Secretary of the Treasury information 
                concerning each employer identification number 
                (assigned pursuant to section 6109 of the Internal 
                Revenue Code of 1986),
        supplied to the Secretary pursuant to subsection (a)(3) or 
        section 1124(c) to the extent necessary for verification of 
        such information in accordance with paragraph (2).
            ``(2) Verification.--The Commissioner of Social Security 
        and the Secretary of the Treasury shall verify the accuracy of, 
        or correct, the information supplied by the Secretary to such 
        official pursuant to paragraph (1), and shall report such 
        verifications or corrections to the Secretary.
            ``(3) Fees for verification.--The Secretary shall reimburse 
        the Commissioner and Secretary of the Treasury, at a rate 
        negotiated between the Secretary and such official, for the 
        costs incurred by such official in performing the verification 
        and correction services described in this subsection.''.
    (d) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on steps the Secretary has taken to assure 
the confidentiality of social security account numbers that will be 
provided to the Secretary under the amendments made by this section.
    (e) Effective Dates.--
            (1) The amendment made by subsection (a) shall apply to the 
        application of conditions of participation, and entering into 
        and renewal of contracts and agreements, occurring more than 90 
        days after the date of submission of the report under 
        subsection (d).
            (2) The amendments made by subsection (b) shall apply to 
        payment for items and services furnished more than 90 days 
        after the date of submission of such report.

SEC. 10309. ADVISORY OPINIONS REGARDING CERTAIN PHYSICIAN SELF-REFERRAL 
              PROVISIONS.

    Section 1877(g) (42 U.S.C. 1395nn(g)) is amended by adding at the 
end the following new paragraph:
            ``(6) Advisory opinions.--
                    ``(A) In general.--The Secretary shall issue 
                written advisory opinions concerning whether a referral 
                relating to designated health services (other than 
                clinical laboratory services) is prohibited under this 
                section.
                    ``(B) Binding as to secretary and parties 
                involved.--Each advisory opinion issued by the 
                Secretary shall be binding as to the Secretary and the 
                party or parties requesting the opinion.
                    ``(C) Application of certain procedures.--The 
                Secretary shall, to the extent practicable, apply the 
                regulations promulgated under section 1128D(b)(5) to 
                the issuance of advisory opinions under this paragraph.
                    ``(D) Applicability.--This paragraph shall apply to 
                requests for advisory opinions made during the period 
                described in section 1128D(b)(6).''.

SEC. 10310. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

    (a) Reference Correction.--(1) Section 1128D(b)(2)(D) (42 U.S.C. 
1320a-7d(b)(2)(D)), as added by section 205 of the Health Insurance 
Portability and Accountability Act of 1996, is amended by striking 
``1128B(b)'' and inserting ``1128A(b)''.
    (2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a-7e(g)(3)(C)) is amended 
by striking ``Veterans' Administration'' and inserting ``Department of 
Veterans Affairs''.
    (b) Language in Definition of Conviction.--Section 1128E(g)(5) (42 
U.S.C. 1320a-7e(g)(5)), as inserted by section 221(a) of the Health 
Insurance Portability and Accountability Act of 1996, is amended by 
striking ``paragraph (4)'' and inserting ``paragraphs (1) through 
(4)''.
    (c) Implementation of Exclusions.--Section 1128 (42 U.S.C. 1320a-7) 
is amended--
            (1) in subsection (a), by striking ``any program under 
        title XVIII and shall direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program (as defined in subsection (h))'' and inserting 
        ``any Federal health care program (as defined in section 
        1128B(f))''; and
            (2) in subsection (b), by striking ``any program under 
        title XVIII and may direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program'' and inserting ``any Federal health care program 
        (as defined in section 1128B(f))''.
    (d) Sanctions for Failure to Report.--Section 1128E(b) (42 U.S.C. 
1320a-7e(b)), as inserted by section 221(a) of the Health Insurance 
Portability and Accountability Act of 1996, is amended by adding at the 
end the following:
            ``(6) Sanctions for failure to report.--
                    ``(A) Health plans.--Any health plan that fails to 
                report information on an adverse action required to be 
                reported under this subsection shall be subject to a 
                civil money penalty of not more than $25,000 for each 
                such adverse action not reported. Such penalty shall be 
                imposed and collected in the same manner as civil money 
                penalties under subsection (a) of section 1128A are 
                imposed and collected under that section.
                    ``(B) Governmental agencies.--The Secretary shall 
                provide for a publication of a public report that 
                identifies those Government agencies that have failed 
                to report information on adverse actions as required to 
                be reported under this subsection.''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall be effective as if 
        included in the enactment of the Health Insurance Portability 
        and Accountability Act of 1996.
            (2) Federal health program.--The amendments made by 
        subsection (c) shall take effect on the date of the enactment 
        of this Act.
            (3) Sanction for failure to report.--The amendment made by 
        subsection (d) shall apply to failures occurring on or after 
        the date of the enactment of this Act.

                Subtitle E--Prospective Payment Systems

                    CHAPTER 1--PAYMENT UNDER PART A

SEC. 10401. PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITY SERVICES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended by 
adding at the end the following new subsection:
    ``(e) Prospective Payment.--
            ``(1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to paragraph (7), the amount 
        of the payment for all costs (as defined in paragraph (2)(B)) 
        of covered skilled nursing facility services (as defined in 
        paragraph (2)(A)) for each day of such services furnished--
                    ``(A) in a cost reporting period during the 
                transition period (as defined in paragraph (2)(E)), is 
                equal to the sum of--
                            ``(i) the non-Federal percentage of the 
                        facility-specific per diem rate (computed under 
                        paragraph (3)), and
                            ``(ii) the Federal percentage of the 
                        adjusted Federal per diem rate (determined 
                        under paragraph (4)) applicable to the 
                        facility; and
                    ``(B) after the transition period is equal to the 
                adjusted Federal per diem rate applicable to the 
                facility.
            ``(2) Definitions.--For purposes of this subsection:
                    ``(A) Covered skilled nursing facility services.--
                            ``(i) In general.--The term `covered 
                        skilled nursing facility services'--
                                    ``(I) means post-hospital extended 
                                care services as defined in section 
                                1861(i) for which benefits are provided 
                                under part A; and
                                    ``(II) includes all items and 
                                services (other than services described 
                                in clause (ii)) for which payment may 
                                be made under part B and which are 
                                furnished to an individual who is a 
                                resident of a skilled nursing facility 
                                during the period in which the 
                                individual is provided covered post-
                                hospital extended care services.
                            ``(ii) Services excluded.--Services 
                        described in this clause are physicians' 
                        services, services described by clauses (i) 
                        through (iii) of section 1861(s)(2)(K), 
                        certified nurse-midwife services, qualified 
                        psychologist services, services of a certified 
                        registered nurse anesthetist, items and 
                        services described in subparagraphs in (F) and 
                        (O) of section 1861(s)(2), and, only with 
                        respect to services furnished during 1998, the 
                        transportation costs of electrocardiagram 
                        equipment for electrocardiogram tests services 
                        (HCPCS Code R0076). Services described in this 
                        clause do not include any physical, 
                        occupational, or speech-language therapy 
                        services regardless of whether or not the 
                        services are furnished by, or under the 
                        supervision of, a physician or other health 
                        care professional.
                    ``(B) All costs.--The term `all costs' means 
                routine service costs, ancillary costs, and capital-
                related costs of covered skilled nursing facility 
                services, but does not include costs associated with 
                approved educational activities.
                    ``(C) Non-federal percentage; federal percentage.--
                For--
                            ``(i) the first cost reporting period (as 
                        defined in subparagraph (D)) of a facility, the 
                        `non-Federal percentage' is 75 percent and the 
                        `Federal percentage' is 25 percent;
                            ``(ii) the next cost reporting period of 
                        such facility, the `non-Federal percentage' is 
                        50 percent and the `Federal percentage' is 50 
                        percent; and
                            ``(iii) the subsequent cost reporting 
                        period of such facility, the `non-Federal 
                        percentage' is 25 percent and the `Federal 
                        percentage' is 75 percent.
                    ``(D) First cost reporting period.--The term `first 
                cost reporting period' means, with respect to a skilled 
                nursing facility, the first cost reporting period of 
                the facility beginning on or after July 1, 1998.
                    ``(E) Transition period.--
                            ``(i) In general.--The term `transition 
                        period' means, with respect to a skilled 
                        nursing facility, the 3 cost reporting periods 
                        of the facility beginning with the first cost 
                        reporting period.
                            ``(ii) Treatment of new skilled nursing 
                        facilities.--In the case of a skilled nursing 
                        facility that does not have a settled cost 
                        report for a cost reporting period before July 
                        1, 1998, payment for such services shall be 
                        made under this subsection as if all services 
                        were furnished after the transition period.
            ``(3) Determination of facility specific per diem rates.--
        The Secretary shall determine a facility-specific per diem rate 
        for each skilled nursing facility for a cost reporting period 
        as follows:
                    ``(A) Determining base payments.--The Secretary 
                shall determine, on a per diem basis, the total of--
                            ``(i) the allowable costs of extended care 
                        services for the facility for cost reporting 
                        periods beginning in 1995 with appropriate 
                        adjustments (as determined by the Secretary) to 
                        non-settled cost reports, and
                            ``(ii) an estimate of the amounts that 
                        would be payable under part B (disregarding any 
                        applicable deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in paragraph 
                        (2)(A)(i)(II) furnished during such period to 
                        an individual who is a resident of the 
                        facility, regardless of whether or not the 
                        payment was made to the facility or to another 
                        entity.
                    ``(B) Update to cost reporting period before first 
                cost reporting period.--The Secretary shall update the 
                amount determined under subparagraph (A), for each cost 
                reporting period after the cost reporting period 
                described in subparagraph (A)(i) and up to the cost 
                reporting period immediately preceding the first cost 
                reporting period, by the skilled nursing facility 
                historical trend factor.
                    ``(C) Updating to applicable cost reporting 
                period.--The Secretary shall further update such amount 
                for each cost reporting period beginning with the first 
                cost reporting period and up to and including the cost 
                reporting period involved by a factor equal to the 
                skilled nursing facility market basket percentage 
                increase.
            ``(4) Federal per diem rate.--
                    ``(A) Determination of historical per diem for 
                freestanding facilities.--For each freestanding skilled 
                nursing facility that received payments for post-
                hospital extended care services during a cost reporting 
                period beginning in fiscal year 1995 and that was 
                subject to (and not exempted from) the per diem limits 
                referred to in paragraph (1) or (2) of subsection (a) 
                (and facilities described in subsection (d), if 
                appropriate), the Secretary shall estimate, on a per 
                diem basis for such cost reporting period, the total 
                of--
                            ``(i) the allowable costs of extended care 
                        services for the facility for cost reporting 
                        periods beginning in 1995 with appropriate 
                        adjustments (as determined by the Secretary) to 
                        non-settled cost reports, and
                            ``(ii) an estimate of the amounts that 
                        would be payable under part B (disregarding any 
                        applicable deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in paragraph 
                        (2)(A)(i)(II) furnished during such period to 
                        an individual who is a resident of the 
                        facility, regardless of whether or not the 
                        payment was made to the facility or to another 
                        entity.
                    ``(B) Update to fiscal year 1998.--The Secretary 
                shall update the amount determined under subparagraph 
                (A), for each cost reporting period after the cost 
                reporting period described in subparagraph (A)(i) and 
                up to the cost reporting period immediately preceding 
                the first cost reporting period, by the skilled nursing 
                facility historical trend factor for such period.
                    ``(C) Computation of standardized per diem rate.--
                The Secretary shall standardize the amount updated 
                under subparagraph (B) for each facility by--
                            ``(i) adjusting for variations among 
                        facility by area in the average facility wage 
                        level per diem, and
                            ``(ii) adjusting for variations in case mix 
                        per diem among facilities.
                    ``(D) Computation of weighted average per diem 
                rate.--The Secretary shall compute a weighted average 
                per diem rate by computing an average of the 
                standardized amounts computed under subparagraph (C), 
                weighted for each facility by number of days of 
                extended care services furnished during the cost 
                reporting period referred to in subparagraph (A). The 
                Secretary may compute and apply such average separately 
                for facilities located in urban and rural areas (as 
                defined in section 1886(d)(2)(D)).
                    ``(E) Updating.--
                            ``(i) Fiscal year 1998.--For fiscal year 
                        1998, the Secretary shall compute for each 
                        skilled nursing facility an unadjusted Federal 
                        per diem rate equal to the weighted average per 
                        diem rate computed under subparagraph (D) and 
                        applicable to the facility increased by skilled 
                        nursing facility market basket percentage 
                        change for the fiscal year involved.
                            ``(ii) Subsequent fiscal years.--For each 
                        subsequent fiscal year the Secretary shall 
                        compute for each skilled nursing facility an 
                        unadjusted Federal per diem rate equal to the 
                        Federal per diem rate computed under this 
                        subparagraph for the previous fiscal year and 
                        applicable to the facility increased by the 
                        skilled nursing facility market basket 
                        percentage change for the fiscal year involved.
                            ``(F) Adjustment for case mix creep.--
                        Insofar as the Secretary determines that such 
                        adjustments under subparagraph (G)(i) for a 
                        previous fiscal year (or estimates that such 
                        adjustments for a future fiscal year) did (or 
                        are likely to) result in a change in aggregate 
                        payments under this subsection during the 
                        fiscal year that are a result of changes in the 
                        coding or classification of residents that do 
                        not reflect real changes in case mix, the 
                        Secretary may adjust unadjusted Federal per 
                        diem rates for subsequent years so as to 
                        discount the effect of such coding or 
                        classification changes.
                    ``(G) Application to specific facilities.--The 
                Secretary shall compute for each skilled nursing 
                facility for each fiscal year (beginning with fiscal 
                year 1998) an adjusted Federal per diem rate equal to 
                the unadjusted Federal per diem rate determined under 
                subparagraph (E), as adjusted under subparagraph (F), 
                and as further adjusted as follows:
                            ``(i) Adjustment for case mix.--The 
                        Secretary shall provide for an appropriate 
                        adjustment to account for case mix. Such 
                        adjustment shall be based on a resident 
                        classification system, established by the 
                        Secretary, that accounts for the relative 
                        resource utilization of different patient 
                        types. The case mix adjustment shall be based 
                        on resident assessment data and other data that 
                        the Secretary considers appropriate.
                            ``(ii) Adjustment for geographic variations 
                        in labor costs.--The Secretary shall adjust the 
                        portion of such per diem rate attributable to 
                        wages and wage-related costs for the area in 
                        which the facility is located compared to the 
                        national average of such costs using an 
                        appropriate wage index as determined by the 
                        Secretary. Such adjustment shall be done in a 
                        manner that does not result in aggregate 
                        payments under this subsection that are greater 
                        or less than those that would otherwise be made 
                        if such adjustment had not been made.
                    ``(H) Publication of information on per diem 
                rates.--The Secretary shall provide for publication in 
                the Federal Register, before the July 1 preceding each 
                fiscal year (beginning with fiscal year 1999), of--
                            ``(i) the unadjusted Federal per diem rates 
                        to be applied to days of covered skilled 
                        nursing facility services furnished during the 
                        fiscal year,
                            ``(ii) the case mix classification system 
                        to be applied under subparagraph (G)(i) with 
                        respect to such services during the fiscal 
                        year, and
                            ``(iii) the factors to be applied in making 
                        the area wage adjustment under subparagraph 
                        (G)(ii) with respect to such services.
            ``(5) Skilled nursing facility market basket index, 
        percentage, and historical trend factor.--For purposes of this 
        subsection:
                    ``(A) Skilled nursing facility market basket 
                index.--The Secretary shall establish a skilled nursing 
                facility market basket index that reflects changes over 
                time in the prices of an appropriate mix of goods and 
                services included in covered skilled nursing facility 
                services.
                    ``(B) Skilled nursing facility market basket 
                percentage.--The term `skilled nursing facility market 
                basket percentage' means, for a fiscal year or other 
                annual period and as calculated by the Secretary, the 
                percentage change in the skilled nursing facility 
                market basket index (established under subparagraph 
                (A)) from the midpoint of the prior fiscal year (or 
                period) to the midpoint of the fiscal year (or other 
                period) involved.
                    ``(C) Skilled nursing facility historical trend 
                factor.--The term `skilled nursing facility historical 
                trend factor' means, for a fiscal year or other annual 
                period and as calculated by the Secretary, the 
                percentage change in the skilled nursing facility 
                routine cost index (used in applying per diem routine 
                cost limits under subsection (a)) from the midpoint of 
                the prior fiscal year (or period) to the midpoint of 
                the fiscal year (or other period) involved, reduced (on 
                an annualized basis) by 1 percentage point.
            ``(6) Submission of resident assessment data.--A skilled 
        nursing facility shall provide the Secretary, in a manner and 
        within the timeframes prescribed by the Secretary, the resident 
        assessment data necessary to develop and implement the rates 
        under this subsection. For purposes of meeting such 
        requirement, a skilled nursing facility may submit the resident 
        assessment data required under section 1819(b)(3), using the 
        standard instrument designated by the State under section 
        1819(e)(5).
            ``(7) Transition for medicare low volume skilled nursing 
        facilities and swing bed hospitals.--
                    ``(A) In general.--The Secretary shall determine an 
                appropriate manner in which to apply this subsection to 
                the facilities described in subparagraph (B), taking 
                into account the purposes of this subsection, and shall 
                provide that at the end of the transition period (as 
                defined in paragraph (2)(E)) such facilities shall be 
                paid only under this subsection. Payment shall not be 
                made under this subsection to such facilities for cost 
                reporting periods beginning before such date (not 
                earlier than July 1, 1999) as the Secretary specifies.
                    ``(B) Facilities described.--The facilities 
                described in this subparagraph are--
                            ``(i) skilled nursing facilities for which 
                        payment is made for routine service costs 
                        during a cost reporting period, ending prior to 
                        the date of the implementation of this 
                        paragraph, on the basis of prospective payments 
                        under section 1888(d), or
                            ``(ii) facilities that have in effect an 
                        agreement described in section 1883, for which 
                        payment is made for the furnishing of extended 
                        care services on a reasonable cost basis under 
                        section 1814(l) (as in effect on and after such 
                        date).
            ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the establishment of facility specific per 
                diem rates under paragraph (3);
                    ``(B) the establishment of Federal per diem rates 
                under paragraph (4), including the computation of the 
                standardized per diem rates under paragraph (4)(C), 
                adjustments and corrections for case mix under 
                paragraphs (4)(F) and (4)(G)(i), and adjustments for 
                variations in labor-related costs under paragraph 
                (4)(G)(ii); and
                    ``(C) the establishment of transitional amounts 
                under paragraph (7).''.
    (b) Consolidated Billing.--
            (1) For snf services.--Section 1862(a) (42 U.S.C. 1395y(a)) 
        is amended--
                    (A) by striking ``or'' at the end of paragraph 
                (15),
                    (B) by striking the period at the end of paragraph 
                (16) and inserting ``; or'', and
                    (C) by inserting after paragraph (16) the following 
                new paragraph:
            ``(17) which are covered skilled nursing facility services 
        described in section 1888(e)(2)(A)(i) 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.''.
            (2) Requiring payment for all part b items and services to 
        be made to facility.--The first sentence of section 1842(b)(6) 
        (42 U.S.C. 1395u(b)(6)) is amended--
                    (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                    (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service (other than services described in section 
                1888(e)(2)(A)(ii)) furnished to an individual who (at 
                the time the item or service is furnished) is a 
                resident of a skilled nursing facility, payment shall 
                be made to the facility (without regard to whether or 
                not the item or service was furnished by the facility, 
                by others under arrangement with them made by the 
                facility, under any other contracting or consulting 
                arrangement, or otherwise).''.
            (3) Payment rules.--Section 1888(e) (42 U.S.C. 1395yy(e)), 
        as added by subsection (a), is amended by adding at the end the 
        following:
            ``(9) Payment for certain services.--In the case of an item 
        or service furnished by a skilled nursing facility (or by 
        others under arrangement with them made by a skilled nursing 
        facility or under any other contracting or consulting 
        arrangement or otherwise) for which payment would otherwise 
        (but for this paragraph) be made under part B in an amount 
        determined in accordance with section 1833(a)(2)(B), the amount 
        of the payment under such part shall be based on such existing 
        or other fee schedules as the Secretary establishes.
            ``(10) Required coding.--No payment may be made under part 
        B for items and services (other than services described in 
        paragraph (2)(A)(ii)) furnished to an individual who is a 
        resident of a skilled nursing facility unless the claim for 
        such payment includes a code (or codes) under a uniform coding 
        system specified by the Secretary that identifies the items or 
        services delivered.''.
            (4) Conforming amendments.--
                    (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 1395i-
                3(b)(3)(C)(i)) is amended by striking ``Such'' and 
                inserting ``Subject to the timeframes prescribed by the 
                Secretary under section 1888(t)(6), such''.
                    (B) Section 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is 
                amended by striking ``(2);'' and inserting ``(2) and 
                section 1842(b)(6)(E);''.
                    (C) Section 1833(a)(2)(B) (42 U.S.C. 
                1395l(a)(2)(B)) is amended by inserting ``or section 
                1888(e)(9)'' after ``section 1886''.
                    (D) Section 1861(h) (42 U.S.C 1395x(h)) is 
                amended--
                            (i) in the opening paragraph, by striking 
                        ``paragraphs (3) and (6)'' and inserting 
                        ``paragraphs (3), (6), and (7)'', and
                            (ii) in paragraph (7), after ``skilled 
                        nursing facilities'', by inserting ``, or by 
                        others under arrangements with them made by the 
                        facility''.
                    (E) Section 1866(a)(1)(H) (42 U.S.C. 
                1395cc(a)(1)(H)) is amended--
                            (i) by redesignating clauses (i) and (ii) 
                        as subclauses (I) and (II) respectively,
                            (ii) by inserting ``(i)'' after ``(H)'', 
                        and
                            (iii) by adding after clause (i), as so 
                        redesignated, the following new clause:
            ``(ii) in the case of skilled nursing facilities which 
        provide covered skilled nursing facility services--
                    ``(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,
        to have items and services (other than services described in 
        section 1888(e)(2)(A)(ii)) furnished by the skilled nursing 
        facility or otherwise under arrangements (as defined in section 
        1861(w)(1)) made by the skilled nursing facility,''.
    (c) Medical Review Process.--In order to ensure that medicare 
beneficiaries are furnished appropriate services in skilled nursing 
facilities, the Secretary of Health and Human Services shall establish 
and implement a thorough medical review process to examine the effects 
of the amendments made by this section on the quality of covered 
skilled nursing facility services furnished to medicare beneficiaries. 
In developing such a medical review process, the Secretary shall place 
a particular emphasis on the quality of non-routine covered services 
and physicians' services for which payment is made under title XVIII of 
the Social Security Act for which payment is made under section 1848 of 
such Act.
    (d) Effective Date.--The amendments made by this section are 
effective for cost reporting periods beginning on or after July 1, 
1998; except that the amendments made by subsection (b) shall apply to 
items and services furnished on or after July 1, 1998.

SEC. 10402. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
              SERVICES.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following new subsection:
    ``(j) Prospective Payment for Inpatient Rehabilitation Services.--
            ``(1) Payment during transition period.--
                    ``(A) In general.--Notwithstanding section 1814(b), 
                but subject to the provisions of section 1813, the 
                amount of the payment with respect to the operating and 
                capital costs of inpatient hospital services of a 
                rehabilitation hospital or a rehabilitation unit (in 
                this subsection referred to as a `rehabilitation 
                facility'), in a cost reporting period beginning on or 
                after October 1, 2000, and before October 1, 2003, is 
                equal to the sum of--
                            ``(i) the TEFRA percentage (as defined in 
                        subparagraph (C)) of the amount that would have 
                        been paid under part A with respect to such 
                        costs if this subsection did not apply, and
                            ``(ii) the prospective payment percentage 
                        (as defined in subparagraph (C)) of the product 
                        of (I) the per unit payment rate established 
                        under this subsection for the fiscal year in 
                        which the payment unit of service occurs, and 
                        (II) the number of such payment units occurring 
                        in the cost reporting period.
                    ``(B) Fully implemented system.--Notwithstanding 
                section 1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with respect to 
                the operating and capital costs of inpatient hospital 
                services of a rehabilitation facility for a payment 
                unit in a cost reporting period beginning on or after 
                October 1, 2003, is equal to the per unit payment rate 
                established under this subsection for the fiscal year 
                in which the payment unit of service occurs.
                    ``(C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), for a 
                cost reporting period beginning--
                            ``(i) on or after October 1, 2000, and 
                        before October 1, 2001, the `TEFRA percentage' 
                        is 75 percent and the `prospective payment 
                        percentage' is 25 percent;
                            ``(ii) on or after October 1, 2001, and 
                        before October 1, 2002, the `TEFRA percentage' 
                        is 50 percent and the `prospective payment 
                        percentage' is 50 percent; and
                            ``(iii) on or after October 1, 2002, and 
                        before October 1, 2003, the `TEFRA percentage' 
                        is 25 percent and the `prospective payment 
                        percentage' is 75 percent.
                    ``(D) Payment unit.--For purposes of this 
                subsection, the term `payment unit' means a discharge, 
                day of inpatient hospital services, or other unit of 
                payment defined by the Secretary.
            ``(2) Patient case mix groups.--
                    ``(A) Establishment.--The Secretary shall 
                establish--
                            ``(i) classes of patients of rehabilitation 
                        facilities (each in this subsection referred to 
                        as a `case mix group'), based on such factors 
                        as the Secretary deems appropriate, which may 
                        include impairment, age, related prior 
                        hospitalization, comorbidities, and functional 
                        capability of the patient; and
                            ``(ii) a method of classifying specific 
                        patients in rehabilitation facilities within 
                        these groups.
                    ``(B) Weighting factors.--For each case mix group 
                the Secretary shall assign an appropriate weighting 
                which reflects the relative facility resources used 
                with respect to patients classified within that group 
                compared to patients classified within other groups.
                    ``(C) Adjustments for case mix.--
                            ``(i) In general.--The Secretary shall from 
                        time to time adjust the classifications and 
                        weighting factors established under this 
                        paragraph as appropriate to reflect changes in 
                        treatment patterns, technology, case mix, 
                        number of payment units for which payment is 
                        made under this title, and other factors which 
                        may affect the relative use of resources. Such 
                        adjustments shall be made in a manner so that 
                        changes in aggregate payments under the 
                        classification system are a result of real 
                        changes and are not a result of changes in 
                        coding that are unrelated to real changes in 
                        case mix.
                            ``(ii) Adjustment.--Insofar as the 
                        Secretary determines that such adjustments for 
                        a previous fiscal year (or estimates that such 
                        adjustments for a future fiscal year) did (or 
                        are likely to) result in a change in aggregate 
                        payments under the classification system during 
                        the fiscal year that are a result of changes in 
                        the coding or classification of patients that 
                        do not reflect real changes in case mix, the 
                        Secretary shall adjust the per payment unit 
                        payment rate for subsequent years so as to 
                        discount the effect of such coding or 
                        classification changes.
                    ``(D) Data collection.--The Secretary is authorized 
                to require rehabilitation facilities that provide 
                inpatient hospital services to submit such data as the 
                Secretary deems necessary to establish and administer 
                the prospective payment system under this subsection.
            ``(3) Payment rate.--
                    ``(A) In general.--The Secretary shall determine a 
                prospective payment rate for each payment unit for 
                which such rehabilitation facility is entitled to 
                receive payment under this title. Subject to 
                subparagraph (B), such rate for payment units occurring 
                during a fiscal year shall be based on the average 
                payment per payment unit under this title for inpatient 
                operating and capital costs of rehabilitation 
                facilities using the most recent data available (as 
                estimated by the Secretary as of the date of 
                establishment of the system) adjusted--
                            ``(i) by updating such per-payment-unit 
                        amount to the fiscal year involved by the 
                        weighted average of the applicable percentage 
                        increases provided under subsection 
                        (b)(3)(B)(ii) (for cost reporting periods 
                        beginning during the fiscal year) covering the 
                        period from the midpoint of the period for such 
                        data through the midpoint of fiscal year 2000 
                        and by an increase factor (described in 
                        subparagraph (C)) specified by the Secretary 
                        for subsequent fiscal years up to the fiscal 
                        year involved;
                            ``(ii) by reducing such rates by a factor 
                        equal to the proportion of payments under this 
                        subsection (as estimated by the Secretary) 
                        based on prospective payment amounts which are 
                        additional payments described in paragraph (4) 
                        (relating to outlier and related payments) or 
                        paragraph (7);
                            ``(iii) for variations among rehabilitation 
                        facilities by area under paragraph (6);
                            ``(iv) by the weighting factors established 
                        under paragraph (2)(B); and
                            ``(v) by such other factors as the 
                        Secretary determines are necessary to properly 
                        reflect variations in necessary costs of 
                        treatment among rehabilitation facilities.
                    ``(B) Budget neutral rates.--The Secretary shall 
                establish the prospective payment amounts under this 
                subsection for payment units during fiscal years 2001 
                through 2004 at levels such that, in the Secretary's 
                estimation, the amount of total payments under this 
                subsection for such fiscal years (including any payment 
                adjustments pursuant to paragraphs (4), (6), and (7)) 
                shall be equal to 99 percent of the amount of payments 
                that would have been made under this title during the 
                fiscal years for operating and capital costs of 
                rehabilitation facilities had this subsection not been 
                enacted. In establishing such payment amounts, the 
                Secretary shall consider the effects of the prospective 
                payment system established under this subsection on the 
                total number of payment units from rehabilitation 
                facilities and other factors described in subparagraph 
                (A).
                    ``(C) Increase factor.--For purposes of this 
                subsection for payment units in each fiscal year 
                (beginning with fiscal year 2001), the Secretary shall 
                establish an increase factor. Such factor shall be 
                based on an appropriate percentage increase in a market 
                basket of goods and services comprising services for 
                which payment is made under this subsection, which may 
                be the market basket percentage increase described in 
                subsection (b)(3)(B)(iii).
            ``(4) Outlier and special payments.--
                    ``(A) Outliers.--
                            ``(i) In general.--The Secretary may 
                        provide for an additional payment to a 
                        rehabilitation facility for patients in a case 
                        mix group, based upon the patient being 
                        classified as an outlier based on an unusual 
                        length of stay, costs, or other factors 
                        specified by the Secretary.
                            ``(ii) Payment based on marginal cost of 
                        care.--The amount of such additional payment 
                        under clause (i) shall be determined by the 
                        Secretary and shall approximate the marginal 
                        cost of care beyond the cutoff point applicable 
                        under clause (i).
                            ``(iii) Total payments.--The total amount 
                        of the additional payments made under this 
                        subparagraph for payment units in a fiscal year 
                        may not exceed 5 percent of the total payments 
                        projected or estimated to be made based on 
                        prospective payment rates for payment units in 
                        that year.
                    ``(B) Adjustment.--The Secretary may provide for 
                such adjustments to the payment amounts under this 
                subsection as the Secretary deems appropriate to take 
                into account the unique circumstances of rehabilitation 
                facilities located in Alaska and Hawaii.
            ``(5) Publication.--The Secretary shall provide for 
        publication in the Federal Register, on or before September 1 
        before each fiscal year (beginning with fiscal year 2001, of 
        the classification and weighting factors for case mix groups 
        under paragraph (2) for such fiscal year and a description of 
        the methodology and data used in computing the prospective 
        payment rates under this subsection for that fiscal year.
            ``(6) Area wage adjustment.--The Secretary shall adjust the 
        proportion, (as estimated by the Secretary from time to time) 
        of rehabilitation facilities' costs which are attributable to 
        wages and wage-related costs, of the prospective payment rates 
        computed under paragraph (3) for area differences in wage 
        levels by a factor (established by the Secretary) reflecting 
        the relative hospital wage level in the geographic area of the 
        rehabilitation facility compared to the national average wage 
        level for such facilities. Not later than October 1, 2001 (and 
        at least every 36 months thereafter), the Secretary shall 
        update the factor under the preceding sentence on the basis of 
        a survey conducted by the Secretary (and updated as 
        appropriate) of the wages and wage-related costs incurred in 
        furnishing rehabilitation services. Any adjustments or updates 
        made under this paragraph for a fiscal year shall be made in a 
        manner that assures that the aggregated payments under this 
        subsection in the fiscal year are not greater or less than 
        those that would have been made in the year without such 
        adjustment.
            ``(7) Additional adjustments.--The Secretary may provide by 
        regulation for--
                    ``(A) an additional payment to take into account 
                indirect costs of medical education and the special 
                circumstances of hospitals that serve a significantly 
                disproportionate number of low-income patients in a 
                manner similar to that provided under subparagraphs (B) 
                and (F), respectively, of subsection (d)(5); and
                    ``(B) such other exceptions and adjustments to 
                payment amounts under this subsection in a manner 
                similar to that provided under subsection (d)(5)(I) in 
                relation to payments under subsection (d).
            ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the establishment of case mix groups, of the 
                methodology for the classification of patients within 
                such groups, and of the appropriate weighting factors 
                thereof under paragraph (2),
                    ``(B) the establishment of the prospective payment 
                rates under paragraph (3),
                    ``(C) the establishment of outlier and special 
                payments under paragraph (4),
                    ``(D) the establishment of area wage adjustments 
                under paragraph (6), and
                    ``(E) the establishment of additional adjustments 
                under paragraph (7).''.
    (b) Conforming Amendments.--Section 1886(b) of such Act (42 U.S.C. 
1395ww(b)) is amended--
            (1) in paragraph (1), by inserting ``and other than a 
        rehabilitation facility described in subsection (j)(1)'' after 
        ``subsection (d)(1)(B)'', and
            (2) in paragraph (3)(B)(i), by inserting ``and subsection 
        (j)'' after ``For purposes of subsection (d)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to cost reporting periods beginning on or after October 1, 2000, 
except that the Secretary of Health and Human Services may require the 
submission of data under section 1886(j)(2)(D) of the Social Security 
Act (as added by subsection (a)) on and after the date of the enactment 
of this section.

                    CHAPTER 2--PAYMENT UNDER PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

SEC. 10411. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR 
              CERTAIN OUTPATIENT HOSPITAL SERVICES.

    (a) Elimination of FDO for Ambulatory Surgical Center Procedures.--
Section 1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is 
amended--
            (1) by striking ``of 80 percent''; and
            (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
    (b) Elimination of FDO for Radiology Services and Diagnostic 
Procedures.--Section 1833(n)(1)(B)(i) (42 U.S.C. 1395l(n)(1)(B)(i)) is 
amended--
            (1) by striking ``of 80 percent'', and
            (2) by inserting before the period at the end the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished during portions of cost reporting periods 
occurring on or after October 1, 1997.

SEC. 10412. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
              OUTPATIENT SERVICES.

    (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``through 1998'' and inserting ``through 1999 and during 
fiscal year 2000 before January 1, 2000''.
    (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``through 1998'' and inserting ``through 1999 and during 
fiscal year 2000 before January 1, 2000''.

SEC. 10413. PROSPECTIVE PAYMENT SYSTEM 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.--With respect to hospital outpatient 
        services designated by the Secretary (in this section referred 
        to as `covered OPD services') and furnished during a year 
        beginning with 1999, the amount of payment 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 payment system--
                    ``(A) the Secretary shall develop a classification 
                system for covered OPD services;
                    ``(B) the Secretary may establish groups of covered 
                OPD services, within the classification system 
                described in subparagraph (A), so that services 
                classified within each group are comparable clinically 
                and with respect to the use of resources;
                    ``(C) the Secretary shall, using data on claims 
                from 1996 and using data from the most recent available 
                cost reports, establish relative payment weights for 
                covered OPD services (and any groups of such services 
                described in subparagraph (B)) based on median hospital 
                costs and shall determine projections of the frequency 
                of utilization of each such service (or group of 
                services) in 1999;
                    ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of payment and 
                coinsurance attributable to labor-related costs for 
                relative differences in labor and labor-related costs 
                across geographic regions in a budget neutral manner;
                    ``(E) the Secretary shall establish other 
                adjustments, in a budget neutral manner, as determined 
                to be necessary to ensure equitable payments, such as 
                outlier adjustments, adjustments to account for 
                variations in coinsurance payments for procedures with 
                similar resource costs, or adjustments for certain 
                classes of hospitals; and
                    ``(F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume of 
                covered OPD services.
            ``(3) Calculation of base amounts.--
                    ``(A) Aggregate amounts that would be payable if 
                deductibles were disregarded.--The Secretary shall 
                estimate the total amounts that would be payable from 
                the Trust Fund under this part for covered OPD services 
                in 1999, determined without regard to this subsection, 
                as though the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described in 
                section 1866(a)(2)(A)(ii) (as in effect before the date 
                of the enactment of this subsection) continued to 
                apply.
                    ``(B) Unadjusted copayment amount.--
                            ``(i) In general.--For purposes of this 
                        subsection, subject to clause (ii), the 
                        `unadjusted copayment amount' applicable to a 
                        covered OPD service (or group of such services) 
                        is 20 percent of national median of the charges 
                        for the service (or services within the group) 
                        furnished during 1996, updated to 1999 using 
                        the Secretary's estimate of charge growth 
                        during the period.
                            ``(ii) Adjusted to be 20 percent when fully 
                        phased in.--If the pre-deductible payment 
                        percentage for a covered OPD service (or group 
                        of such services) furnished in a year would be 
                        equal to or exceed 80 percent, then the 
                        unadjusted copayment amount shall be 25 percent 
                        of amount determined under subparagraph (D)(i).
                            ``(iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted copayment amount 
                        for a covered OPD service not furnished during 
                        1996, based upon its classification within a 
                        group of such services.
                    ``(C) Calculation of conversion factors.--
                            ``(i) For 1999.--
                                    ``(I) In general.--The Secretary 
                                shall establish a 1999 conversion 
                                factor for determining the medicare 
                                pre-deductible OPD fee payment amounts 
                                for each covered OPD service (or group 
                                of such services) furnished in 1999. 
                                Such conversion factor shall be 
                                established on the basis of the weights 
                                and frequencies described in paragraph 
                                (2)(C) and in a manner such that the 
                                sum for all services and groups of the 
                                products (described in subclause (II) 
                                for each such service or group) equals 
                                the total projected amount described in 
                                subparagraph (A).
                            ``(II) Product described.--The product 
                        described in this subclause, for a service or 
                        group, is the product of the medicare pre-
                        deductible OPD fee payment amounts (taking into 
                        account appropriate adjustments described in 
                        paragraphs (2)(D) and (2)(E)) and the 
                        frequencies for such service or group.
                            ``(ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall establish 
                        a conversion factor for covered OPD services 
                        furnished in subsequent years in an amount 
                        equal to the conversion factor established 
                        under this subparagraph and applicable to such 
                        services furnished in the previous year 
                        increased by the OPD payment increase factor 
                        specified under clause (iii) for the year 
                        involved.
                            ``(iii) OPD payment increase factor.--For 
                        purposes of this subparagraph, the `OPD payment 
                        increase factor' for services furnished in a 
                        year is equal to the sum of--
                                    ``(I) market basket percentage 
                                increase (applicable under section 
                                1886(b)(3)(B)(iii) to hospital 
                                discharges occurring during the fiscal 
                                year ending in such year, and
                                    ``(II) in the case of a covered OPD 
                                service (or group of such services) 
                                furnished in a year in which the pre-
                                deductible payment percentage would not 
                                exceed 80 percent, 3.5 percentage 
                                points, but in no case greater than 
                                such number of percentage points as 
                                will result in the pre-deductible 
                                payment percentage exceeding 80 
                                percent.
                        In applying the previous sentence for years 
                        beginning with 2000, the Secretary may 
                        substitute for the market basket percentage 
                        increase under subclause (I) an annual 
                        percentage increase that is computed and 
                        applied with respect to covered OPD services 
                        furnished in a year in the same manner as the 
                        market basket percentage increase is determined 
                        and applied to inpatient hospital services for 
                        discharges occurring in a fiscal year.
                    ``(D) Pre-deductible payment percentage.--The pre-
                deductible payment percentage for a covered OPD service 
                (or group of such services) furnished in a year is 
                equal to the ratio of--
                            ``(i) the conversion factor established 
                        under subparagraph (C) for the year, multiplied 
                        by the weighting factor established under 
                        paragraph (2)(C) for the service (or group), to
                            ``(ii) the sum of the amount determined 
                        under clause (i) and the unadjusted copayment 
                        amount determined under subparagraph (B) for 
                        such service or group.
                    ``(E) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a medicare OPD 
                fee schedule amount for each covered OPD service (or 
                group of such services) furnished in a year, in an 
                amount equal to the product of--
                            ``(i) the conversion factor computed under 
                        subparagraph (C) for the year, and
                            ``(ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for the 
                        service or group.
            ``(4) Medicare payment amount.--The amount of payment made 
        from the Trust Fund under this part for a covered OPD service 
        (and such services classified within a group) furnished in a 
        year is determined as follows:
                    ``(A) Fee schedule and copayment amount.--Add (i) 
                the medicare OPD fee schedule amount (computed under 
                paragraph (3)(E)) for the service or group and year, 
                and (ii) the unadjusted copayment amount (determined 
                under paragraph (3)(B)) for the service or group.
                    ``(B) Subtract applicable deductible.--Reduce the 
                sum determined under subparagraph (A) by the amount of 
                the deductible under section 1833(b), to the extent 
                applicable.
                    ``(C) Apply payment proportion to remainder.--
                Multiply the amount so determined under subparagraph 
                (B) by the pre-deductible payment percentage (as 
                determined under paragraph (3)(D)) for the service or 
                group and year involved.
                    ``(D) Labor-related adjustment.--The amount of 
                payment is the product determined under subparagraph 
                (C) with the labor-related portion of such product 
                adjusted for relative differences in the cost of labor 
                and other factors determined by the Secretary, as 
                computed under paragraph (2)(D).
            ``(5) Copayment amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under this 
                subsection is determined as follows:
                            ``(i) Unadjusted copayment.--Compute the 
                        amount by which the amount described in 
                        paragraph (4)(B) exceeds the amount of payment 
                        determined under paragraph (4)(C).
                            ``(ii) Labor adjustment.--The copayment 
                        amount is the difference determined under 
                        clause (i) with the labor-related portion of 
                        such difference adjusted for relative 
                        differences in the cost of labor and other 
                        factors determined by the Secretary, as 
                        computed under paragraphs (2)(D). The 
                        adjustment under this clause shall be made in a 
                        manner that does not result in any change in 
                        the aggregate copayments made in any year if 
                        the adjustment had not been made.
                    ``(B) Election to offer reduced copayment amount.--
                The Secretary shall establish a procedure under which a 
                hospital, before the beginning of a year (beginning 
                with 1999), may elect to reduce the copayment amount 
                otherwise established under subparagraph (A) for some 
                or all covered OPD services to an amount that is not 
                less than 25 percent of the medicare OPD fee schedule 
                amount (computed under paragraph (3)(E)) for the 
                service involved, adjusted for relative differences in 
                the cost of labor and other factors determined by the 
                Secretary, as computed under subparagraphs (D) and (E) 
                of paragraph (2). Under such procedures, such reduced 
                copayment amount may not be further reduced or 
                increased during the year involved and the hospital may 
                disseminate information on the reduction of copayment 
                amount effected under this subparagraph.
                    ``(C) No impact on deductibles.--Nothing in this 
                paragraph shall be construed as affecting a hospital's 
                authority to waive the charging of a deductible under 
                section 1833(b).
            ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                    ``(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) to take into account changes 
                in medical practice, changes in technology, the 
                addition of new services, new cost data, and other 
                relevant information and factors.
                    ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph (A), 
                then the 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 the adjustments had not been made.
                    ``(C) Update factor.--If the Secretary determines 
                under methodologies described in subparagraph (2)(F) 
                that the volume of services paid for under this 
                subsection increased beyond amounts established through 
                those methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor otherwise 
                applicable in a subsequent year.
            ``(7) Special rule for ambulance services.--The Secretary 
        shall pay for hospital outpatient services that are ambulance 
        services on the basis described in the matter in subsection 
        (a)(1) preceding subparagraph (A).
            ``(8) Special rules for certain hospitals.--In the case of 
        hospitals described in section 1886(d)(1)(B)(v)--
                    ``(A) the system under this subsection shall not 
                apply to covered OPD services furnished before January 
                1, 2000; and
                    ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner that 
                specifically takes into account the unique costs 
                incurred by such hospitals by virtue of their patient 
                population and service intensity.
            ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the development of the classification system 
                under paragraph (2), including the establishment of 
                groups and relative payment weights for covered OPD 
                services, of wage adjustment factors, other 
                adjustments, and methods described in paragraph (2)(F);
                    ``(B) the calculation of base amounts under 
                paragraph (3);
                    ``(C) periodic adjustments made under paragraph 
                (6); and
                    ``(D) the establishment of a separate conversion 
                factor under paragraph (8)(B).''.
    (b) 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: 
``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 
copayment amount established under section 1833(t)(5).''.
    (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B),
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``; or'', and
            (3) by adding at the end the following new subparagraph:
                    ``(D) a reduction in the copayment amount for 
                covered OPD services under section 1833(t)(5)(B).''.
    (d) Conforming Amendments.--
            (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                    (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                13951(i)(3)(A)) is amended--
                            (I) by inserting ``before January 1, 
                        1999,'' after ``furnished'', and
                            (II) by striking ``in a cost reporting 
                        period''.
                    (ii) The amendment made by clause (i) shall apply 
                to services furnished on or after January 1, 1999.
                    (B) Section 1833(a)(4) (42 U.S.C. 13951(a)(4)) is 
                amended by inserting ``or subsection (t)'' before the 
                semicolon.
            (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, 1999,'' 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 inserting ``or, for 
                services or procedures performed on or after January 1, 
                1999, (t)'' before the semicolon.
            (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 ``furnished before 
                January 1, 1999,'' after ``(i)'',
                    (B) in clause (ii), by inserting ``before January 
                1, 1999,'' after ``furnished'',
                    (C) by redesignating clause (iii) as clause 
                (iv),and
                    (D) by inserting after clause (ii), the following 
                new clause:
                            ``(iii) if such services are furnished on 
                        or after January 1, 1999, the amount determined 
                        under subsection (t), or''.

                 Subchapter B--Rehabilitation Services

SEC. 10421. REHABILITATION AGENCIES AND SERVICES.

    (a) Payment Based on Fee Schedule.--
            (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
        1395l(a)) is amended--
                    (A) in paragraph (2) in the matter before 
                subparagraph (A), by inserting ``(C),'' before ``(D)'';
                    (B) in paragraph (6), by striking ``and'' at the 
                end;
                    (C) in paragraph (7), by striking the period at the 
                end and inserting ``; and'';
                    (D) by adding at the end the following new 
                paragraph:
            ``(8) in the case of services described in section 
        1832(a)(2)(C) (that are not described in section 
        1832(a)(2)(B)), the amounts described in section 1834(k).''.
            (2) Payment rates.--Section 1834 (42 U.S.C. 1395m) is 
        amended by adding at the end the following new subsection:
    ``(k) Payment for Outpatient Therapy Services.--
            ``(1) In general.--With respect to outpatient physical 
        therapy services (which includes outpatient speech-language 
        pathology services) and outpatient occupational therapy 
        services for which payment is determined under this subsection, 
        the payment basis shall be--
                    ``(A) for services furnished during 1998, the 
                amount determined under paragraph (2); or
                    ``(B) for services furnished during a subsequent 
                year, 80 percent of the lesser of--
                            ``(i) the actual charge for the services, 
                        or
                            ``(ii) the applicable fee schedule amount 
                        (as defined in paragraph (3)) for the services.
            ``(2) Payment in 1998 based upon adjusted reasonable 
        costs.--The amount under this paragraph for services is the 
        lesser of--
                    ``(A) the charges imposed for the services, or
                    ``(B) the adjusted reasonable costs (as defined in 
                paragraph (4)) for the services,
        less 20 percent of the amount of the charges imposed for such 
        services.
            ``(3) Applicable fee schedule amount.--In this paragraph, 
        the term `applicable fee schedule amount' means, with respect 
        to services furnished in a year, the fee schedule amount 
        established under section 1848 for such services furnished 
        during the year or, if there is no such fee schedule amount 
        established for such services, for such comparable services as 
        the Secretary specifies.
            ``(4) Adjusted reasonable costs.--In paragraph (2), the 
        term `adjusted reasonable costs' means reasonable costs 
        determined reduced by--
                    ``(A) 5.8 percent of the reasonable costs for 
                operating costs, and
                    ``(B) 10 percent of the reasonable costs for 
                capital costs.
            ``(5) Uniform coding.--For claims for services submitted on 
        or after April 1, 1998, for which the amount of payment is 
        determined under this subsection, the claim shall include a 
        code (or codes) under a uniform coding system specified by the 
        Secretary that identifies the services furnished.
            ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        therapy services for which payment is made under this 
        subsection in the same manner as they apply to services 
        provided by a practitioner described in section 
        1842(b)(18)(C).''.
    (b) Application of Standards to Outpatient Occupational and 
Physical Therapy Services Provided As an Incident to a Physician's 
Professional Services.--Section 1862(a), as amended by section 
10401(b), (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (16);
            (2) by striking the period at the end of paragraph (17) and 
        inserting ``; or''; and
            (3) by inserting after paragraph (17) the following:
            ``(18) in the case of outpatient occupational therapy 
        services or outpatient physical therapy services furnished as 
        an incident to a physician's professional services (as 
        described in section 1861(s)(2)(A)), that do not meet the 
        standards and conditions under the second sentence of section 
        1861(g) or 1861(p) as such standards and conditions would apply 
        to such therapy services if furnished by a therapist.''.
    (c) Applying Financial Limitation to All Rehabilitation Services.--
Section 1833(g) (42 U.S.C. 1395l(g)) is amended--
            (1) in the first sentence, by striking ``services described 
        in the second sentence of section 1861(p)'' and inserting 
        ``physical therapy services of the type described in section 
        1861(p) (regardless of who furnishes the services or whether 
        the services may be covered as physicians' services so long as 
        the services are furnished other than in a hospital setting)'', 
        and
            (2) in the second sentence, by striking ``outpatient 
        occupational therapy services which are described in the second 
        sentence of section 1861(p) through the operation of section 
        1861(g)'' and inserting ``occupational therapy services (of the 
        type that are described in section 1861(p) through the 
        operation of section 1861(g)), regardless of who furnishes the 
        services or whether the services may be covered as physicians' 
        services so long as the services are furnished other than in a 
        hospital setting''.
    (d) Indexing Limitation.--Section 1833(g) (42 U.S.C. 1395l(g)), as 
amended by subsection (c), is further amended--
            (1) by striking ``$900'' each place it appears and 
        inserting ``the amount specified in paragraph (2) for the 
        year'',
            (2) by inserting ``(1)'' after ``(g)'',
            (3) by designating the last sentence as a paragraph (3), 
        and
            (4) by inserting before paragraph (3), as so designated, 
        the following:
    ``(2) The amount specified in this paragraph--
            ``(A) for 1999, and each preceding year, is $900, and
            ``(B) for a subsequent year is the amount specified in this 
        paragraph for the preceding year increased by the Secretary's 
        estimate of the projected percentage growth in real gross 
        domestic product per capita from the fiscal year ending in the 
        preceding year to the fiscal year ending in such subsequent 
        year.''.
    (e) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1998; except that the 
amendments made by subsection (c) apply to services furnished on or 
after January 1, 1999.

SEC. 10422. COMPREHENSIVE OUTPATIENT REHABILITATION FACILITIES (CORF).

    (a) Payment Based on Fee Schedule.--
            (1) Special payment rules.--Section 1833(a) (42 U.S.C. 
        1395l(a)), as amended by section 10421(a), is amended--
                    (A) in paragraph (3), by striking ``subparagraphs 
                (D) and (E) of section 1832(a)(2)'' and inserting 
                ``section 1832(a)(2)(E)'';
                    (B) in paragraph (7), by striking ``and'' at the 
                end;
                    (C) in paragraph (8), by striking the period at the 
                end and inserting ``; and'';
                    (D) by adding at the end the following new 
                paragraph:
            ``(9) in the case of services described in section 
        1832(a)(2)(E), the amounts described in section 1834(k).''.
            (2) Payment rates.--Section 1834(k) (42 U.S.C. 1395m(k)), 
        as added by section 10421(a), is amended--
                    (A) in the heading, by inserting ``and 
                Comprehensive Outpatient Rehabilitation Facility 
                Services'' after ``Therapy Services''; and
                    (B) in paragraph (1), by inserting ``and with 
                respect to comprehensive outpatient rehabilitation 
                facility services'' after ``occupational therapy 
                services''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to services furnished on or after January 1, 1998, and to 
portions of cost reporting periods occurring on or after such date.

                    Subchapter C--Ambulance Services

SEC. 10431. PAYMENTS FOR AMBULANCE SERVICES.

    (a) Interim Reductions.--
            (1) Payments determined on reasonable cost basis.--Section 
        1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at the 
        end the following new subparagraph:
            ``(U) In determining the reasonable cost of ambulance 
        services (as described in subsection (s)(7)) provided during a 
        fiscal year (beginning with fiscal year 1998 and ending with 
        fiscal year 2002), the Secretary shall not recognize any costs 
        in excess of costs recognized as reasonable for ambulance 
        services provided during the previous fiscal year after 
        application of this subparagraph, increased by the percentage 
        increase in the consumer price index for all urban consumers 
        (U.S. city average) as estimated by the Secretary for the 12-
        month period ending with the midpoint of the fiscal year 
        involved reduced (in the case of each of fiscal years 1998 and 
        1999) by 1 percentage point.''.
            (2) Payments determined on reasonable charge basis.--
        Section 1842(b) (42 U.S.C. 1395u(b)) is amended by adding at 
        the end the following new paragraph:
    ``(19) For purposes of section 1833(a)(1), the reasonable charge 
for ambulance services (as described in section 1861(s)(7)) provided 
during a fiscal year (beginning with fiscal year 1998 and ending with 
fiscal year 2002) may not exceed the reasonable charge for such 
services provided during the previous fiscal year after the application 
of this paragraph, increased by the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) as estimated by 
the Secretary for the 12-month period ending with the midpoint of the 
year involved reduced (in the case of each of fiscal years 1998 and 
1999) by 1 percentage point.''.
    (b) Establishment of Prospective Fee Schedule.--
            (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)), as amended by section 
        10619(b)(1), is amended--
                    (A) by striking ``and (P)'' and inserting ``(P)''; 
                and
                    (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with respect to 
                ambulance service, the amounts paid shall be 80 percent 
                of the lesser of the actual charge for the services or 
                the amount determined by a fee schedule established by 
                the Secretary under section 1834(l);''.
            (2) Establishment of schedule.--Section 1834 (42 U.S.C. 
        1395m), as amended by section 10421(a)(2), is amended by adding 
        at the end the following new subsection:
    ``(l) Establishment of Fee Schedule for Ambulance Services.--
            ``(1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services under this part 
        through a negotiated rulemaking process described in title 5, 
        United States Code, and in accordance with the requirements of 
        this subsection.
            ``(2) Considerations.--In establishing such fee schedule 
        the Secretary shall--
                    ``(A) establish mechanisms to control increases in 
                expenditures for ambulance services under this part;
                    ``(B) establish definitions for ambulance services 
                which link payments to the type of services provided;
                    ``(C) consider appropriate regional and operational 
                differences;
                    ``(D) consider adjustments to payment rates to 
                account for inflation and other relevant factors; and
                    ``(E) phase in the application of the payment rates 
                under the fee schedule in an efficient and fair manner.
            ``(3) Savings.--In establishing such fee schedule the 
        Secretary shall--
                    ``(A) ensure that the aggregate amount of payments 
                made for ambulance services under this part during 2000 
                does not exceed the aggregate amount of payments which 
                would have been made for such services under this part 
                during such year if the amendments made by section 
                10431 of the Balanced Budget Act of 1997 had not been 
                made; and
                    ``(B) set the payment amounts provided under the 
                fee schedule for services furnished in 2001 and each 
                subsequent year at amounts equal to the payment amounts 
                under the fee schedule for service furnished during the 
                previous year, increased by the percentage increase in 
                the consumer price index for all urban consumers (U.S. 
                city average) for the 12-month period ending with June 
                of the previous year.
            ``(4) Consultation.--In establishing the fee schedule for 
        ambulance services under this subsection, the Secretary shall 
        consult with various national organizations representing 
        individuals and entities who furnish and regulate ambulance 
        services and share with such organizations relevant data in 
        establishing such schedule.
            ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee schedule for 
        ambulance services under this subsection, including matters 
        described in paragraph (2).
            ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        ambulance services for which payment is made under this 
        subsection in the same manner as they apply to services 
        provided by a practitioner described in section 
        1842(b)(18)(C).''.
            (3) Effective date.--The amendments made by this section 
        apply to ambulance services furnished on or after January 1, 
        2000.
    (c) Authorizing Payment for Paramedic Intercept Service Providers 
in Rural Communities.--In promulgating regulations to carry out section 
1861(s)(7) of the Social Security Act (42 U.S.C. 1395x(s)(7)) with 
respect to the coverage of ambulance service, the Secretary of Health 
and Human Services may include coverage of advanced life support 
services (in this subsection referred to as ``ALS intercept services'') 
provided by a paramedic intercept service provider in a rural area if 
the following conditions are met:
            (1) The ALS intercept services are provided under a 
        contract with one or more volunteer ambulance services and are 
        medically necessary based on the health condition of the 
        individual being transported.
            (2) The volunteer ambulance service involved--
                    (A) is certified as qualified to provide ambulance 
                service for purposes of such section,
                    (B) provides only basic life support services at 
                the time of the intercept, and
                    (C) is prohibited by State law from billing for any 
                services.
            (3) The entity supplying the ALS intercept services--
                    (A) is certified as qualified to provide such 
                services under the medicare program under title XVIII 
                of the Social Security Act, and
                    (B) bills all recipients who receive ALS intercept 
                services from the entity, regardless of whether or not 
                such recipients are medicare beneficiaries.

SEC. 10432. DEMONSTRATION OF COVERAGE OF AMBULANCE SERVICES UNDER 
              MEDICARE THROUGH CONTRACTS WITH UNITS OF LOCAL 
              GOVERNMENT.

    (a) Demonstration Project Contracts with Local Governments.--The 
Secretary of Health and Human Services shall establish up to 3 
demonstration projects under which, at the request of a county or 
parish, the Secretary enters into a contract with the county or parish 
under which--
            (1) the county or parish furnishes (or arranges for the 
        furnishing) of ambulance services for which payment may be made 
        under part B of title XVIII of the Social Security Act for 
        individuals residing in the county or parish who are enrolled 
        under such part, except that the county or parish may not enter 
        into the contract unless the contract covers at least 80 
        percent of the individuals residing in the county or parish who 
        are enrolled under such part;
            (2) any individual or entity furnishing ambulance services 
        under the contract meets the requirements otherwise applicable 
        to individuals and entities furnishing such services under such 
        part; and
            (3) for each month during which the contract is in effect, 
        the Secretary makes a capitated payment to the county or parish 
        in accordance with subsection (b).
The projects may extend over a period of not to exceed 3 years each.
    (b) Amount of Payment.--
            (1) In general.--The amount of the monthly payment made for 
        months occurring during a calendar year to a county or parish 
        under a demonstration project contract under subsection (a) 
        shall be equal to the product of--
                    (A) the Secretary's estimate of the number of 
                individuals covered under the contract for the month; 
                and
                    (B) \1/12\ of the capitated payment rate for the 
                year established under paragraph (2).
            (2) Capitated payment rate defined.--In this subsection, 
        the ``capitated payment rate'' applicable to a contract under 
        this subsection for a calendar year is equal to 95 percent of--
                    (A) for the first calendar year for which the 
                contract is in effect, the average annual per capita 
                payment made under part B of title XVIII of the Social 
                Security Act with respect to ambulance services 
                furnished to such individuals during the 3 most recent 
                calendar years for which data on the amount of such 
                payment is available; and
                    (B) for a subsequent year, the amount provided 
                under this paragraph for the previous year increased by 
                the percentage increase in the consumer price index for 
                all urban consumers (U.S. city average) for the 12-
                month period ending with June of the previous year.
    (c) Other Terms of Contract.--The Secretary and the county or 
parish may include in a contract under this section such other terms as 
the parties consider appropriate, including--
            (1) covering individuals residing in additional counties or 
        parishes (under arrangements entered into between such counties 
        or parishes and the county or parish involved);
            (2) permitting the county or parish to transport 
        individuals to non-hospital providers if such providers are 
        able to furnish quality services at a lower cost than hospital 
        providers; or
            (3) implementing such other innovations as the county or 
        parish may propose to improve the quality of ambulance services 
        and control the costs of such services.
    (d) Contract Payments in Lieu of Other Benefits.--Payments under a 
contract to a county or parish under this section shall be instead of 
the amounts which (in the absence of the contract) would otherwise be 
payable under part B of title XVIII of the Social Security Act for the 
services covered under the contract which are furnished to individuals 
who reside in the county or parish.
    (e) Report on Effects of Capitated Contracts.--
            (1) Study.--The Secretary shall evaluate the demonstration 
        projects conducted under this section. Such evaluation shall 
        include an analysis of the quality and cost-effectiveness of 
        ambulance services furnished under the projects.
            (2) Report.--Not later than January 1, 2000, the Secretary 
        shall submit a report to Congress on the study conducted under 
        paragraph (1), and shall include in the report such 
        recommendations as the Secretary considers appropriate, 
        including recommendations regarding modifications to the 
        methodology used to determine the amount of payments made under 
        such contracts and extending or expanding such projects.

                 CHAPTER 3--PAYMENT UNDER PARTS A AND B

SEC. 10441. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 10011, is amended by adding at the end the following new 
section:

             ``prospective payment for home health services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 1999, for payments for home health services in 
accordance with a prospective payment system established by the 
Secretary under this section.
    ``(b) System of Prospective Payment for Home Health Services.--
            ``(1) In general.--The Secretary shall establish under this 
        subsection a prospective payment system for payment for all 
        costs of home health services. Under the system under this 
        subsection 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 this section, including medical supplies, 
        shall be paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the services 
        involved. In implementing the system, the Secretary may provide 
        for a transition (of not longer than 4 years) during which a 
        portion of such payment is based on agency-specific costs, but 
        only if such transition does not result in aggregate payments 
        under this title that exceed the aggregate payments that would 
        be made if such a transition did not occur.
            ``(2) Unit of payment.--In defining a prospective payment 
        amount under the system under this subsection, the Secretary 
        shall consider an appropriate unit of service and the number, 
        type, and duration of visits provided within that unit, 
        potential changes in the mix of services provided within that 
        unit and their cost, and a general system design that provides 
        for continued access to quality services.
            ``(3) Payment basis.--
                    ``(A) Initial basis.--
                            ``(i) In general.--Under such system the 
                        Secretary shall provide for computation of a 
                        standard prospective payment amount (or 
                        amounts). Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2000 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect but if the reduction in limits 
                        described in clause (ii) had been in effect. 
                        Such amount shall be standardized in a manner 
                        that eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a budget 
                        neutral manner consistent with the case mix and 
                        wage level adjustments provided under paragraph 
                        (4)(A). Under the system, the Secretary may 
                        recognize regional differences or differences 
                        based upon whether or not the services or 
                        agency are in an urbanized area.
                            ``(ii) Reduction.--The reduction described 
                        in this clause is a reduction by 15 percent in 
                        the cost limits and per beneficiary limits 
                        described in section 1861(v)(1)(L), as those 
                        limits are in effect on September 30, 1999.
                    ``(B) Annual update.--
                            ``(i) In general.--The standard prospective 
                        payment amount (or amounts) shall be adjusted 
                        for each fiscal year (beginning with fiscal 
                        year 2001) in a prospective manner specified by 
                        the Secretary by the home health market basket 
                        percentage increase applicable to the fiscal 
                        year involved.
                            ``(ii) Home health market basket percentage 
                        increase.--For purposes of this subsection, the 
                        term `home health market basket percentage 
                        increase' means, with respect to a fiscal year, 
                        a percentage (estimated by the Secretary before 
                        the beginning of the fiscal year) determined 
                        and applied with respect to the mix of goods 
                        and services included in home health services 
                        in the same manner as the market basket 
                        percentage increase under section 
                        1886(b)(3)(B)(iii) is determined and applied to 
                        the mix of goods and services comprising 
                        inpatient hospital services for the fiscal 
                        year.
                    ``(C) Adjustment for outliers.--The Secretary shall 
                reduce the standard prospective payment amount (or 
                amounts) under this paragraph applicable to home health 
                services furnished during a period by such proportion 
                as will result in an aggregate reduction in payments 
                for the period equal to the aggregate increase in 
                payments resulting from the application of paragraph 
                (5) (relating to outliers).
            ``(4) Payment computation.--
                    ``(A) In general.--The payment amount for a unit of 
                home health services shall be the applicable standard 
                prospective payment amount adjusted as follows:
                            ``(i) Case mix adjustment.--The amount 
                        shall be adjusted by an appropriate case mix 
                        adjustment factor (established under 
                        subparagraph (B)).
                            ``(ii) Area wage adjustment.--The portion 
                        of such amount that the Secretary estimates to 
                        be attributable to wages and wage-related costs 
                        shall be adjusted for geographic differences in 
                        such costs by an area wage adjustment factor 
                        (established under subparagraph (C)) for the 
                        area in which the services are furnished or 
                        such other area as the Secretary may specify.
                    ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish appropriate 
                case mix adjustment factors for home health services in 
                a manner that explains a significant amount of the 
                variation in cost among different units of services.
                    ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area wage 
                adjustment factors that reflect the relative level of 
                wages and wage-related costs applicable to the 
                furnishing of home health services in a geographic area 
                compared to the national average applicable level. Such 
                factors may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
            ``(5) Outliers.--The Secretary may provide for an addition 
        or adjustment to the payment amount otherwise made in the case 
        of outliers because of unusual variations in the type or amount 
        of medically necessary care. The total amount of the additional 
        payments or payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of the total 
        payments projected or estimated to be made based on the 
        prospective payment system under this subsection in that year.
            ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services from, 
        another home health agency within the period covered by the 
        prospective payment amount, the payment shall be prorated 
        between the home health agencies involved.
    ``(c) Requirements for Payment Information.--With respect to home 
health services furnished on or after October 1, 1998, no claim for 
such a service may be paid under this title unless--
            ``(1) the claim has the unique identifier (provided under 
        section 1842(r)) for the physician who prescribed the services 
        or made the certification described in section 1814(a)(2) or 
        1835(a)(2)(A); and
            ``(2) in the case of a service visit described in paragraph 
        (1), (2), (3), or (4) of section 1861(m), the claim has 
        information (coded in an appropriate manner) on the length of 
        time of the service visit, as measured in 15 minute increments.
    ``(d) Limitation on Review.--There shall be no administrative or 
judicial review under section 1869, 1878, or otherwise of--
            ``(1) the establishment of a transition period under 
        subsection (b)(1);
            ``(2) the definition and application of payment units under 
        subsection (b)(2);
            ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including the 
        reduction described in clause (ii) of such subsection);
            ``(4) the establishment of the adjustment for outliers 
        under subsection (b)(3)(C);
            ``(5) the establishment of case mix and area wage 
        adjustments under subsection (b)(4);
            ``(6) the establishment of any adjustments for outliers 
        under subsection (b)(5); and
            ``(7) the amounts or types of adjustments under subsection 
        (b)(7).''.
    (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--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 subparagraph (D).
    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)) is amended in the matter preceding paragraph (1) by 
        striking ``and 1886'' and inserting ``1886, and 1895''.
            (2) Treatment of items and services paid under part b.--
                    (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                            (i) by amending subparagraph (A) to read as 
                        follows:
                    ``(A) with respect to home health services (other 
                than a covered osteoporosis drug) (as defined in 
                section 1861(kk)), the amount determined under the 
                prospective payment system under section 1895;'';
                            (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                            (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                            (iv) by adding at the end the following new 
                        subparagraph:
                    ``(G) with respect to items and services described 
                in section 1861(s)(10)(A), the lesser of--
                            ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                            ``(ii) the customary charges with respect 
                        to such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                    (B) Requiring payment for all items and services to 
                be made to agency.--
                            (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)), as 
                        amended by section 10401(b)(2), is amended--
                                    (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                    (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (F) in the case of home health 
                                services furnished to an individual who 
                                (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or when any other contracting 
                                or consulting arrangement, or 
                                otherwise).''.
                            (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as amended 
                        by section 10401(b), is amended by striking 
                        ``and section 1842(b)(6)(E)'' and inserting ``, 
                        section 1842(b)(6)(E), and section 
                        1842(b)(6)(F)''.
                    (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by sections 10401(b) and 
                10421(b), is amended--
                            (i) by striking ``or'' at the end of 
                        paragraph (17);
                            (ii) by striking the period at the end of 
                        paragraph (18) and inserting ``; or''; and
                            (iii) inserting after paragraph (18) the 
                        following new paragraph:
            ``(19) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
    (d) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to cost reporting periods beginning on 
or after October 1, 1999.

               Subtitle F--Provisions Relating to Part A

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 10501. PPS HOSPITAL PAYMENT UPDATE.

    Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is 
amended--
            (1) by striking ``and'' at the end of subclause (XII), and
            (2) by striking subclause (XIII) and inserting the 
        following:
            ``(XIII) for fiscal year 1998, 0 percent,
            ``(XIV) for each of the fiscal years 1999 through 2002, the 
        market basket percentage increase minus 1.0 percentage point 
        for hospitals in all areas, and
            ``(XV) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.

SEC. 10502. CAPITAL PAYMENTS FOR PPS HOSPITALS.

    (a) 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 on or 
after October 1, 1997, the Secretary shall apply the budget neutrality 
adjustment factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 of title 
42 of the Code of Federal Regulations), to (i) the unadjusted standard 
Federal capital payment rate (as described in section 412.308(c) of 
that title, as in effect on September 30, 1997), and (ii) the 
unadjusted hospital-specific rate (as described in section 
412.328(e)(1) of that title, as in effect on September 30, 1997).''.
    (b) Revision of Exceptions Process Under Prospective Payment System 
for Certain Projects.--
            (1) In general.--Section 1886(g)(1) (42 U.S.C. 
        1395ww(g)(1)) is amended--
                    (A) by redesignating subparagraph (C) as 
                subparagraph (F), and
                    (B) by inserting after subparagraph (B) the 
                following subparagraphs:
    ``(C) The exceptions under the system provided by the Secretary 
under subparagraph (B)(iii) shall include the provision of exception 
payments under the special exceptions process provided under section 
412.348(g) of title 42, Code of Federal Regulations (as in effect on 
September 1, 1995), except that the Secretary shall revise such 
process, effective for discharges occurring after September 30, 1997, 
as follows:
            ``(i) A hospital with at least 100 beds which is located in 
        an urban area shall be eligible under such process without 
        regard to its disproportionate patient percentage under 
        subsection (d)(5)(F) or whether it qualifies for additional 
        payment amounts under such subsection.
            ``(ii) The minimum payment level for qualifying hospitals 
        shall be 85 percent (or such lower percentage, but no lower 
        than 75 percent, as the Secretary may provide to comply with 
        subparagraph (D)).
            ``(iii) A hospital shall be considered to meet the 
        requirement that it complete the project involved no later than 
        the end of the hospital's last cost reporting period beginning 
        before October 1, 2001, if--
                    ``(I) the hospital has obtained a certificate of 
                need for the project approved by the State or a local 
                planning authority by September 1, 1995, and
                    ``(II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 percent 
                of the estimated cost of the project.
            ``(iv) Offsetting amounts, as described in section 
        412.348(g)(8)(ii) of title 42, Code of Federal Regulations, 
        shall apply except that subparagraph (B) of such section shall 
        be revised to require that the additional payment that would 
        otherwise be payable for the cost reporting period shall be 
        reduced by the amount (if any) by which the hospital's current 
        year medicare capital payments (excluding, if applicable, 75 
        percent of the hospital's capital-related disproportionate 
        share payments) exceeds its medicare capital costs for such 
        year.
    ``(D) The Secretary may reduce the percent specified under 
subparagraph (C)(ii) (but not below 75 percent) and shall reduce the 
Federal capital rate for a fiscal year by such percentage as the 
Secretary determines to be necessary to ensure that the application of 
subparagraph (C) does not result in an increase in the total amount 
that would have been paid under this subsection in the fiscal year if 
such subparagraph did not apply.
    ``(E) The Secretary shall provide for publication in the Federal 
Register each year (beginning with 1999) a description of the 
distributional impact of the application of subparagraph (C) on 
hospitals which receive, and do not receive, an exception payment under 
such subparagraph.''.
            (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
        U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
        provide'' and inserting ``shall provide (in accordance with 
        subparagraph (C))''.

SEC. 10503. FREEZE IN DISPROPORTIONATE SHARE.

    (a) No Update in Disproportionate Share for Fiscal Years 1998 and 
1999.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended in 
clause (ii) by adding at the end the following new sentence: ``For 
discharges occurring on or after October 1, 1997, the sum described in 
subclause (I) shall be determined as if the applicable percentage 
increase described in subsection (b)(3)(B)(i) for discharges for fiscal 
years 1998 and 1999 were zero percent.''.
    (b) Development of Revised Qualifying Criteria and Payment 
Methodology for Hospitals That Serve a Disproportionate Share of Low-
Income Patients.--
            (1) Development of proposal.--The Secretary of Health and 
        Human Services shall develop a proposal to modify the current 
        qualifying criteria and payment methodology under which 
        hospitals that are paid under section 1886(d) of the Social 
        Security Act (42 U.S.C. 1395ww(d)) receive an additional 
        payment because they serve a disproportionate share of low-
        income patients.
            (2) Report.--Not later than April 1, 1999, the Secretary 
        shall transmit the proposal developed under paragraph (1) to 
        the Committee on Ways and Means of the House of Representatives 
        and the Committee on Finance of the Senate.

SEC. 10504. MEDICARE CAPITAL ASSET SALES PRICE EQUAL TO BOOK VALUE.

    (a) In General.--Section 1861(v)(1)(O) (42 U.S.C. 1395x(v)(1)(O)) 
is amended--
            (1) in clause (i)--
                    (A) by striking ``and (if applicable) a return on 
                equity capital'';
                    (B) by striking ``hospital or skilled nursing 
                facility'' and inserting ``provider of services'';
                    (C) by striking ``clause (iv)'' and inserting 
                ``clause (iii)''; and
                    (D) by striking ``the lesser of the allowable 
                acquisition cost'' and all that follows and inserting 
                ``the historical cost of the asset, as recognized under 
                this title, less depreciation allowed, to the owner of 
                record as of the date of enactment of the Balanced 
                Budget Act of 1997 (or, in the case of an asset not in 
                existence as of that date, the first owner of record of 
                the asset after that date).'';
            (2) by striking clause (ii); and
            (3) by redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii), respectively.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
changes of ownership that occur after the third month beginning after 
the date of enactment of this section.

SEC. 10505. 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 made by this section apply to 
discharges occurring after September 30, 1997.

SEC. 10506. 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, 1997, is equal to 1.89  x  (((1+r) to the 
                nth power) -1),
                    ``(II) during fiscal year 1998, is equal to 1.62 
                x  (((1+r) to the nth power) -1), and
                    ``(III) during or after fiscal year 1999, is equal 
                to 1.35  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 0.405, subject to 
        clause (vi).''.
    (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 paragraph (5)(B)(ii) resulting from the amendments made 
by section 10506(a) of the Balanced Budget Act of 1997,''.
    (c) Limitation on Number of Residents for Certain Fiscal Years.--
Section 1886(d)(5)(B) (42 U.S.C. 1395ww(d)(5)(B)), as amended by 
subsection (a), is amended by adding at the end the following new 
clauses:
            ``(v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 1, 1997, 
        the total number of interns and residents in either a hospital 
        or non-hospital setting may not exceed the number of interns 
        and residents in the hospital with respect to the hospital's 
        cost reporting period beginning on or before December 31, 1996.
            ``(vi) For purposes of clause (ii)--
                    ``(I) `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, to the hospital's available beds (as 
                defined by the Secretary) during that cost reporting 
                period,
                    ``(II) for the hospital's first cost reporting 
                period beginning on or after October 1, 1997, subject 
                to the limits described in clauses (iv) and (v), the 
                total number of full-time equivalent residents for 
                payment purposes shall equal the average of the actual 
                full-time equivalent resident count for the hospital's 
                most recent cost reporting period and the preceding 
                cost reporting period, and
                    ``(III) for the cost reporting period beginning on 
                or after October 1, 1998, and each subsequent cost 
                reporting period, subject to the limits described in 
                clauses (iv) and (v), the total number of full-time 
                equivalent residents for payment purposes shall equal 
                the average of the actual full-time equivalent resident 
                count for the cost reporting period and the preceding 
                two cost reporting periods.
            ``(vii) If the hospital's fiscal year 1998 or later cost 
        reporting period is not equal to twelve months, the Secretary 
        shall make appropriate modifications to ensure that the average 
        full-time equivalent residency count pursuant to subclauses 
        (II) and (III) of clause (vi) is based on the equivalent of 
        full twelve month cost reporting periods.
            ``(viii) The Secretary may establish rules, consistent with 
        the policies in clauses (v) through (vii) and in subsection 
        (h)(6)(A)(ii), with respect to the application of clauses (v) 
        through (vii) in the case of medical residency training 
        programs established on or after January 1, 1997.''.

SEC. 10507. TREATMENT OF TRANSFER CASES.

    (a) Transfers to PPS Exempt Hospitals and Skilled Nursing 
Facilities.--Section 1886(d)(5)(I) (42 U.S.C. 1395ww(d)(5)(I)) is 
amended by adding at the end the following new clause:
     ``(iii) In carrying out this subparagraph, the Secretary shall 
treat the term `transfer case' as including the case of an individual 
who, upon discharge from a subsection (d) hospital--
            ``(I) is admitted as an inpatient to a hospital or hospital 
        unit that is not a subsection (d) hospital for the receipt of 
        inpatient hospital services; or
            ``(II) is admitted to a skilled nursing facility or 
        facility described in section 1861(y)(1) for the receipt of 
        extended care services.''.
    (b) Transfers for Purposes of Home Health Services.--Section 
1886(d)(5)(I)(iii) (42 U.S.C. 1395ww(d)(5)(I)(iii)), as amended by 
subsection (a), is amended--
            (1) in subclause (I), by striking ``or'';
            (2) in subclause (II), by striking the period at the end 
        and inserting ``; or'' and
            (2) by adding at the end the following new subclause:
            ``(III) receives home health services from a home health 
        agency, if such services relate to the condition or diagnosis 
        for which such individual received inpatient hospital services 
        from the subsection (d) hospital, and if such services are 
        provided within an appropriate period as determined by the 
        Secretary in regulations promulgated not later than September 
        1, 1998.''.
    (c) Effective Dates.--
            (1) The amendment made by subsection (a) shall apply with 
        respect to discharges occurring on or after October 1, 1997.
            (2) The amendment made by subsection (b) shall apply with 
        respect to discharges occurring on or after October 1, 1998.

SEC. 10508. INCREASE BASE PAYMENT RATE TO PUERTO RICO HOSPITALS.

    Section 1886(d)(9)(A) (42 U.S.C. 1395ww(d)(9)(A)) is amended--
            (1) in the matter preceding clause (i), by striking ``in a 
        fiscal year beginning on or after October 1, 1987,'',
            (2) in clause (i), by striking ``75 percent'' and 
        inserting, ``for discharges beginning on or after October 1, 
        1997, 50 percent (and for discharges between October 1, 1987, 
        and September 30, 1997, 75 percent)'', and
            (3) in clause (ii), by striking ``25 percent'' and 
        inserting, ``for discharges beginning in a fiscal year 
        beginning on or after October 1, 1997, 50 percent (and for 
        discharges between October 1, 1987 and September 30, 1997, 25 
        percent)''.

               CHAPTER 2--PAYMENT OF PPS EXEMPT HOSPITALS

SEC. 10511. PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) 
is amended--
            (1) in clause (ii)--
                    (A) by striking ``and'' at the end of subclause 
                (V),
                    (B) by redesignating subclause (VI) as subclause 
                (VIII); and
                    (C) by inserting after subclause (V), the following 
                subclauses:
            ``(VI) for fiscal year 1998, is 0 percent;
            ``(VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) for the 
        fiscal year; and''; and
            (2) by adding at the end the following new clause:
    ``(vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for the most recent cost reporting period 
for which information is available--
            ``(I) is equal to, or exceeds, 110 percent of the 
        hospital's target amount (as determined under subparagraph (A)) 
        for such cost reporting period, the applicable update factor 
        specified under this clause is the market basket percentage;
            ``(II) exceeds 100 percent, but is less than 110 percent, 
        of such target amount for the hospital, the applicable update 
        factor specified under this clause is 0 percent or, if greater, 
        the market basket percentage minus 0.25 percentage points for 
        each percentage point by which such allowable operating costs 
        (expressed as a percentage of such target amount) is less than 
        110 percent of such target amount;
            ``(III) is equal to, or less than 100 percent, but exceeds 
        \2/3\ of such target amount for the hospital, the applicable 
        update factor specified under this clause is 0 percent or, if 
        greater, the market basket percentage minus 2.5 percentage 
        points; or
            ``(IV) does not exceed \2/3\ of such target amount for the 
        hospital, the applicable update factor specified under this 
        clause is 0 percent.''.
    (b) No Effect of Payment Reduction on Exceptions and Adjustments.--
Section 1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is amended by 
adding at the end the following new sentence: ``In making such 
reductions, the Secretary shall treat the applicable update factor 
described in paragraph (3)(B)(vi) for a fiscal year as being equal to 
the market basket percentage for that year.''.

SEC. 10512. REDUCTIONS TO CAPITAL PAYMENTS FOR CERTAIN PPS-EXEMPT 
              HOSPITALS AND UNITS.

    Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the 
end the following new paragraph:
    ``(4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring during 
fiscal years 1998 through 2002 and that may be made under this title 
with respect to capital-related costs of inpatient hospital services of 
a hospital which is described in clause (i), (ii), or (iv) of 
subsection (d)(1)(B) or a unit described in the matter after clause (v) 
of such subsection, the Secretary shall reduce the amounts of such 
payments otherwise determined under this title by 10 percent.''.

SEC. 10513. CAP ON TEFRA LIMITS.

    Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended--
            (1) in subparagraph (A) by striking ``subparagraphs (C), 
        (D), and (E)'' and inserting ``subparagraph (C) and succeeding 
        subparagraphs'', and
            (2) by adding at the end the following:
    ``(F)(i) In the case of a hospital or unit that is within a class 
of hospital described in clause (ii), for cost reporting periods 
beginning on or after October 1, 1997, and before October 1, 2002, such 
target amount may not be greater than the 90th percentile of the target 
amounts for such hospitals within such class for cost reporting periods 
beginning during that fiscal year.
    ``(ii) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
            ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the matter 
        following clause (v) of such subsection.
            ``(III) Hospitals described in clause (iv) of such 
        subsection.''.

SEC. 10514. CHANGE IN BONUS AND RELIEF PAYMENTS.

    (a) Change in Bonus Payment.--Section 1886(b)(1)(A) (42 U.S.C. 
1395ww(b)(1)(A)) is amended by striking all that follows ``plus--'' and 
inserting the following:
                    ``(i) 10 percent of the amount by which the target 
                amount exceeds the amount of the operating costs, or
                    ``(ii) 1 percent of the operating costs,
        whichever is less;''.
    (b) Change in Relief Payments.--Section 1886(b)(1) (42 U.S.C. 
1395ww(b)(1)) is amended--
            (1) in subparagraph (B)--
                    (A) by striking ``greater than the target amount'' 
                and inserting ``greater than 110 percent of the target 
                amount'',
                    (B) by striking ``exceed the target amount'' and 
                inserting ``exceed 110 percent of the target amount'',
                    (C) by striking ``10 percent'' and inserting ``20 
                percent'', and
                    (D) by redesignating such subparagraph as 
                subparagraph (C); and
            (2) by inserting after subparagraph (A) the following new 
        subparagraph:
            ``(B) are greater than the target amount but do not exceed 
        110 percent of the target amount, the amount of the payment 
        with respect to those operating costs payable under part A on a 
        per discharge basis shall equal the target amount; or''.

SEC. 10515. CHANGE IN PAYMENT AND TARGET AMOUNT FOR NEW PROVIDERS.

    Section 1886(b) (42 U.S.C. 1395ww(b)) is amended--
            (1) by inserting after paragraph (1) the following new 
        paragraph:
    ``(2)(A) Notwithstanding paragraph (1), in the case of a hospital 
or unit that is within a class of hospital described in subparagraph 
(B) which first receives payments under this section on or after 
October 1, 1997--
            ``(i) for each of the first 2 full or partial cost 
        reporting periods, the amount of the payment with respect to 
        operating costs described in paragraph (1) under part A on a 
        per discharge or per admission basis (as the case may be) is 
        equal to the lesser of--
                    ``(I) the amount of operating costs for such 
                respective period, or
                    ``(II) 150 percent of the national median of the 
                operating costs for hospitals in the same class as the 
                hospital for cost reporting periods beginning during 
                the same fiscal year, as adjusted under subparagraph 
                (C); and
            ``(ii) for purposes of computing the target amount for the 
        subsequent cost reporting period, the target amount for the 
        preceding cost reporting period is equal to the amount 
        determined under clause (i) for such preceding period.
    ``(B) For purposes of this paragraph, each of the following shall 
be treated as a separate class of hospital:
            ``(i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(ii) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the matter 
        following clause (v) of such subsection.
            ``(iii) A class of hospitals described in subsection 
        (d)(1)(B)(iv) that the Secretary shall establish based upon a 
        measure of case mix that takes into account acuity.
            ``(iv) Hospitals described in subsection (d)(1)(B)(iv) that 
        are not within the class described in clause (iii).
    ``(C) In applying subparagraph (A)(i)(II) in the case of a hospital 
or unit, the Secretary shall provide for an appropriate adjustment to 
the labor-related portion of the amount determined under such 
subparagraph to take into account differences between average wage-
related costs in the area of the hospital and the national average of 
such costs within the same class of hospital.''; and
            (2) in paragraph (3)(A), as amended in section 10513, by 
        inserting ``and in paragraph (2)(A)(ii),'' before ``for 
        purposes of''.

SEC. 10516. REBASING.

    (a) Option of Rebasing for Hospitals In Operation Before 1990.--
Section 1886(b)(3)(42 U.S.C. 1395ww(b)(3)), as amended in section 
10513, is amended by adding at the end the following new subparagraph:
    ``(G)(i) In the case of a hospital (or unit described in the matter 
following clause (v) of subsection (d)(1)(B)) that received payment 
under this subsection for inpatient hospital services furnished during 
cost reporting periods before October 1, 1990, that is within a class 
of hospital described in clause (iii), and that elects (in a form and 
manner determined by the Secretary) this subparagraph to apply to the 
hospital, the target amount for the hospital's 12-month cost reporting 
period beginning during fiscal year 1998 is equal to the average 
described in clause (ii).
    ``(ii) The average described in this clause for a hospital or unit 
shall be determined by the Secretary as follows:
            ``(I) The Secretary shall determine the allowable operating 
        costs for inpatient hospital services for the hospital or unit 
        for each of the 5 cost reporting periods for which the 
        Secretary has the most recent settled cost reports as of the 
        date of the enactment of this subparagraph.
            ``(II) The Secretary shall increase the amount determined 
        under subclause (I) for each cost reporting period by the 
        applicable percentage increase under subparagraph (B)(ii) for 
        each subsequent cost reporting period up to the cost reporting 
        period described in clause (i).
            ``(III) The Secretary shall identify among such 5 cost 
        reporting periods the cost reporting periods for which the 
        amount determined under subclause (II) is the highest, and the 
        lowest.
            ``(IV) The Secretary shall compute the averages of the 
        amounts determined under subclause (II) for the 3 cost 
        reporting periods not identified under subclause (III).
    ``(iii) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
            ``(I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
            ``(II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the matter 
        following clause (v) of such subsection.
            ``(III) Hospitals described in clause (iii) of such 
        subsection.
            ``(IV) Hospitals described in clause (iv) of such 
        subsection.
            ``(V) Hospitals described in clause (v) of such 
        subsection.''.
    (b) Certain Long-Term Care Hospitals.--Section 1886(b)(3) (42 
U.S.C. 1395ww(b)(3)), as amended by subsection (a), is amended by 
adding at the end the following new subparagraph:
    ``(H)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner determined by 
the Secretary) this subparagraph to apply to the hospital, the target 
amount for the hospital's 12-month cost reporting period beginning 
during fiscal year 1998 is equal to the allowable operating costs of 
inpatient hospital services (as defined in subsection (a)(4)) 
recognized under this title for the hospital for the 12-month cost 
reporting period beginning during fiscal year 1996, increased by the 
applicable percentage increase for the cost reporting period beginning 
during fiscal year 1997.
    ``(ii) In clause (i), a `qualified long-term care hospital' means, 
with respect to a cost reporting period, a hospital described in clause 
(iv) of subsection (d)(1)(B) during each of the 2 cost reporting 
periods for which the Secretary has the most recent settled cost 
reports as of the date of the enactment of this subparagraph for each 
of which--
            ``(I) the hospital's allowable operating costs of inpatient 
        hospital services recognized under this title exceeded 115 
        percent of the hospital's target amount, and
            ``(II) the hospital would have a disproportionate patient 
        percentage of at least 70 percent (as determined by the 
        Secretary under subsection (d)(5)(F)(vi)) if the hospital were 
        a subsection (d) hospital.''.
    (c) Certain Long-Term Care Cancer Hospitals.--
            (1) In general.--Section 1886(d)(1)(B)(iv) (42 U.S.C. 
        1395ww(d)(1)(B)(iv)) is amended by adding at the end the 
        following: ``a hospital that first received payment under this 
        subsection in 1986 which has an average inpatient length of 
        stay (as determined by the Secretary) of greater than 20 days 
        and that has 80 percent or more of its annual total inpatient 
        discharges with a principal diagnosis that reflects a finding 
        of neoplastic disease, or''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to cost reporting periods beginning on or after the 
        date of the enactment of this Act.

SEC. 10517. TREATMENT OF CERTAIN LONG-TERM CARE HOSPITALS.

    (a) In General.--Section 1886(d)(1)(B) (42 U.S.C. 1395ww(d)(1)(B)) 
is amended by adding at the end the following new sentence: ``A 
hospital that was classified by the Secretary on or before September 
30, 1995, as a hospital described in clause (iv) shall continue to be 
so classified notwithstanding that it is located in the same building 
as, or on the same campus as, another hospital.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to discharges occurring on or after October 1, 1995.

SEC. 10518. ELIMINATION OF EXEMPTIONS; REPORT ON EXCEPTIONS AND 
              ADJUSTMENTS.

    (a) Elimination of Exemptions.--
            (1) In general.--Section 1886(b)(4)(A)(i) (42 U.S.C. 
        1395ww(b)(4)(A)(i)) is amended by striking ``exemption from, or 
        an exception and adjustment to,'' and inserting ``an exception 
        and adjustment to'' each place it appears.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to hospitals or units that first qualify as a 
        hospital or unit described in section 1886(d)(1)(B) (42 U.S.C. 
        1395ww(d)(1)(B)) on or after October 1, 1997.
    (b) Report.--The Secretary of Health and Human Services shall 
publish annually in the Federal Register a report describing the total 
amount of payments made to hospitals by reason of section 1886(b)(4) of 
the Social Security Act (42 U.S.C. 1395ww(b)(4)), as amended by 
subsection (a), for cost reporting periods ending during the previous 
fiscal year.

           CHAPTER 3--PROVISIONS RELATED TO HOSPICE SERVICES

SEC. 10521. PAYMENTS FOR HOSPICE SERVICES.

    (a) Payment Update.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended--
            (1) in subclause (V), by striking ``and'' at the end;
            (2) by redesignating subclause (VI) as subclause (VII); and
            (3) by inserting after subclause (V) the following new 
        subclause:
            ``(VI) for each of fiscal years 1998 through 2002, the 
        market basket percentage increase for the fiscal year involved 
        minus 1.0 percentage points; and''.
    (b) Report.--Section 1814(i) (42 U.S.C. 1395f(i)) is amended by 
adding at the end the following new paragraph:
    ``(3) The Secretary shall provide for the collection of data, from 
hospice programs providing hospice care for which payment is made under 
this subsection, with respect to the costs for providing such care for 
each fiscal year beginning with fiscal year 1999.''.

SEC. 10522. PAYMENT FOR HOME HOSPICE CARE BASED ON LOCATION WHERE CARE 
              IS FURNISHED.

    (a) In General.--Section 1814(i)(2) (42 U.S.C. 1395f(i)(2)) is 
amended by adding at the end the following:
    ``(D) A hospice program shall submit claims for payment for hospice 
care furnished in an individual's home under this title only on the 
basis of the geographic location at which the service is furnished, as 
determined by the Secretary.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to cost reporting periods beginning on or after October 1, 1997.

SEC. 10523. HOSPICE CARE BENEFITS PERIODS.

    (a) Restructuring of Benefit Period.--Section 1812 (42 U.S.C. 
1395d) is amended, in subsections (a)(4) and (d)(1), by striking ``, a 
subsequent period of 30 days, and a subsequent extension period'' and 
inserting ``and an unlimited number of subsequent periods of 60 days 
each''.
    (b) Conforming Amendments.--(1) Section 1812 (42 U.S.C. 1395d) is 
amended in subsection (d)(2)(B) by striking ``90- or 30-day period or a 
subsequent extension period'' and inserting ``90-day period or a 
subsequent 60-day period''.
    (2) Section 1814(a)(7)(A) (42 U.S.C. 1395f(a)(7)(A)) is amended--
            (A) in clause (i), by inserting ``and'' at the end;
            (B) in clause (ii)--
                    (i) by striking ``30-day'' and inserting ``60-
                day''; and
                    (ii) by striking ``, and'' at the end and inserting 
                a period; and
            (C) by striking clause (iii).

SEC. 10524. OTHER ITEMS AND SERVICES INCLUDED IN HOSPICE CARE.

    Section 1861(dd)(1) (42 U.S.C. 1395x(dd)(1)) is amended--
            (1) in subparagraph (G), by striking ``and'' at the end;
            (2) in subparagraph (H), by striking the period at the end 
        and inserting ``, and''; and
            (3) by inserting after subparagraph (H) the following:
            ``(I) any other item or service which is specified in the 
        plan and for which payment may otherwise be made under this 
        title.''.

SEC. 10525. CONTRACTING WITH INDEPENDENT PHYSICIANS OR PHYSICIAN GROUPS 
              FOR HOSPICE CARE SERVICES PERMITTED.

    Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is amended--
            (1) in subparagraph (A)(ii)(I), by striking ``(F),''; and
            (2) in subparagraph (B)(i), by inserting ``or, in the case 
        of a physician described in subclause (I), under contract 
        with'' after ``employed by''.

SEC. 10526. WAIVER OF CERTAIN STAFFING REQUIREMENTS FOR HOSPICE CARE 
              PROGRAMS IN NON-URBANIZED AREAS.

    Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is amended--
            (1) in subparagraph (B), by inserting ``or (C)'' after 
        ``subparagraph (A)'' each place it appears; and
            (2) by adding at the end the following:
    ``(C) The Secretary may waive the requirements of paragraph 
(2)(A)(i) and (2)(A)(ii) for an agency or organization with respect to 
the services described in paragraph (1)(B) and, with respect to dietary 
counseling, paragraph (1)(H), if such agency or organization--
            ``(i) is located in an area which is not an urbanized area 
        (as defined by the Bureau of Census), and
            ``(ii) demonstrates to the satisfaction of the Secretary 
        that the agency or organization has been unable, despite 
        diligent efforts, to recruit appropriate personnel.''.

SEC. 10527. LIMITATION ON LIABILITY OF BENEFICIARIES FOR CERTAIN 
              HOSPICE COVERAGE DENIALS.

    Section 1879(g) (42 U.S.C. 1395pp(g)) is amended--
            (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively, and moving such 
        subparagraphs 2 ems to the right;
            (2) by striking ``is,'' and inserting ``is--'';
            (3) by making the remaining text of subsection (g), as 
        amended, that follows ``is--'' a new paragraph (1) and 
        indenting such paragraph 2 ems to the right;
            (4) by striking the period at the end and inserting ``; 
        and''; and
            (5) by adding at the end the following new paragraph:
            ``(2) with respect to the provision of hospice care to an 
        individual, a determination that the individual is not 
        terminally ill.''.

SEC. 10528. EXTENDING THE PERIOD FOR PHYSICIAN CERTIFICATION OF AN 
              INDIVIDUAL'S TERMINAL ILLNESS.

    Section 1814(a)(7)(A)(i) (42 U.S.C. 1395f(a)(7)(A)(i)) is amended, 
in the matter following subclause (II), by striking ``, not later than 
2 days after hospice care is initiated (or, if each certify verbally 
not later than 2 days after hospice care is initiated, not later than 8 
days after such care is initiated)'' and inserting ``at the beginning 
of the period''.

SEC. 10529. EFFECTIVE DATE.

    Except as otherwise provided in this chapter, the amendments made 
by this chapter apply to benefits provided on or after the date of the 
enactment of this chapter, regardless of whether or not an individual 
has made an election under section 1812(d) of the Social Security Act 
(42 U.S.C. 1395d(d)) before such date.

         CHAPTER 4--MODIFICATION OF PART A HOME HEALTH BENEFIT

SEC. 10531. MODIFICATION OF PART A HOME HEALTH BENEFIT FOR INDIVIDUALS 
              ENROLLED UNDER PART B.

    (a) In General.--Section 1812 (42 U.S.C. 1395d) is amended--
            (1) in subsection (a)(3), by striking ``home health 
        services'' and inserting ``for individuals not enrolled in part 
        B, home health services, and for individuals so enrolled, part 
        A home health services (as defined in subsection (g))'';
            (2) by redesignating subsection (g) as subsection (h); and
            (3) by inserting after subsection (f) the following new 
        subsection:
    ``(g)(1) For purposes of this section, the term `part A home health 
services' means--
            ``(A) for services furnished during each year beginning 
        with 1998 and ending with 2002, home health services subject to 
        the transition reduction applied under paragraph (2)(C) for 
        services furnished during the year, and
            ``(B) for services furnished on or after January 1, 2003, 
        post-institutional home health services for up to 100 visits 
        during a home health spell of illness.
    ``(2) For purposes of paragraph (1)(B), the Secretary shall 
specify, before the beginning of each year beginning with 1998 and 
ending with 2002, a transition reduction in the home health services 
benefit under this part as follows:
            ``(A) The Secretary first shall estimate the amount of 
        payments that would have been made under this part for home 
        health services furnished during the year if--
                    ``(i) part A home health services were all home 
                health services, and
                    ``(ii) part A home health services were limited to 
                services described in paragraph (1)(B).
            ``(B)(i) The Secretary next shall compute a transfer 
        reduction amount equal to the appropriate proportion (specified 
        under clause (ii)) of the amount by which the amount estimated 
        under subparagraph (A)(i) for the year exceeds the amount 
        estimated under subparagraph (A)(ii) for the year.
            ``(ii) For purposes of clause (i), the `appropriate 
        proportion' is equal to--
                    ``(I) \1/6\ for 1998,
                    ``(II) \2/6\ for 1999,
                    ``(III) \3/6\ for 2000,
                    ``(IV) \4/6\ for 2001, and
                    ``(V) \5/6\ for 2002.
            ``(C) The Secretary shall establish a transition reduction 
        by specifying such a visit limit (during a home health spell of 
        illness) or such a post-institutional limitation on home health 
        services furnished under this part during the year as the 
        Secretary estimates will result in a reduction in the amount of 
        payments that would otherwise be made under this part for home 
        health services furnished during the year equal to the transfer 
        amount computed under subparagraph (B)(i) for the year.
    ``(3) Payment under this part for home health services furnished an 
individual enrolled under part B--
                    ``(A) during a year beginning with 1998 and ending 
                with 2003, may not be made for services that are not 
                within the visit limit or other limitation specified by 
                the Secretary under the transition reduction under 
                paragraph (3)(C) for services furnished during the 
                year; or
                    ``(B) on or after January 1, 2004, may not be made 
                for home health services that are not post-
                institutional home health services or for post-
                institutional furnished to the individual after such 
                services have been furnished to the individual for a 
                total of 100 visits during a home health spell of 
                illness.
    ``(4) With respect to computing the monthly actuarial rate for 
enrollees age 65 and over for purposes of applying section 1839, such 
rate shall be computed as though any reference in a previous provision 
of this subsection to 2002 or 2003 is a reference to the succeeding 
year and as through the appropriate proportion described in paragraph 
(3)(B)(ii) were equal to--
            ``(A) \1/7\ for 1998,
            ``(B) \2/7\ for 1999,
            ``(C) \3/7\ for 2000,
            ``(D) \4/7\ for 2001,
            ``(E) \5/7\ for 2002, and
            ``(F) \6/7\ for 2003.''.
    (b) Post-institutional Home Health Services Defined.--Section 1861 
(42 U.S.C. 1395x), as amended by section 10105(a)(1)(B) is amended by 
adding at the end the following:

``Post-Institutional Home Health Services; Home Health Spell of Illness

    ``(rr)(1) The term `post-institutional home health services' means 
home health services furnished to an individual--
            ``(A) after discharge from a hospital or rural primary care 
        hospital in which the individual was an inpatient for not less 
        than 3 consecutive days before such discharge if such home 
        health services were initiated within 14 days after the date of 
        such discharge; or
            ``(B) after discharge from a skilled nursing facility in 
        which the individual was provided post-hospital extended care 
        services if such home health services were initiated within 14 
        days after the date of such discharge.
    ``(2) The term `home health spell of illness' with respect to any 
individual means a period of consecutive days--
            ``(A) beginning with the first day (not included in a 
        previous home health spell of illness) (i) on which such 
        individual is furnished post-institutional home health 
        services, and (B) which occurs in a month for which the 
        individual is entitled to benefits under part A, and
            ``(B) ending with the close of the first period of 60 
        consecutive days thereafter on each of which the individual is 
        neither an inpatient of a hospital or rural primary care 
        hospital nor an inpatient of a facility described in section 
        1819(a)(1) or subsection (y)(1) nor provided home health 
        services.''.
    (c) Maintaining Appeal Rights for Home Health Services.--Section 
1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by inserting ``(or 
$100 in the case of home health services)'' after ``$500''.
    (d) Maintaining Seamless Administration Through Fiscal 
Intermediaries.--Section 1842(b)(2) (42 U.S.C. 1395u(b)(2)) is amended 
by adding at the end the following:
    ``(E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by section 
10531 of the Balanced Budget Act of 1997, would be payable under part A 
instead of under this part, the Secretary shall continue administration 
of such claims through fiscal intermediaries under section 1816.''.
    (e) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1998. For purpose of applying 
such amendments, any home health spell of illness that began, but not 
end, before such date shall be considered to have begun as of such 
date.

                  CHAPTER 5--OTHER PAYMENT PROVISIONS

SEC. 10541. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD DEBT.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
the end the following new subparagraph:
    ``(T) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which are 
attributable to the deductibles and coinsurance amounts under this 
title shall be reduced--
            ``(i) for cost reporting periods beginning during fiscal 
        year 1998, by 25 percent of such amount otherwise allowable,
            ``(ii) for cost reporting periods beginning during fiscal 
        year 1999, by 40 percent of such amount otherwise allowable, 
        and
            ``(iii) for cost reporting periods beginning during a 
        subsequent fiscal year, by 50 percent of such amount otherwise 
        allowable.''.

SEC. 10542. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

    Effective October 1, 1997, section 6011(d) of OBRA-1989 (as amended 
by section 13505 of OBRA-1993) is amended by striking ``and shall 
expire September 30, 1994''.

SEC. 10543. REDUCTION IN PART A MEDICARE PREMIUM FOR CERTAIN PUBLIC 
              RETIREES.

    (a) In General.--Section 1818(d) (42 U.S.C. 1395i-2(d)) is 
amended--
            (1) in paragraph (2), by striking ``paragraph (4)'' and 
        inserting ``paragraphs (4) and (5)''; and
            (2) by adding at the end the following new paragraph:
    ``(5)(A) The amount of the monthly premium shall be zero in the 
case of an individual who is a person described in subparagraph (B) for 
a month, if--
            ``(i) the individual's premium under this section for the 
        month is not (and will not be) paid for, in whole or in part, 
        by a State (under title XIX or otherwise), a political 
        subdivision of a State, or an agency or instrumentality of one 
        or more States or political subdivisions thereof; and
            ``(ii) in each of 60 months before such month, the 
        individual was enrolled in this part under this section and the 
        payment of the individual's premium under this section for the 
        month was not paid for, in whole or in part, by a State (under 
        title XIX or otherwise), a political subdivision of a State, or 
        an agency or instrumentality of one or more States or political 
        subdivisions thereof.
    ``(B) A person described in this subparagraph for an month is a 
person who establishes to the satisfaction of the Secretary that, as of 
the last day of the previous month--
            ``(i)(I) the person was receiving cash benefits under a 
        qualified State or local government retirement system (as 
        defined in subparagraph (C)) on the basis of the person's 
        employment in one or more positions covered under any such 
        system, and (II) the person would have at least 40 quarters of 
        coverage under title II if remuneration for medicare qualified 
        government employment (as defined in paragraph (1) of section 
        210(p), but determined without regard to paragraph (3) of such 
        section) paid to such person were treated as wages paid to such 
        person and credited for purposes of determining quarters of 
        coverage under section 213;
            ``(ii)(I) the person was married (and had been married for 
        the previous 1-year period) to an individual who is described 
        in clause (i), or (II) the person met the requirement of clause 
        (i)(II) and was married (and had been married for the previous 
        1-year period) to an individual described in clause (i)(I);
            ``(iii) the person had been married to an individual for a 
        period of at least 1 year (at the time of such individual's 
        death) if (I) the individual was described in clause (i) at the 
        time of the individual's death, or (II) the person met the 
        requirement of clause (i)(II) and the individual was described 
        in clause (i)(I) at the time of the individual's death; or
            ``(iv) the person is divorced from an individual and had 
        been married to the individual for a period of at least 10 
        years (at the time of the divorce) if (I) the individual was 
        described in clause (i) at the time of the divorce, or (II) the 
        person met the requirement of clause (i)(II) and the individual 
        was described in clause (i)(I) at the time of the divorce.
    ``(C) For purposes of subparagraph (B)(i)(I), the term `qualified 
State or local government retirement system' means a retirement system 
that--
            ``(i) is established or maintained by a State or political 
        subdivision thereof, or an agency or instrumentality of one or 
        more States or political subdivisions thereof;
            ``(ii) covers positions of some or all employees of such a 
        State, subdivision, agency, or instrumentality; and
            ``(iii) does not adjust cash retirement benefits based on 
        eligibility for a reduction in premium under this paragraph.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to premiums for months beginning with January 1998, and months 
before such month may be taken into account for purposes of meeting the 
requirement of section 1818(d)(5)(B)(iii) of the Social Security Act, 
as added by subsection (a).

             Subtitle G--Provisions Relating to Part B Only

                    CHAPTER 1--PHYSICIANS' SERVICES

SEC. 10601. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) is 
amended--
            (1) by redesignating subparagraph (C) as subparagraph (D), 
        and
            (2) by inserting after subparagraph (B) the following:
                    ``(C) Special rules for 1998.--The single 
                conversion factor for 1998 under this subsection shall 
                be the conversion factor for primary care services for 
                1997, increased by the Secretary's estimate of the 
                weighted average of the three separate updates that 
                would otherwise occur were it not for the enactment of 
                chapter 1 of subtitle G of title X of the Balanced 
                Budget Act of 1997.''.
    (b) Conforming Amendments.--Section 1848 (42 U.S.C. 1395w-4) is 
amended--
            (1) by striking ``(or factors)'' each place it appears in 
        subsection (d)(1)(A) and (d)(1)(D)(ii) (as redesignated by 
        subsection (a)(1)),
            (2) in subsection (d)(1)(A), by striking ``or updates'',
            (3) in subsection (d)(1)(D) (as redesignated by subsection 
        (a)(1)), by striking ``(or updates)'' each place it appears, 
        and
            (4) in subsection (i)(1)(C), by striking ``conversion 
        factors'' and inserting ``the conversion factor''.

SEC. 10602. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
              UNDER SUSTAINABLE GROWTH RATE.

    (a) Update.--
            (1) 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 otherwise provided by 
                law, 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 1999 is equal to the product of--
                            ``(i) 1 plus the Secretary's estimate of 
                        the percentage increase in the MEI (as defined 
                        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.--For purposes of 
                subparagraph (A)(ii), 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 (as determined under subparagraph (C)) 
                        during the period beginning July 1, 1997, and 
                        ending on June 30 of the year involved, and 
                        (II) the sum of the amount of actual 
                        expenditures for physicians' services furnished 
                        during the period beginning July 1, 1997, and 
                        ending on June 30 of the preceding year; 
                        divided by
                            ``(ii) the actual expenditures for 
                        physicians' services for the 12-month period 
                        ending on June 30 of the preceding year, 
                        increased by the sustainable growth rate under 
                        subsection (f) for the fiscal year which begins 
                        during such 12-month period.
                    ``(C) Determination of allowed expenditures.--For 
                purposes of this paragraph, the allowed expenditures 
                for physicians' services for the 12-month period ending 
                with June 30 of--
                            ``(i) 1997 is equal to the actual 
                        expenditures for physicians' services furnished 
                        during such 12-month period, as estimated by 
                        the Secretary; or
                            ``(ii) a subsequent year is equal to the 
                        allowed expenditures for physicians' services 
                        for the previous year, increased by the 
                        sustainable growth rate under subsection (f) 
                        for the fiscal year which begins during such 
                        12-month period.
                    ``(D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of the 
                update adjustment factor determined under subparagraph 
                (B) for a year, the update in the conversion factor 
                under this paragraph for the year may not be--
                            ``(i) greater than 100 times the following 
                        amount: (1.03 + (MEI percentage/100)) - 1; or
                            ``(ii) less than 100 times the following 
                        amount: (0.93 + (MEI percentage/100)) -1,
                where `MEI percentage' means the Secretary's estimate 
                of the percentage increase in the MEI (as defined in 
                section 1842(i)(3)) for the year involved.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to the update for years beginning with 1999.
    (b) Elimination of Report.--Section 1848(d) (42 U.S.C. 1395w-4(d)) 
is amended by striking paragraph (2).

SEC. 10603. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
              GROWTH RATE.

    (a) 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.--The sustainable growth 
        rate for all physicians' services for a fiscal year (beginning 
        with fiscal year 1998) shall be equal to the product of--
                    ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided by 100) 
                in the fees for all physicians' services in the fiscal 
                year involved,
                    ``(B) 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 MedicarePlus plan enrollees) from the previous 
                fiscal year to the fiscal year involved,
                    ``(C) 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, and
                    ``(D) 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 and regulations, 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)(3),
        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 
                tests 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 a MedicarePlus plan 
                enrollee.
                    ``(B) MedicarePlus plan enrollee.--The term 
                `MedicarePlus plan enrollee' means, with respect to a 
                fiscal year, an individual enrolled under this part who 
                has elected to receive benefits under this title for 
                the fiscal year through a MedicarePlus plan offered 
                under part C, and also includes an individual who is 
                receiving benefits under this part through enrollment 
                with an eligible organization with a risk-sharing 
                contract under section 1876.''.
    (b) Conforming Amendments.--Section 1848(f) (42 U.S.C. 1395w-4(f)) 
is amended--
            (1) in the heading, by striking ``Volume Performance 
        Standard Rates of Increase'' and inserting ``Sustainable Growth 
        Rate''; and
            (2) in paragraph (1)--
                    (A) in the heading, by striking ``volume 
                performance standard rates of increase'' and inserting 
                ``sustainable growth rate'',
                    (B) by striking subparagraphs (A) and (B); and
                    (C) in paragraph (1)(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 1999), 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, 
                        1999, the sustainable growth rate for fiscal 
                        year 1999''.

SEC. 10604. PAYMENT RULES FOR ANESTHESIA SERVICES.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)), as 
amended by section 10601(a), is amended--
            (1) in subparagraph (C), striking ``The single'' and 
        inserting ``Except as provided in subparagraph (D), the 
        single'';
            (2) by redesignating subparagraph (D) as subparagraph (E); 
        and
            (3) by inserting after subparagraph (C) the following new 
        subparagraph:
                    ``(D) Special rules for anesthesia services.--The 
                separate conversion factor for anesthesia services for 
                a year shall be equal to 46 percent of the single 
                conversion factor established for other physicians' 
                services, except as adjusted for changes in work, 
                practice expense, or malpractice relative value units. 
                ''.
    (b) Classification of Anesthesia Services.--The first sentence of 
section 1848(j)(1) (42 U.S.C. 1395w-4(j)(1)) is amended--
            (1) by striking ``and including anesthesia services''; and
            (2) by inserting before the period the following: 
        ``(including anesthesia services)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 1998.

SEC. 10605. IMPLEMENTATION OF RESOURCE-BASED PHYSICIAN PRACTICE 
              EXPENSE.

    (a) 1-Year Delay in Implementation.--Section 1848(c) (42 U.S.C. 
1395w-4(c)) is amended--
            (1) in paragraph (2)(C)(ii), in the matter before subclause 
        (I) and after subclause (II), by striking ``1998'' and 
        inserting ``1999'' each place it appears; and
            (2) in paragraph (3)(C)(ii), by striking ``1998'' and 
        inserting ``1999''.
    (b) Phased-in Implementation.--Section 1848(c)(2)(C)(ii) (42 U.S.C. 
1395w-4(c)(2)(C)(ii)) is further amended--
            (1) in subparagraph (C)(ii), in the matter following 
        subclause (II), by inserting ``, to the extent provided under 
        subparagraph (G),'' after ``based'', and
            (2) by adding at the end the following new subparagraph:
                    ``(G) Transitional rule for resource-based practice 
                expense units.--In applying subparagraph (C)(ii) for 
                1999, 2000, 2001, and any subsequent year, the number 
                of units under such subparagraph shall be based 75 
                percent, 50 percent, 25 percent, and 0 percent, 
                respectively, on the practice expense relative value 
                units in effect in 1998 (or the Secretary's imputation 
                of such units for new or revised codes) and the 
                remainder on the relative value expense resources 
                involved in furnishing the service.''.

SEC. 10606. DISSEMINATION OF INFORMATION ON HIGH PER DISCHARGE RELATIVE 
              VALUES FOR IN-HOSPITAL PHYSICIANS' SERVICES.

    (a) Determination and Notice Concerning Hospital-Specific Per 
Discharge Relative Values.--
            (1) In general.--For 1999 and 2001 the Secretary of Health 
        and Human Services shall determine for each hospital--
                    (A) the hospital-specific per discharge relative 
                value under subsection (b); and
                    (B) whether the hospital-specific relative value is 
                projected to be excessive (as determined based on such 
                value represented as a percentage of the median of 
                hospital-specific per discharge relative values 
                determined under subsection (b)).
            (2) Notice to medical staffs and carriers.--The Secretary 
        shall notify the medical executive committee of each hospital 
        identifies under paragraph (1)(B) as having an excessive 
        hospital-specific relative value, of the determinations made 
        with respect to the medical staff under paragraph (1).
    (b) Determination of Hospital-Specific Per Discharge Relative 
Values.--
            (1) In general.--For purposes of this section, the 
        hospital-specific per discharge relative value for the medical 
        staff of a hospital (other than a teaching hospital) for a 
        year, shall be equal to the average per discharge relative 
        value (as determined under section 1848(c)(2) of the Social 
        Security Act) for physicians' services furnished to inpatients 
        of the hospital by the hospital's medical staff (excluding 
        interns and residents) during the second year preceding that 
        calendar year, adjusted for variations in case-mix and 
        disproportionate share status among hospitals (as determined by 
        the Secretary under paragraph (3)).
            (2) Special rule for teaching hospitals.--The hospital-
        specific relative value projected for a teaching hospital in a 
        year shall be equal to the sum of--
                    (A) the average per discharge relative value (as 
                determined under section 1848(c)(2) of such Act) for 
                physicians' services furnished to inpatients of the 
                hospital by the hospital's medical staff (excluding 
                interns and residents) during the second year preceding 
                that calendar year, and
                    (B) the equivalent per discharge relative value (as 
                determined under such section) for physicians' services 
                furnished to inpatients of the hospital by interns and 
                residents of the hospital during the second year 
                preceding that calendar year, adjusted for variations 
                in case-mix, disproportionate share status, and 
                teaching status among hospitals (as determined by the 
                Secretary under paragraph (3)).
        The Secretary shall determine the equivalent relative value 
        unit per discharge for interns and residents based on the best 
        available data and may make such adjustment in the aggregate.
            (3) Adjustment for teaching and disproportionate share 
        hospitals.--The Secretary shall adjust the allowable per 
        discharge relative values otherwise determined under this 
        subsection to take into account the needs of teaching hospitals 
        and hospitals receiving additional payments under subparagraphs 
        (F) and (G) of section 1886(d)(5) of the Social Security Act. 
        The adjustment for teaching status or disproportionate share 
        shall not be less than zero.
    (c) Definitions.--For purposes of this section:
            (1) Hospital.--The term ``hospital'' means a subsection (d) 
        hospital as defined in section 1886(d) of the Social Security 
        Act (42 U.S.C. 1395ww(d)) .
            (2) 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 the bylaws, rules, and 
                        regulations, the individual has clinical 
                        privileges granted by the hospital's governing 
                        body, and
                            (iii) under the clinical privileges, the 
                        individual may provide physicians'' services 
                        independently within the scope of the 
                        individual's clinical privileges, or
                    (B) if the physician provides at least one service 
                to an individual entitled to benefits under this title 
                in that hospital.
            (3) Physicians' services.--The term ``physicians'' 
        services'' means the services described in section 1848(j)(3) 
        of the Social Security Act (42 U.S.C. 1395w-4(j)(3)).
            (4) Rural area; urban area.--The terms ``rural area'' and 
        ``urban area'' have the meaning given those terms under section 
        1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)).
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services .
            (6) Teaching hospital.--The term ``teaching hospital'' 
        means a hospital which has a teaching program approved as 
        specified in section 1861(b)(6) of the Social Security Act (42 
        U.S.C. 1395x(b)(6)).

SEC. 10607. NO X-RAY REQUIRED FOR CHIROPRACTIC SERVICES.

    (a) In General.--Section 1861(r)(5) (42 U.S.C. 1395x(r)(5)) is 
amended by striking ``demonstrated by X-ray to exist''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after January 1, 1998.

SEC. 10608. TEMPORARY COVERAGE RESTORATION FOR PORTABLE 
              ELECTROCARDIOGRAM TRANSPORTATION.

    (a) In General.--Effective for electrocardiogram tests furnished 
during 1998, the Secretary of Health and Human Services shall restore 
separate payment, under part B of title XVIII of the Social Security 
Act, for the transportation of electrocardiogram equipment (HCPCS code 
R0076) based upon the status code and relative value units established 
for such service as of December 31, 1996.
    (b) Determination.--By not later than July 1, 1998, the Secretary 
of Health and Human Services shall determine, taking into account the 
study of coverage of portable electrocardiogram transportation 
conducted by the Comptroller General and other relevant information, 
including information submitted by interested parties, whether coverage 
of portable electrocardiogram transportation should be provided under 
part B of title XVIII of the Social Security Act.

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

SEC. 10611. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
            (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, 1996, and 1997'', 
                        and
                            (ii) by striking the period at the end and 
                        inserting a semicolon; and
                    (C) by adding at the end the following:
                    ``(C) for each of the years 1998 through 2002, 0 
                percentage points; and
                    ``(D) for a subsequent year, the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. urban average) for the 12-month period 
                ending with June of the previous year.''.
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                    (A) by striking ``, and'' at the end of clause 
                (iii) and inserting a semicolon;
                    (B) in clause (iv), by striking ``a subsequent 
                year'' and inserting ``1996 and 1997'', and
                    (C) by adding at the end the following new clauses:
                            ``(v) for each of the years 1998 through 
                        2002, 1 percent, and
                            ``(vi) for a subsequent year, the 
                        percentage increase in the consumer price index 
                        for all urban consumers (United States city 
                        average) for the 12-month period ending with 
                        June of the previous year;''.
    (c) Payment Freeze for Parenteral and Enteral Nutrients, Supplies, 
and Equipment.--In determining the amount of payment under part B of 
title XVIII of the Social Security Act with respect to parenteral and 
enteral nutrients, supplies, and equipment during each of the years 
1998 through 2002, the charges determined to be reasonable with respect 
to such nutrients, supplies, and equipment may not exceed the charges 
determined to be reasonable with respect to such nutrients, supplies, 
and equipment during 1995.

SEC. 10612. 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, 1996, and 1997'', and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new clauses:
                            ``(v) in each of the years 1998 through 
                        2002, is 80 percent of the national limited 
                        monthly payment rate computed under 
                        subparagraph (B) for the item for the year; and
                            ``(vi) in a subsequent year, is the 
                        national limited monthly payment rate computed 
                        under subparagraph (B) for the item for the 
                        year.''.

SEC. 10613. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended by inserting ``and 1998 through 
2002'' after ``1995''.
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 1998,'' 
                after ``1995,'', and
                    (B) by striking the period at the end and inserting 
                ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1997, is equal to 72 percent of 
        such median.''.

SEC. 10614. SIMPLIFICATION IN ADMINISTRATION OF LABORATORY TESTS.

    (a) Selection of Regional Carriers.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as the ``Secretary'') shall--
                    (A) divide the United States into no more than 5 
                regions, and
                    (B) designate a single carrier for each such 
                region,
        for the purpose of payment of claims under part B of title 
        XVIII of the Social Security Act with respect to clinical 
        diagnostic laboratory tests (other than for independent 
        physician offices) furnished on or after such date (not later 
        than January 1, 1999) as the Secretary specifies.
            (2) Designation.--In designating such carriers, the 
        Secretary shall consider, among other criteria--
                    (A) a carrier's timeliness, quality, and experience 
                in claims processing, and
                    (B) a carrier's capacity to conduct electronic data 
                interchange with laboratories and data matches with 
                other carriers.
            (3) Single data resource.--The Secretary may select one of 
        the designated carriers to serve as a central statistical 
        resource for all claims information relating to such clinical 
        diagnostic laboratory tests handled by all the designated 
        carriers under such part.
            (4) Allocation of claims.--The allocation of claims for 
        clinical diagnostic laboratory tests to particular designated 
        carriers shall be based on whether a carrier serves the 
        geographic area where the laboratory specimen was collected or 
        other method specified by the Secretary.
    (b) Adoption of Uniform Policies for Clinical Laboratory Tests.--
            (1) In general.--Not later than July 1, 1998, the Secretary 
        shall first adopt, consistent with paragraph (2), uniform 
        coverage, administration, and payment policies for clinical 
        diagnostic laboratory tests under part B of title XVIII of the 
        Social Security Act, using a negotiated rulemaking process 
        under subchapter III of chapter 5 of title 5, United States 
        Code.
            (2) Considerations in design of uniform policies.--The 
        policies under paragraph (1) shall be designed to promote 
        uniformity and program integrity and reduce administrative 
        burdens with respect to clinical diagnostic laboratory tests 
        payable under such part in connection with the following:
                    (A) Beneficiary information required to be 
                submitted with each claim or order for laboratory 
                tests.
                    (B) Physicians' obligations regarding documentation 
                requirements and recordkeeping.
                    (C) Procedures for filing claims and for providing 
                remittances by electronic media.
                    (D) The documentation of medical necessity.
                    (E) Limitation on frequency of coverage for the 
                same tests performed on the same individual.
            (3) Changes in carrier requirements pending adoption of 
        uniform policy.--During the period that begins on the date of 
        the enactment of this Act and ends on the date the Secretary 
        first implements uniform policies pursuant to regulations 
        promulgated under this subsection, a carrier under such part 
        may implement changes relating to requirements for the 
        submission of a claim for clinical diagnostic laboratory tests.
            (4) Use of interim regional policies.--After the date the 
        Secretary first implements such uniform policies, the Secretary 
        shall permit any carrier to develop and implement interim 
        policies of the type described in paragraph (1), in accordance 
        with guidelines established by the Secretary, in cases in which 
        a uniform national policy has not been established under this 
        subsection and there is a demonstrated need for a policy to 
        respond to aberrant utilization or provision of unnecessary 
        services. Except as the Secretary specifically permits, no 
        policy shall be implemented under this paragraph for a period 
        of longer than 2 years.
            (5) Interim national policies.--After the date the 
        Secretary first designates regional carriers under subsection 
        (a), the Secretary shall establish a process under which 
        designated carriers can collectively develop and implement 
        interim national standards of the type described in paragraph 
        (1). No such policy shall be implemented under this paragraph 
        for a period of longer than 2 years.
            (6) Biennial review process.--Not less often than once 
        every 2 years, the Secretary shall solicit and review comments 
        regarding changes in the uniform policies established under 
        this subsection. As part of such biennial review process, the 
        Secretary shall specifically review and consider whether to 
        incorporate or supersede interim, regional, or national 
        policies developed under paragraph (4) or (5). Based upon such 
        review, the Secretary may provide for appropriate changes in 
        the uniform policies previously adopted under this subsection.
            (7) Notice.-- Before a carrier implements a change or 
        policy under paragraph (3), (4), or (5), the carrier shall 
        provide for advance notice to interested parties and a 45-day 
        period in which such parties may submit comments on the 
        proposed change.
    (c) Inclusion of Laboratory Representative on Carrier Advisory 
Committees.--The Secretary shall direct that any advisory committee 
established by such a carrier, to advise with respect to coverage, 
administration or payment policies under part B of title XVIII of the 
Social Security Act, shall include an individual to represent the 
interest and views of independent clinical laboratories and such other 
laboratories as the Secretary deems appropriate. Such individual shall 
be selected by such committee from among nominations submitted by 
national and local organizations that represent independent clinical 
laboratories.

SEC. 10615. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended by 
striking all that follows ``shall be increased'' and inserting the 
following: ``as follows:
            ``(i) For fiscal years 1996 and 1997, by the percentage 
        increase in the consumer price index for all urban consumers 
        (U.S. city average) as estimated by the Secretary for the 12-
        month period ending with the midpoint of the year involved.
            ``(ii) For each of fiscal years 1998 through 2002 by such 
        percentage increase minus 2.0 percentage points.
            ``(iii) For each succeeding fiscal year by such percentage 
        increase.''.

SEC. 10616. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

    (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
    ``(o) If a physician's, supplier's, or any other person's bill or 
request for payment for services includes a charge for a drug or 
biological for which payment may be made under this part and the drug 
or biological is not paid on a cost or prospective payment basis as 
otherwise provided in this part, the amount payable for the drug or 
biological is equal to 95 percent of the average wholesale price.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
drugs and biologicals furnished on or after January 1, 1998.

SEC. 10617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
              REGIMEN.

    (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as 
amended, is further amended--
            (1) by striking ``and'' at the end of subparagraph (R); and
            (2) by inserting after subparagraph (S) the following new 
        subparagraph:
            ``(T) an oral drug (which is approved by the Federal Food 
        and Drug Administration) prescribed for use as an acute anti-
        emetic used as part of an anticancer chemotherapeutic regimen 
        if the drug is administered by a physician (or under the 
        supervision of a physician)--
                    ``(i) for use immediately before, immediately 
                after, or at the time of the administration of the 
                anticancer chemotherapeutic agent; and
                    ``(ii) as a full replacement for the anti-emetic 
                therapy which would otherwise be administered 
                intravenously.''.
    (b) Payment Levels.--Section 1834 (42 U.S.C. 1395m), as amended by 
sections 10421(a)(2) and 10431(b)(2), is amended by adding at the end 
the following new subsection:
    ``(m) Special Rules for Payment for Oral Anti-Nausea Drugs.--
            ``(1) Limitation on per dose payment basis.--Subject to 
        paragraph (2), the per dose payment basis under this part for 
        oral anti-nausea drugs (as defined in paragraph (3)) 
        administered during a year shall not exceed 90 percent of the 
        average per dose payment basis for the equivalent intravenous 
        anti-emetics administered during the year, as computed based on 
        the payment basis applied during 1996.
            ``(2) Aggregate limit.--The Secretary shall make such 
        adjustment in the coverage of, or payment basis for, oral anti-
        nausea drugs so that coverage of such drugs under this part 
        does not result in any increase in aggregate payments per 
        capita under this part above the levels of such payments per 
        capita that would otherwise have been made if there were no 
        coverage for such drugs under this part.
            ``(3) Oral anti-nausea drugs defined.--For purposes of this 
        subsection, the term `oral anti-nausea drugs' means drugs for 
        which coverage is provided under this part pursuant to section 
        1861(s)(2)(P).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 10618. RURAL HEALTH CLINIC SERVICES.

    (a) Per-Visit Payment Limits for Provider-Based Clinics.--
            (1) Extension of limit.--
                    (A) In general.--The matter in section 1833(f) (42 
                U.S.C. 1395l(f)) preceding paragraph (1) is amended by 
                striking ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than such 
                clinics in rural hospitals with less than 50 beds)''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services furnished after 
                1997.
            (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
        1395l(f)(1)) is amended by inserting ``per visit'' after 
        ``$46''.
    (b) Assurance of Quality Services.--
            (1) In general.--Subparagraph (I) of the first sentence of 
        section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to read 
        as follows:
            ``(I) has a quality assessment and performance improvement 
        program, and appropriate procedures for review of utilization 
        of clinic services, as the Secretary may specify,''.
                    (2) Effective date.--The amendment made by 
                paragraph (1) shall take effect on January 1, 1998.
    (c) Waiver of Certain Staffing Requirements Limited to Clinics in 
Program.--
            (1) In general.--Section 1861(aa)(7)(B) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the period at 
        the end the following: ``, or if the facility has not yet been 
        determined to meet the requirements (including subparagraph (J) 
        of the first sentence of paragraph (2)) of a rural health 
        clinic''.
            (2) Effective date.--The amendment made by paragraph (1) 
        applies to waiver requests made after 1997.
    (d) Refinement of Shortage Area Requirements.--
            (1) Designation reviewed triennially.--Section 1861(aa)(2) 
        (42 U.S.C. 1395x(aa)(2)) is amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking ``and that is designated'' and 
                inserting ``and that, within the previous three-year 
                period, has been designated''; and
                    (B) by striking ``or that is designated'' and 
                inserting ``or designated''.
            (2) Area must have shortage of health care practitioners.--
        Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
        paragraph (1), is further amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking the comma after ``personal health 
                services''; and
                    (B) by inserting ``and in which there are 
                insufficient numbers of needed health care 
                practitioners (as determined by the Secretary),'' after 
                ``Bureau of the Census)''.
            (3) Previously qualifying clinics grandfathered only to 
        prevent shortage.--Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) 
        is amended in the third sentence by inserting before the period 
        ``if it is determined, in accordance with criteria established 
        by the Secretary in regulations, to be essential to the 
        delivery of primary care services that would otherwise be 
        unavailable in the geographic area served by the clinic''.
            (4) Effective dates; implementing regulations.--
                    (A) In general.--Except as otherwise provided, the 
                amendments made by the preceding paragraphs take effect 
                on January 1 of the first calendar year beginning at 
                least one month after enactment of this Act.
                    (B) Current rural health clinics.--The amendments 
                made by the preceding paragraphs take effect, with 
                respect to entities that are rural health clinics under 
                title XVIII of the Social Security Act on the date of 
                enactment of this Act, on January 1 of the second 
                calendar year following the calendar year specified in 
                subparagraph (A).
                    (C) Grandfathered clinics.--
                            (i) In general.--The amendment made by 
                        paragraph (3) shall take effect on the 
                        effective date of regulations issued by the 
                        Secretary under clause (ii).
                            (ii) Regulations.--The Secretary shall 
                        issue final regulations implementing paragraph 
                        (3) that shall take effect no later than 
                        January 1 of the third calendar year beginning 
                        at least one month after enactment of this Act.

SEC. 10619. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS 
              AND CLINICAL NURSE SPECIALISTS.

    (a) Removal of Restrictions on Settings.--
            (1) In general.--Clause (ii) of section 1861(s)(2)(K) (42 
        U.S.C. 1395x(s)(2)(K)) is amended to read as follows:
            ``(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection (r)(1)) and 
        which are performed by a nurse practitioner or clinical nurse 
        specialist (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) which the nurse 
        practitioner or clinical nurse specialist is legally authorized 
        to perform by the State in which the services are performed, 
        and such services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if 
        furnished incident to a physician's professional service, but 
        only if no facility or other provider charges or is paid any 
        amounts with respect to the furnishing of such services;''.
            (2) Conforming amendments.--(A) Section 1861(s)(2)(K) of 
        such Act (42 U.S.C. 1395x(s)(2)(K)) is further amended--
                    (i) in clause (i), by inserting ``and such services 
                and supplies furnished as incident to such services as 
                would be covered under subparagraph (A) if furnished 
                incident to a physician's professional service,'' after 
                ``are performed,''; and
                    (ii) by striking clauses (iii) and (iv).
            (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is amended 
        by striking ``clauses (i) or (iii) of subsection (s)(2)(K)'' 
        and inserting ``subsection (s)(2)(K)''.
            (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended 
        by striking ``section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)'' 
        and inserting ``section 1861(s)(2)(K)''.
            (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 1861(s)(2)(K)''.
            (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 10401(a), is amended 
        by striking ``through (iii)'' and inserting ``and (ii)''.
    (b) Increased Payment.--
            (1) Fee schedule amount.--Clause (O) of section 1833(a)(1) 
        (42 U.S.C. 1395l(a)(1)) is amended to read as follows: ``(O) 
        with respect to services described in section 1861(s)(2)(K)(ii) 
        (relating to nurse practitioner or clinical nurse specialist 
        services), the amounts paid shall be equal to 80 percent of (i) 
        the lesser of the actual charge or 85 percent of the fee 
        schedule amount provided under section 1848, or (ii) in the 
        case of services as an assistant at surgery, the lesser of the 
        actual charge or 85 percent of the amount that would otherwise 
        be recognized if performed by a physician who is serving as an 
        assistant at surgery; and''.
            (2) Conforming amendments.--(A) Section 1833(r) (42 U.S.C. 
        1395l(r)) is amended--
                    (i) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse practitioner or 
                clinical nurse specialist services provided in a rural 
                area)'' and inserting ``section 1861(s)(2)(K)(ii) 
                (relating to nurse practitioner or clinical nurse 
                specialist services)'';
                    (ii) by striking paragraph (2);
                    (iii) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                    (iv) by redesignating paragraph (3) as paragraph 
                (2).
            (B) Section 1842(b)(12)(A) (42 U.S.C. 1395u(b)(12)(A)) is 
        amended, in the matter preceding clause (i), by striking 
        ``clauses (i), (ii), or (iv) of section 1861(s)(2)(K) (relating 
        to a physician assistants and nurse practitioners)'' and 
        inserting ``section 1861(s)(2)(K)(i) (relating to physician 
        assistants),''.
    (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--
            (1) In general.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 
        1395k(a)(2)(B)(iv)) is amended by striking ``provided in a 
        rural area (as defined in section 1886(d)(2)(D))'' and 
        inserting ``but only if no facility or other provider charges 
        or is paid any amounts with respect to the furnishing of such 
        services''.
            (2) Conforming amendment.--Section 1842(b)(6)(C) (42 U.S.C. 
        1395u(b)(6)(C)) is amended--
                    (A) by striking ``clauses (i), (ii), or (iv)'' and 
                inserting ``clause (i)''; and
                    (B) by striking ``or nurse practitioner''.
    (d) Definition of Clinical Nurse Specialist Clarified.-- Section 
1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
            (1) by inserting ``(A)'' after ``(5)'';
            (2) by striking ``The term `physician assistant' '' and all 
        that follows through ``who performs'' and inserting ``The term 
        `physician assistant' and the term `nurse practitioner' mean, 
        for purposes of this title, a physician assistant or nurse 
        practitioner who performs''; and
            (3) by adding at the end the following new subparagraph:
    ``(B) The term `clinical nurse specialist' means, for purposes of 
this title, an individual who--
            ``(i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse specialist 
        services are performed; and
            ``(ii) holds a master's degree in a defined clinical area 
        of nursing from an accredited educational institution.''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 10620. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

    (a) Removal of Restriction on Settings.--Section 1861(s)(2)(K)(i) 
(42 U.S.C. 1395x(s)(2)(K)(i)) is amended--
            (1) by striking ``(I) in a hospital'' and all that follows 
        through ``shortage area,'', and
            (2) by adding at the end the following: ``but only if no 
        facility or other provider charges or is paid any amounts with 
        respect to the furnishing of such services,''.
    (b) Increased Payment.--Paragraph (12) of section 1842(b) (42 
U.S.C. 1395u(b)), as amended by section 10619(b)(2)(B), is amended to 
read as follows:
    ``(12) With respect to services described in section 
1861(s)(2)(K)(i)--
            ``(A) payment under this part may only be made on an 
        assignment-related basis; and
            ``(B) the amounts paid under this part shall be equal to 80 
        percent of (i) the lesser of the actual charge or 85 percent of 
        the fee schedule amount provided under section 1848 for the 
        same service provided by a physician who is not a specialist; 
        or (ii) in the case of services as an assistant at surgery, the 
        lesser of the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a physician who 
        is serving as an assistant at surgery.''.
    (c) Removal of Restriction on Employment Relationship.--Section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by adding at the end the 
following new sentence: ``For purposes of clause (C) of the first 
sentence of this paragraph, an employment relationship may include any 
independent contractor arrangement, and employer status shall be 
determined in accordance with the law of the State in which the 
services described in such clause are performed.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 10621. RENAL DIALYSIS-RELATED SERVICES.

    (a) Auditing of Cost Reports.--The Secretary shall audit a sample 
of cost reports of renal dialysis providers for 1995 and for each third 
year thereafter.
    (b) Implementation of Quality Standards.--The Secretary of Health 
and Human Services shall develop and implement, by not later than 
January 1, 1999, a method to measure and report quality of renal 
dialysis services provided under the medicare program under title XVIII 
of the Social Security Act in order to reduce payments for 
inappropriate or low quality care.

                       CHAPTER 3--PART B PREMIUM

SEC. 10631. 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, during September of each year, shall 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.--
            (1) Section 1839.--Section 1839 (42 U.S.C. 1395r) is 
        amended--
                    (A) in subsection (a)(2), by striking ``(b) and 
                (e)'' and inserting ``(b), (c), and (f)'',
                    (B) in the last sentence of subsection (a)(3)--
                            (i) by inserting ``rate'' after 
                        ``premium'', and
                            (ii) by striking ``and the derivation of 
                        the dollar amounts specified in this 
                        paragraph'',
                    (C) by striking subsection (e), and
                    (D) by redesignating subsection (g) as subsection 
                (e) and inserting that subsection after subsection (d).
            (2) Section 1844.--Subparagraphs (A)(i) and (B)(i) of 
        section 1844(a)(1) (42 U.S.C. 1395w(a)(1)) are each amended by 
        striking ``or 1839(e), as the case may be''.

            Subtitle H--Provisions Relating to Parts A and B

       CHAPTER 1--PROVISIONS RELATING TO MEDICARE SECONDARY PAYER

SEC. 10701. PERMANENT EXTENSION AND REVISION OF CERTAIN SECONDARY PAYER 
              PROVISIONS.

    (a) Application to Disabled Individuals in Large Group Health 
Plans.--
            (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                    (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'',
                    (B) by striking clause (iii), and
                    (C) by redesignating clause (iv) as clause (iii).
            (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
    (b) Individuals With End Stage Renal Disease.--
            (1) In general.--Section 1862(b)(1)(C) (42 U.S.C. 
        1395y(b)(1)(C)) is amended--
                    (A) in the first sentence, by striking ``12-month'' 
                each place it appears and inserting ``30-month'', and
                    (B) by striking the second sentence.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to items and services furnished on or after the 
        date of the enactment of this Act and with respect to periods 
        beginning on or after the date that is 18 months prior to such 
        date.
    (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).

SEC. 10702. CLARIFICATION OF TIME AND FILING LIMITATIONS.

    (a) Extension of Claims Filing Period.--Section 1862(b)(2)(B) (42 
U.S.C. 1395y(b)(2)(B)) is amended by adding at the end the following 
new clause:
                            ``(v) Claims-filing period.--
                        Notwithstanding any other time limits that may 
                        exist for filing a claim under an employer 
                        group health plan, the United States may seek 
                        to recover conditional payments in accordance 
                        with this subparagraph where the request for 
                        payment is submitted to the entity required or 
                        responsible under this subsection to pay with 
                        respect to the item or service (or any portion 
                        thereof) under a primary plan within the 3-year 
                        period beginning on the date on which the item 
                        or service was furnished.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to items and services furnished after 1990. The previous sentence shall 
not be construed as permitting any waiver of the 3-year-period 
requirement (imposed by such amendment) in the case of items and 
services furnished more than 3 years before the date of the enactment 
of this Act.

SEC. 10703. PERMITTING RECOVERY AGAINST THIRD PARTY ADMINISTRATORS.

    (a) Permitting Recovery Against Third Party Administrators of 
Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
1395y(b)(2)(B)(ii)) is amended--
            (1) by striking ``under this subsection to pay'' and 
        inserting ``(directly, as a third-party administrator, or 
        otherwise) to make payment'', and
            (2) by adding at the end the following: ``The United States 
        may not recover from a third-party administrator under this 
        clause in cases where the third-party administrator would not 
        be able to recover the amount at issue from the employer or 
        group health plan for whom it provides administrative services 
        due to the insolvency or bankruptcy of the employer or plan.''.
    (b) Clarification of Beneficiary Liability.--Section 1862(b)(1) (42 
U.S.C. 1395y(b)(1)) is amended by adding at the end the following new 
subparagraph:
                    ``(F) Limitation on beneficiary liability.--An 
                individual who is entitled to benefits under this title 
                and is furnished an item or service for which such 
                benefits are incorrectly paid is not liable for 
                repayment of such benefits under this paragraph unless 
                payment of such benefits was made to the individual.''.
    (c) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after the date of the enactment of 
this Act.

                    CHAPTER 2--HOME HEALTH SERVICES

SEC. 10711. RECAPTURING 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) (42 U.S.C. 1395x(v)(1)(L)) is amended 
by adding at the end the following:
    ``(iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the Secretary 
shall not take into account any changes in the home health market 
basket, as determined by the Secretary, with respect to cost reporting 
periods which began on or after July 1, 1994, and before July 1, 
1996.''.
    (b) No Exceptions Permitted Based on Amendment.--The Secretary of 
Health and Human Services shall not consider the amendment made by 
subsection (a) in making any exemptions and exceptions pursuant to 
section 1861(v)(1)(L)(ii) of the Social Security Act (42 U.S.C. 
1395x(v)(1)(L)(ii)).

SEC. 10712. 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 moving the indentation of subclauses (I) through 
        (III) 2-ems to the left;
            (2) in subclause (I), by inserting ``of the mean of the 
        labor-related and nonlabor per visit costs for freestanding 
        home health agencies'' before the comma at the end;
            (3) in subclause (II), by striking ``, or'' and inserting 
        ``of such mean,'';
            (4) in subclause (III)--
                    (A) by inserting ``and before October 1, 1997,'' 
                after ``July 1, 1987,'', and
                    (B) by striking the comma at the end and inserting 
                ``of such mean, or''; and
            (5) by striking the matter following subclause (III) and 
        inserting the following:
            ``(IV) October 1, 1997, 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 inserting ``, or on or after July 1, 
1997, and before October 1, 1997'' after ``July 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)), as amended by section 10711(a), is amended by adding 
at the end the following new clauses:
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
shall provide for an interim system of limits. Payment shall not exceed 
the costs determined under the preceding provisions of this 
subparagraph or, if lower, the product of--
            ``(I) an agency-specific per beneficiary annual limitation 
        calculated based 75 percent on the reasonable costs (including 
        nonroutine medical supplies) for the agency's 12-month cost 
        reporting period ending during 1994, and based 25 percent on 
        the standardized regional average of such costs for the 
        agency's region, as applied to such agency, for cost reporting 
        periods ending during 1994, such costs updated by the home 
        health market basket index; and
            ``(II) the agency's unduplicated census count of patients 
        (entitled to benefits under this title) for the cost reporting 
        period subject to the limitation.
    ``(vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the following 
rules 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 median of 
        these limits (or the Secretary's best estimates thereof) 
        applied to other home health agencies as determined by the 
        Secretary. A home health agency that has altered its corporate 
        structure or name shall not be considered a new provider for 
        this purpose.
            ``(II) For beneficiaries who use services furnished by more 
        than one home health agency, the per beneficiary limitations 
        shall be prorated among the agencies.''.
    (d) Development of Case Mix System.--The Secretary of Health and 
Human Services shall expand research on a prospective payment system 
for home health agencies under the medicare program that ties 
prospective payments to a unit of service, including an intensive 
effort to develop a reliable case mix adjuster that explains a 
significant amount of the variances in costs.
    (e) Submission of Data for Case Mix System.--Effective for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
of Health and Human Services may require all home health agencies to 
submit additional information that the Secretary considers necessary 
for the development of a reliable case mix system.

SEC. 10713. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

    (a) In General.--Section 1861(m) (42 U.S.C. 1395x(m)) is amended by 
adding at the end the following: ``For purposes of paragraphs (1) and 
(4), the term `part-time or intermittent services' means skilled 
nursing and home health aide services furnished any number of days per 
week as long as they are furnished (combined) less than 8 hours each 
day and 28 or fewer hours each week (or, subject to review on a case-
by-case basis as to the need for care, less than 8 hours each day and 
35 or fewer hours per week). For purposes of sections 1814(a)(2)(C) and 
1835(a)(2)(A), `intermittent' means skilled nursing care that is either 
provided or needed on fewer than 7 days each week, or less than 8 hours 
of each day for periods of 21 days or less (with extensions in 
exceptional circumstances when the need for additional care is finite 
and predictable).''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after October 1, 1997.

SEC. 10714. STUDY ON DEFINITION OF HOMEBOUND.

    (a) Study.--The Secretary of Health and Human Services shall 
conduct a study of the criteria that should be applied, and the method 
of applying such criteria, in the determination of whether an 
individual is homebound for purposes of qualifying for receipt of 
benefits for home health services under the medicare program. Such 
criteria shall include the extent and circumstances under which a 
person may be absent from the home but nonetheless qualify.
    (b) Report.--Not later than October 1, 1998, the Secretary shall 
submit a report to the Congress on the study conducted under subsection 
(a). The report shall include specific recommendations on such criteria 
and methods.

SEC. 10715. 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) Payment on Basis of Location of Service.--A home health 
agency shall submit claims for payment for 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 
cost reporting periods beginning on or after October 1, 1997.

SEC. 10716. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS,

    (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 10616(c), is amended--
            (1) by striking ``and'' at the end of subparagraph (G),
            (2) by striking the semicolon at the end of subparagraph 
        (H) and inserting ``, and'', and
            (3) by inserting after subparagraph (H) the following new 
        subparagraph:
            ``(I) the frequency and duration of home health services 
        which are in excess of normative guidelines that the Secretary 
        shall establish by regulation;''.
    (b) Notification.--The Secretary of Health and Human Services may 
establish a process for notifying a physician in cases in which the 
number of home health service visits furnished under the medicare 
program pursuant to a prescription or certification of the physician 
significantly exceeds such threshold (or thresholds) as the Secretary 
specifies. The Secretary may adjust such threshold to reflect 
demonstrated differences in the need for home health services among 
different beneficiaries.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after October 1, 1997.

SEC. 10717. NO HOME HEALTH BENEFITS BASED SOLELY ON DRAWING BLOOD.

    (a) In General.--Sections 1814(a)(2)(C) and 1835(a)(2)(A) (42 
U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) are each amended by inserting 
``(other than solely venipuncture for the purpose of obtaining a blood 
sample)'' after ``skilled nursing care''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
home health services furnished after the 6-month period beginning after 
the date of enactment of this Act.

          CHAPTER 3--BABY BOOM GENERATION MEDICARE COMMISSION

SEC. 10721. BIPARTISAN COMMISSION ON THE EFFECT OF THE BABY BOOM 
              GENERATION ON THE MEDICARE PROGRAM.

    (a) Establishment.--There is established a commission to be known 
as the Bipartisan Commission on the Effect of the Baby Boom Generation 
on the Medicare Program (in this section referred to as the 
``Commission'').
    (b) Duties.--
            (1) In general.--The Commission shall--
                    (A) examine the financial impact on the medicare 
                program of the significant increase in the number of 
                medicare eligible individuals which will occur 
                beginning approximately during 2010 and lasting for 
                approximately 25 years,
                    (B) make specific recommendations to the Congress 
                respecting a comprehensive approach to preserve the 
                medicare program for the period during which such 
                individuals are eligible for medicare, and
                    (C) study the feasibility and desirability of 
                establishing--
                            (i) an independent commission on medicare 
                        to make recommendations annually on how best to 
                        match the structure of the medicare program to 
                        available funding for the program,
                            (ii) an expedited process for consideration 
                        of such recommendations by Congress, and
                            (iii) a default mechanism to enforce 
                        Congressional spending targets for the program 
                        if Congress fails to approve such 
                        recommendations.
            (2) Considerations in making recommendations.--In making 
        its recommendations, the Commission shall consider the 
        following:
                    (A) The amount and sources of Federal funds to 
                finance the medicare program, including the potential 
                use of innovative financing methods.
                    (B) Methods used by other nations to respond to 
                comparable demographic patterns in eligibility for 
                health care benefits for elderly and disabled 
                individuals.
                    (C) Modifying age-based eligibility to correspond 
                to changes in age-based eligibility under the OASDI 
                program.
                    (D) Trends in employment-related health care for 
                retirees, including the use of medical savings accounts 
                and similar financing devices.
    (c) Membership.--
            (1) Appointment.--The Commission shall be composed of 15 
        voting members as follows:
                    (A) The Majority Leader of the Senate shall 
                appoint, after consultation with the minority leader of 
                the Senate, 6 members, of whom not more than 4 may be 
                of the same political party.
                    (B) The Speaker of the House of Representatives 
                shall appoint, after consultation with the minority 
                leader of the House of Representatives, 6 members, of 
                whom not more than 4 may be of the same political 
                party.
                    (C) The 3 ex officio members of the Board of 
                Trustees of the Federal Hospital Insurance Trust Fund 
                and of the Federal Supplementary Medical Insurance 
                Trust Fund who are Cabinet level officials.
            (2) Chairman and vice chairman.--As the first item of 
        business at the Commission's first meeting (described in 
        paragraph (5)(B)), the Commission shall elect a Chairman and 
        Vice Chairman from among its members. The individuals elected 
        as Chairman and Vice Chairman may not be of the same political 
        party and may not have been appointed to the Commission by the 
        same appointing authority.
            (3) Vacancies.--Any vacancy in the membership of the 
        Commission shall be filled in the manner in which the original 
        appointment was made and shall not affect the power of the 
        remaining members to execute the duties of the Commission.
            (4) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (f).
            (5) Meetings.--
                    (A) The Commission shall meet at the call of its 
                Chairman or a majority of its members.
                    (B) The Commission shall hold its first meeting not 
                later than February 1, 1998.
            (6) Compensation and reimbursement of expenses.--Members of 
        the Commission are not entitled to receive compensation for 
        service on the Commission. Members may be reimbursed for 
        travel, subsistence, and other necessary expenses incurred in 
        carrying out the duties of the Commission.
    (d) Advisory Panel.--
            (1) In general.--The Chairman, in consultation with the 
        Vice Chairman, may establish a panel (in this section referred 
        to as the ``Advisory Panel'') consisting of health care 
        experts, consumers, providers, and others to advise and assist 
        the members of the Commission in carrying out the duties 
        described in subsection (b). The panel shall have only those 
        powers that the Chairman, in consultation with the Vice 
        Chairman, determines are necessary and appropriate to assist 
        the Commission in carrying out such duties.
            (2) Compensation.--Members of the Advisory Panel are not 
        entitled to receive compensation for service on the Advisory 
        Panel. Subject to the approval of the chairman of the 
        Commission, members may be reimbursed for travel, subsistence, 
        and other necessary expenses incurred in carrying out the 
        duties of the Advisory Panel.
    (e) Staff and Consultants.--
            (1) Staff.--The Commission may appoint and determine the 
        compensation of such staff as may be necessary to carry out the 
        duties of the Commission. Such appointments and compensation 
        may be made without regard to the provisions of title 5, United 
        States Code, that govern appointments in the competitive 
        services, and the provisions of chapter 51 and subchapter III 
        of chapter 53 of such title that relate to classifications and 
        the General Schedule pay rates.
            (2) Consultants.--The Commission may procure such temporary 
        and intermittent services of consultants under section 3109(b) 
        of title 5, United States Code, as the Commission determines to 
        be necessary to carry out the duties of the Commission.
    (f) Powers.--
            (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
            (2) Studies by gao.--Upon the request of the Commission, 
        the Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
            (3) Cost estimates by congressional budget office.--
                    (A) Upon the request of the Commission, the 
                Director of the Congressional Budget Office shall 
                provide to the Commission such cost estimates as the 
                Commission determines to be necessary to carry out its 
                duties.
                    (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
            (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
            (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
            (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
            (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
            (8) Administrative support services.--Upon the request of 
        the Commission, the Administrator of General Services shall 
        provide to the Commission on a reimbursable basis such 
        administrative support services as the Commission may request.
            (9) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
    (g) Report.--(1) Not later than May 1, 1999, the Commission shall 
submit to Congress a report containing its findings and recommendations 
regarding how to protect and preserve the medicare program in a 
financially solvent manner until 2030 (or, if later, throughout the 
period of projected solvency of the Federal Old-Age and Survivors 
Insurance Trust Fund). The report shall include detailed 
recommendations for appropriate legislative initiatives respecting how 
to accomplish this objective.
    (2) Not later than 12 months after the date of the enactment of 
this Act, the Commission shall report to the Congress on the matters 
specified in subsection (b)(1)(C). If the Commission determines that it 
is feasible and desirable to establish the processes described in such 
subsection, the report under this paragraph shall include specific 
recommendations on changes in law (such as changes in the Congressional 
Budget Act of 1974 and the Balanced Budget and Emergency Deficit 
Control Act of 1985) as are needed to implement its recommendations.
    (h) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report required in subsection (g).
    (i) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. 60 percent of such 
appropriation shall be payable from the Federal Hospital Insurance 
Trust Fund, and 40 percent of such appropriation shall be payable from 
the Federal Supplementary Medical Insurance Trust Fund under title 
XVIII of the Social Security Act (42 U.S.C. 1395i, 1395t).

  CHAPTER 4--PROVISIONS RELATING TO DIRECT GRADUATE MEDICAL EDUCATION

SEC. 10731. LIMITATION ON PAYMENT BASED ON NUMBER OF RESIDENTS AND 
              IMPLEMENTATION OF ROLLING AVERAGE FTE COUNT.

    Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by adding 
after subparagraph (E) 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, 1997, the total number of full-time 
                equivalent residents before application of weighting 
                factors (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 
                most recent cost reporting period ending on or before 
                December 31, 1996. The Secretary may establish rules, 
                consistent with the policies in the previous sentence 
                and paragraph (6), with respect to the application of 
                the previous sentence in the case of medical residency 
                training programs established on or after January 1, 
                1997.
                    ``(G) Counting interns and residents for fy 1998 
                and subsequent years.--
                            ``(i) FY 1998.--For the hospital's first 
                        cost reporting period beginning during fiscal 
                        year 1998, subject to the limit described in 
                        subparagraph (F), the total number of full-time 
                        equivalent residents, for determining the 
                        hospital's graduate medical education payment, 
                        shall equal the average of the full-time 
                        equivalent resident counts for the cost 
                        reporting period and the preceding cost 
                        reporting period.
                            ``(ii) Subsequent years.--For each 
                        subsequent cost reporting period, subject to 
                        the limit described in subparagraph (F), the 
                        total number of full-time equivalent residents, 
                        for determining the hospital's graduate medical 
                        education payment, shall equal the average of 
                        the actual full-time equivalent resident counts 
                        for the cost reporting period and preceding two 
                        cost reporting periods.
                            ``(iii) Adjustment for short periods.--If a 
                        hospital's cost reporting period beginning on 
                        or after October 1, 1997, is not equal to 
                        twelve months, the Secretary shall make 
                        appropriate modifications to ensure that the 
                        average full-time equivalent resident counts 
                        pursuant to clause (ii) are based on the 
                        equivalent of full 12-month cost reporting 
                        periods.''.

SEC. 10732. PHASED-IN LIMITATION ON HOSPITAL OVERHEAD AND SUPERVISORY 
              PHYSICIAN COMPONENT OF DIRECT MEDICAL EDUCATION COSTS.

    (a) In General.--Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is 
amended--
            (1) in subparagraph (B), by inserting ``subject to 
        subparagraph (D),'' after ``subparagraph (A)'', and
            (2) by adding at the end the following:
                    ``(D) Phased-in limitation on hospital overhead and 
                supervisory physician component.--
                            ``(i) In general.--In the case of a 
                        hospital for which the overhead GME amount (as 
                        defined in clause (ii)) for the base period 
                        exceeds an amount equal to the 75th percentile 
                        of the overhead GME amounts in such period for 
                        all hospitals (weighted to reflect the full-
                        time equivalent resident counts for all 
                        approved medical residency training programs), 
                        subject to clause (iv), the hospital's approved 
                        FTE resident amount (for periods beginning on 
                        or after October 1, 1997) shall be reduced from 
                        the amount otherwise applicable (as previously 
                        reduced under this subparagraph) by an overhead 
                        reduction amount. The overhead reduction amount 
                        is equal to the lesser of--
                                    ``(I) 20 percent of the reference 
                                reduction amount (described in clause 
                                (iii)) for the period, or
                                    ``(II) 15 percent of the hospital's 
                                overhead GME amount for the period (as 
                                otherwise determined before the 
                                reduction provided under this 
                                subparagraph for the period involved).
                            ``(ii) Overhead gme amount.--For purposes 
                        of this subparagraph, the term `overhead GME 
                        amount' means, for a hospital for a period, the 
                        product of--
                                    ``(I) the percentage of the 
                                hospital's approved FTE resident amount 
                                for the base period that is not 
                                attributable to resident salaries and 
                                fringe benefits, and
                                    ``(II) the hospital's approved FTE 
                                resident amount for the period 
                                involved.
                            ``(iii) Reference reduction amount.--
                                    ``(I) In general.--The reference 
                                reduction amount described in this 
                                clause for a hospital for a cost 
                                reporting period is the base difference 
                                (described in subclause (II)) updated, 
                                in a compounded manner for each period 
                                from the base period to the period 
                                involved, by the update applied for 
                                such period to the hospital's approved 
                                FTE resident amount.
                                    ``(II) Base difference.--The base 
                                difference described in this subclause 
                                for a hospital is the amount by which 
                                the hospital's overhead GME amount in 
                                the base period exceeded the 75th 
                                percentile of such amounts (as 
                                described in clause (i)).
                            ``(iv) Maximum reduction to 75th 
                        percentile.--In no case shall the reduction 
                        under this subparagraph effected for a hospital 
                        for a period (below the amount that would 
                        otherwise apply for the period if this 
                        subparagraph did not apply for any period) 
                        exceed the reference reduction amount for the 
                        hospital for the period.
                            ``(v) Base period.--For purposes of this 
                        subparagraph, the term `base period' means the 
                        cost reporting period beginning in fiscal year 
                        1984 or the period used to establish the 
                        hospital's approved FTE resident amount for 
                        hospitals that did not have approved residency 
                        training programs in fiscal year 1984.
                            ``(vi) Rules for hospitals initiating 
                        residency training programs.--The Secretary 
                        shall establish rules for the application of 
                        this subparagraph in the case of a hospital 
                        that initiates medical residency training 
                        programs during or after the base period.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to per resident payment amounts attributable to periods beginning 
on or after October 1, 1997.

SEC. 10733. PERMITTING PAYMENT TO NON-HOSPITAL PROVIDERS.

    (a) In General.-- Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following:
    ``(k) Payment to Non-Hospital Providers.--
            ``(1) Report.--The Secretary shall submit to Congress, not 
        later than 18 months after the date of the enactment of this 
        subsection, a proposal for payment to qualified non-hospital 
        providers for their direct costs of medical education, if those 
        costs are incurred in the operation of an approved medical 
        residency training program described in subsection (h). Such 
        proposal shall specify the amounts, form, and manner in which 
        such payments will be made and the portion of such payments 
        that will be made from each of the trust funds under this 
        title.
            ``(2) Effectiveness.--Except as otherwise provided in law, 
        the Secretary may implement such proposal for residency years 
        beginning not earlier than 6 months after the date of submittal 
        of the report under paragraph (1).
            ``(3) Qualified non-hospital providers.--For purposes of 
        this subsection, the term `qualified non-hospital provider' 
        means--
                    ``(A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                    ``(B) a rural health clinic, as defined in section 
                1861(aa)(2);
                    ``(C) MedicarePlus organizations; and
                    ``(D) such other providers (other than hospitals) 
                as the Secretary determines to be appropriate.''.
    (b) Prohibition on Double Payments; Budget Neutrality Adjustment.--
Section 1886(h)(3)(B) (42 U.S.C. 1395ww(h)(3)(B)) is amended by adding 
at the end the following:
                ``The Secretary shall reduce the aggregate approved 
                amount to the extent payment is made under subsection 
                (k) for residents included in the hospital's count of 
                full-time equivalent residents and, in the case of 
                residents not included in any such count, the Secretary 
                shall provide for such a reduction in aggregate 
                approved amounts under this subsection as will assure 
                that the application of subsection (k) does not result 
                in any increase in expenditures under this title in 
                excess of those that would have occurred if subsection 
                (k) were not applicable.''.

SEC. 10734. INCENTIVE PAYMENTS UNDER PLANS FOR VOLUNTARY REDUCTION IN 
              NUMBER OF RESIDENTS.

    (a) In General.--Section 1886(h) (42 U.S.C. 1395ww(h)) is further 
amended by adding at the end the following new paragraph:
            ``(6) Incentive payment under plans for voluntary reduction 
        in number of residents.--
                    ``(A) In general.--In the case of a voluntary 
                residency reduction plan for which an application is 
                approved under subparagraph (B), the qualifying entity 
                submitting the plan shall be paid an applicable hold 
                harmless percentage (as specified in subparagraph (E)) 
                of the sum of--
                            ``(i) amount (if any) by which--
                                    ``(I) the amount of payment which 
                                would have been made under this 
                                subsection if there had been a 5 
                                percent reduction in the number of 
                                full-time equivalent residents in the 
                                approved medical education training 
                                programs of the qualifying entity as of 
                                June 30, 1997, exceeds
                                    ``(II) the amount of payment which 
                                is made under this subsection, taking 
                                into account the reduction in such 
                                number effected under the reduction 
                                plan; and
                            ``(ii) the amount of the reduction in 
                        payment under 1886(d)(5)(B) (for hospitals 
                        participating in the qualifying entity) that is 
                        attributable to the reduction in number of 
                        residents effected under the plan below 95 
                        percent of the number of full-time equivalent 
                        residents in such programs of such entity as of 
                        June 30, 1997.
                    ``(B) Approval of plan applications.--The Secretary 
                may not approve the application of an qualifying entity 
                unless--
                            ``(i) the application is submitted in a 
                        form and manner specified by the Secretary and 
                        by not later than March 1, 2000,
                            ``(ii) the application provides for the 
                        operation of a plan for the reduction in the 
                        number of full-time equivalent residents in the 
                        approved medical residency training programs of 
                        the entity consistent with the requirements of 
                        subparagraph (D);
                            ``(iii) the entity elects in the 
                        application whether such reduction will occur 
                        over--
                                    ``(I) a period of not longer than 5 
                                residency training years, or
                                    ``(II) a period of 6 residency 
                                training years,
                        except that a qualifying entity described in 
                        subparagraph (C)(i)(III) may not make the 
                        election described in subclause (II); and
                            ``(iv) the Secretary determines that the 
                        application and the entity and such plan meet 
                        such other requirements as the Secretary 
                        specifies in regulations.
                    ``(C) Qualifying entity.--
                            ``(i) In general.--For purposes of this 
                        paragraph, any of the following may be a 
                        qualifying entity:
                                    ``(I) Individual hospitals 
                                operating one or more approved medical 
                                residency training programs.
                                    ``(II) Subject to clause (ii), two 
                                or more hospitals that operate such 
                                programs and apply for treatment under 
                                this paragraph as a single qualifying 
                                entity.
                                    ``(III) Subject to clause (iii), a 
                                qualifying consortium (as described in 
                                section 10735 of the Balanced Budget 
                                Act of 1997).
                            ``(ii) Additional requirement for joint 
                        programs.--In the case of an application by a 
                        qualifying entity described in clause (i)(II), 
                        the Secretary may not approve the application 
                        unless the application represents that the 
                        qualifying entity either--
                                    ``(I) in the case of an entity that 
                                meets the requirements of clause (v) of 
                                subparagraph (D) will not reduce the 
                                number of full-time equivalent 
                                residents in primary care during the 
                                period of the plan, or
                                    ``(II) in the case of another 
                                entity will not reduce the proportion 
                                of its residents in primary care (to 
                                the total number of residents) below 
                                such proportion as in effect as of the 
                                applicable time described in 
                                subparagraph (D)(vi).
                            ``(iii) Additional requirement for 
                        consortia.--In the case of an application by a 
                        qualifying entity described in clause (i)(III), 
                        the Secretary may not approve the application 
                        unless the application represents that the 
                        qualifying entity will not reduce the 
                        proportion of its residents in primary care (to 
                        the total number of residents) below such 
                        proportion as in effect as of the applicable 
                        time described in subparagraph (D)(vi).
                    ``(D) Residency reduction requirements.--
                            ``(i) Individual hospital applicants.--In 
                        the case of a qualifying entity described in 
                        subparagraph (C)(i)(I), the number of full-time 
                        equivalent residents in all the approved 
                        medical residency training programs operated by 
                        or through the entity shall be reduced as 
                        follows:
                                    ``(I) If base number of residents 
                                exceeds 750 residents, by a number 
                                equal to at least 20 percent of such 
                                base number.
                                    ``(II) Subject to subclause (IV), 
                                if base number of residents exceeds 
                                500, but is less than 750, residents, 
                                by 150 residents.
                                    ``(III) Subject to subclause (IV), 
                                if base number of residents does not 
                                exceed 500 residents, by a number equal 
                                to at least 25 percent of such base 
                                number.
                                    ``(IV) In the case of a qualifying 
                                entity which is described in clause (v) 
                                and which elects treatment under this 
                                subclause, by a number equal to at 
                                least 20 percent of such base number.
                            ``(ii) Joint applicants.--In the case of a 
                        qualifying entity described in subparagraph 
                        (C)(i)(II), the number of full-time equivalent 
                        residents in all the approved medical residency 
                        training programs operated by or through the 
                        entity shall be reduced as follows:
                                    ``(I) Subject to subclause (II), by 
                                a number equal to at least 25 percent 
                                of such base number.
                                    ``(II) In the case of a qualifying 
                                entity which is described in clause (v) 
                                and which elects treatment under this 
                                subclause, by a number equal to at 
                                least 20 percent of such base number.
                            ``(iii) Consortia.--In the case of a 
                        qualifying entity described in subparagraph 
                        (C)(i)(III), the number of full-time equivalent 
                        residents in all the approved medical residency 
                        training programs operated by or through the 
                        entity shall be reduced by a number equal to at 
                        least 20 percent of such base number.
                            ``(iv) Manner of reduction.--The reductions 
                        specified under the preceding provisions of 
                        this subparagraph for a qualifying entity shall 
                        be below the base number of residents for that 
                        entity and shall be fully effective not later 
                        than--
                                    ``(I) the 5th residency training 
                                year in which the application under 
                                subparagraph (B) is effective, in the 
                                case of an entity making the election 
                                described in subparagraph (B)(iii)(I), 
                                or
                                    ``(II) the 6th such residency 
                                training year, in the case of an entity 
                                making the election described in 
                                subparagraph (B)(iii)(II).
                            ``(v) Entities providing assurance of 
                        maintenance of primary care residents.--An 
                        entity is described in this clause if--
                                    ``(I) the base number of residents 
                                for the entity is less than 750;
                                    ``(II) the number of full-time 
                                equivalent residents in primary care 
                                included in the base number of 
                                residents for the entity is at least 10 
                                percent of such base number; and
                                    ``(III) the entity represents in 
                                its application under subparagraph (B) 
                                that there will be no reduction under 
                                the plan in the number of full-time 
                                equivalent residents in primary care.
                        If a qualifying entity fails to comply with the 
                        representation described in subclause (III), 
                        the entity shall be subject to repayment of all 
                        amounts paid under this paragraph, in 
                        accordance with procedures established to carry 
                        out subparagraph (F).
                            ``(vi) Base number of residents defined.--
                        For purposes of this paragraph, the term `base 
                        number of residents' means, with respect to a 
                        qualifying entity operating approved medical 
                        residency training programs, the number of 
                        full-time equivalent residents in such programs 
                        (before application of weighting factors) of 
                        the entity as of the most recent cost reporting 
                        period ending before June 30, 1997, or, if 
                        less, for any subsequent cost reporting period 
                        that ends before the date the entity makes 
                        application under this paragraph.
                    ``(E) Applicable hold harmless percentage.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the `applicable hold harmless 
                        percentage' is the percentages specified in 
                        clause (ii) or clause (iii), as elected by the 
                        qualifying entity in the application submitted 
                        under subparagraph (B).
                            ``(ii) 5-year reduction plan.--In the case 
                        of an entity making the election described in 
                        subparagraph (B)(iii)(I), the percentages 
                        specified in this clause are, for the--
                                    ``(I) first and second residency 
                                training years in which the reduction 
                                plan is in effect, 100 percent,
                                    ``(II) third such year, 75 percent,
                                    ``(III) fourth such year, 50 
                                percent, and
                                    ``(IV) fifth such year, 25 percent.
                            ``(iii) 6-year reduction plan.--In the case 
                        of an entity making the election described in 
                        subparagraph (B)(iii)(II), the percentages 
                        specified in this clause are, for the--
                                    ``(I) first residency training year 
                                in which the reduction plan is in 
                                effect, 100 percent,
                                    ``(II) second such year, 95 
                                percent,
                                    ``(III) third such year, 85 
                                percent,
                                    ``(IV) fourth such year, 70 
                                percent,
                                    ``(V) fifth such year, 50 percent, 
                                and
                                    ``(VI) sixth such year, 25 percent.
                    ``(F) Penalty for increase in number of residents 
                in subsequent years.--If payments are made under this 
                paragraph to a qualifying entity, if the entity (or any 
                hospital operating as part of the entity) increases the 
                number of full-time equivalent residents above the 
                number of such residents permitted under the reduction 
                plan as of the completion of the plan, then, as 
                specified by the Secretary, the entity is liable for 
                repayment to the Secretary of the total amounts paid 
                under this paragraph to the entity.
                    ``(G) Treatment of rotating residents.--In applying 
                this paragraph, the Secretary shall establish rules 
                regarding the counting of residents who are assigned to 
                institutions the medical residency training programs in 
                which are not covered under approved applications under 
                this paragraph.''.
    (b) Relation to Demonstration Projects and Authority.--
            (1) Section 1886(h)(6) of the Social Security Act, added by 
        subsection (a), shall not apply to any residency training 
        program with respect to which a demonstration project described 
        in paragraph (3) has been approved by the Health Care Financing 
        Administration as of May 27, 1997. The Secretary of Health and 
        Human Services shall take such actions as may be necessary to 
        assure that (in the manner described in subparagraph (A) of 
        such section) in no case shall payments be made under such a 
        project with respect to the first 5 percent reduction in the 
        base number of full-time equivalent residents otherwise used 
        under the project.
            (2) Effective May 27, 1997, the Secretary of Health and 
        Human Services is not authorized to approve any demonstration 
        project described in paragraph (3) for any residency training 
        year beginning before July 1, 2006.
            (3) A demonstration project described in this paragraph is 
        a project that provides for additional payments under title 
        XVIII of the Social Security Act in connection with reduction 
        in the number of residents in a medical residency training 
        program.
    (c) Interim, Final Regulations.--In order to carry out the 
amendment made by subsection (a) in a timely manner, the Secretary of 
Health and Human Services may first promulgate regulations, that take 
effect on an interim basis, after notice and pending opportunity for 
public comment, by not later than 6 months after the date of the 
enactment of this Act.

SEC. 10735. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

    (a) In General.--The Secretary of Health and Human Services (in 
this section referred to as the Secretary) shall establish a 
demonstration project under which, instead of making payments to 
teaching hospitals pursuant to section 1886(h) of the Social Security 
Act, the Secretary shall make payments under this section to each 
consortium that meets the requirements of subsection (b).
    (b) Qualifying Consortia.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
            (1) The consortium consists of an approved medical 
        residency training program in a teaching hospital and one or 
        more of the following entities:
                    (A) A school of allopathic medicine or osteopathic 
                medicine.
                    (B) Another teaching hospital, which may be a 
                children's hospital.
                    (C) Another approved medical residency training 
                program.
                    (D) A Federally qualified health center.
                    (E) A medical group practice.
                    (F) A managed care entity.
                    (G) An entity furnishing outpatient services.
                    (H) Such other entity as the Secretary determines 
                to be appropriate.
            (2) The members of the consortium have agreed to 
        participate in the programs of graduate medical education that 
        are operated by the entities in the consortium.
            (3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
            (4) The consortium meets such additional requirements as 
        the Secretary may establish.
    (c) Amount and Source of Payment.--The total of payments to a 
qualifying consortium for a fiscal year pursuant to subsection (a) 
shall not exceed the amount that would have been paid under section 
1886(h) of the Social Security Act for the teaching hospital (or 
hospitals) in the consortium. Such payments shall be made in such 
proportion from each of the trust funds established under title XVIII 
of such Act as the Secretary specifies.

SEC. 10736. RECOMMENDATIONS ON LONG-TERM PAYMENT POLICIES REGARDING 
              FINANCING TEACHING HOSPITALS AND GRADUATE MEDICAL 
              EDUCATION.

    (a) In General.--The Medicare Payment Advisory Commission 
(established under section 1805 of the Social Security Act and in this 
section referred to as the ``Commission'') shall examine and develop 
recommendations on whether and to what extent medicare payment policies 
and other Federal policies regarding teaching hospitals and graduate 
medical education should be reformed. Such recommendations shall 
include recommendations regarding each of the following:
            (1) The financing of graduate medical education, including 
        consideration of alternative broad-based sources of funding for 
        such education and models for the distribution of payments 
        under any all-payer financing mechanism.
            (2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such hospitals 
        as competition among health care entities increases. Matters 
        considered under this paragraph shall include consideration of 
        the effects on teaching hospitals of the method of financing 
        used for the MedicarePlus program under part C of title XVIII 
        of the Social Security Act.
            (3) Possible methodologies for making payments for graduate 
        medical education and the selection of entities to receive such 
        payments. Matters considered under this paragraph shall 
        include--
                    (A) issues regarding children's hospitals and 
                approved medical residency training programs in 
                pediatrics, and
                    (B) whether and to what extent payments are being 
                made (or should be made) for training in the various 
                nonphysician health professions.
            (4) Federal policies regarding international medical 
        graduates.
            (5) The dependence of schools of medicine on service-
        generated income.
            (6) Whether and to what extent the needs of the United 
        States regarding the supply of physicians, in the aggregate and 
        in different specialties, will change during the 10-year period 
        beginning on October 1, 1997, and whether and to what extent 
        any such changes will have significant financial effects on 
        teaching hospitals.
            (7) Methods for promoting an appropriate number, mix, and 
        geographical distribution of health professionals.
    (c) Consultation.--In conducting the study under subsection (a), 
the Commission shall consult with the Council on Graduate Medical 
Education and individuals with expertise in the area of graduate 
medical education, including--
            (1) deans from allopathic and osteopathic schools of 
        medicine;
            (2) chief executive officers (or equivalent administrative 
        heads) from academic health centers, integrated health care 
        systems, approved medical residency training programs, and 
        teaching hospitals that sponsor approved medical residency 
        training programs;
            (3) chairs of departments or divisions from allopathic and 
        osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery;
            (4) individuals with leadership experience from 
        representative fields of non-physician health professionals;
            (5) individuals with substantial experience in the study of 
        issues regarding the composition of the health care workforce 
        of the United States; and
            (6) individuals with expertise on the financing of health 
        care.
    (d) Report.--Not later than 2 years after the date of the enactment 
of this Act, the Commission shall submit to the Congress a report 
providing its recommendations under this section and the reasons and 
justifications for such recommendations.

SEC. 10737. MEDICARE SPECIAL REIMBURSEMENT RULE FOR CERTAIN COMBINED 
              RESIDENCY PROGRAMS.

    (a) In General.--Section 1886(h)(5)(G) (42 U.S.C. 1395ww(h)(5)(G)) 
is amended--
            (1) in clause (i), by striking ``and (iii)'' and inserting 
        ``, (iii), and (iv)''; and
            (2) by adding at the end the following:
                            ``(iv) Special rule for certain combined 
                        residency programs.--(I) In the case of a 
                        resident enrolled in a combined medical 
                        residency training program in which all of the 
                        individual programs (that are combined) are for 
                        training a primary care resident (as defined in 
                        subparagraph (H)), the period of board 
                        eligibility shall be the minimum number of 
                        years of formal training required to satisfy 
                        the requirements for initial board eligibility 
                        in the longest of the individual programs plus 
                        one additional year.
                            ``(II) A resident enrolled in a combined 
                        medical residency training program that 
                        includes an obstetrics and gynecology program 
                        shall qualify for the period of board 
                        eligibility under subclause (I) if the other 
                        programs such resident combines with such 
                        obstetrics and gynecology program are for 
                        training a primary care resident.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
combined medical residency programs for residency years beginning on or 
after July 1, 1998.

                      CHAPTER 5--OTHER PROVISIONS

SEC. 10741. 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 specific hospitals or other entities for 
furnishing services related to surgical procedures, and for furnishing 
services (unrelated to surgical procedures) to hospital inpatients that 
the Secretary determines to be appropriate. The services may include 
any services covered under this title that the Secretary determines to 
be appropriate, including post-hospital services.
    ``(b) Quality Standards.--Only entities that meet quality standards 
established by the Secretary shall be eligible to contract under this 
section. Contracting entities shall implement a quality improvement 
plan approved by the Secretary.
    ``(c) Payment.--Payment under this section shall be made on the 
basis of negotiated all-inclusive rates. The amount of payment made by 
the Secretary to an entity under this title for services covered under 
a contract shall be less than the aggregate amount of the payments that 
the Secretary would have otherwise made for the services.
    ``(d) Contract Period.--A contract period shall be 3 years (subject 
to renewal), so long as the entity continues to meet quality and other 
contractual standards.
    ``(e) Incentives for Use of Centers.--Entities under a contract 
under this section may furnish additional services (at no cost to an 
individual entitled to benefits under this title) or waive cost-
sharing, subject to the approval of the Secretary.
    ``(f) Limit on Number of Centers.--The Secretary shall limit the 
number of centers in a geographic area to the number needed to meet 
projected demand for contracted services.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to services furnished on or after October 1, 1997.

SEC. 10742. MEDICARE PART B SPECIAL ENROLLMENT PERIOD AND WAIVER OF 
              PART B LATE ENROLLMENT PENALTY AND MEDIGAP SPECIAL OPEN 
              ENROLLMENT PERIOD FOR CERTAIN MILITARY RETIREES AND 
              DEPENDENTS.

    (a) Medicare Part B Special Enrollment Period; Waiver of Part B 
Penalty for Late Enrollment.--
            (1) In general.--In the case of any eligible individual (as 
        defined in subsection (c)), the Secretary of Health and Human 
        Services shall provide for a special enrollment period during 
        which the individual may enroll under part B of title XVIII of 
        the Social Security Act. Such period shall be for a period of 6 
        months and shall begin with the first month that begins at 
        least 45 days after the date of the enactment of this Act.
            (2) Coverage period.--In the case of an eligible individual 
        who enrolls during the special enrollment period provided under 
        paragraph (1), the coverage period under part B of title XVIII 
        of the Social Security Act shall begin on the first day of the 
        month following the month in which the individual enrolls.
            (3) Waiver of part b late enrollment penalty.--In the case 
        of an eligible individual who enrolls during the special 
        enrollment period provided under paragraph (1), there shall be 
        no increase pursuant to section 1839(b) of the Social Security 
        Act in the monthly premium under part B of title XVIII of such 
        Act.
    (b) Medigap Special Open Enrollment Period.--Notwithstanding any 
other provision of law, an issuer of a medicare supplemental policy (as 
defined in section 1882(g) of the Social Security Act)--
            (1) may not deny or condition the issuance or effectiveness 
        of a medicare supplemental policy that has a benefit package 
        classified as ``A'', ``B'', ``C'', or ``F'' under the standards 
        established under section 1882(p)(2) of the Social Security Act 
        (42 U.S.C. 1395rr(p)(2)); and
            (2) may not discriminate in the pricing of the policy on 
        the basis of the individual's health status, medical condition 
        (including both physical and mental illnesses), claims 
        experience, receipt of health care, medical history, genetic 
        information, evidence of insurability (including conditions 
        arising out of acts of domestic violence), or disability;
in the case of an eligible individual who seeks to enroll (and is 
enrolled) during the 6-month period described in subsection (a)(1).
    (c) Eligible Individual Defined.--In this section, the term 
``eligible individual'' means an individual--
            (1) who, as of the date of the enactment of this Act, has 
        attained 65 years of age and was eligible to enroll under part 
        B of title XVIII of the Social Security Act, and
            (2) who at the time the individual first satisfied 
        paragraph (1) or (2) of section 1836 of the Social Security 
        Act--
                    (A) was a covered beneficiary (as defined in 
                section 1072(5) of title 10, United States Code), and
                    (B) did not elect to enroll (or to be deemed 
                enrolled) under section 1837 of the Social Security Act 
                during the individual's initial enrollment period.
The Secretary of Health and Human Services shall consult with the 
Secretary of Defense in the identification of eligible individuals.

SEC. 10743. PROTECTIONS UNDER THE MEDICARE PROGRAM FOR DISABLED WORKERS 
              WHO LOSE BENEFITS UNDER A GROUP HEALTH PLAN.

    (a) No Premium Penalty for Late Enrollment.--The second sentence of 
section 1839(b) (42 U.S.C. 1395r(b)) is amended by inserting ``and not 
pursuant to a special enrollment period under section 1837(i)(4)'' 
after ``section 1837)''.
    (b) Special Medicare Enrollment Period.--
            (1) In general.--Section 1837(i) (42 U.S.C. 1395p(i)) is 
        amended by adding at the end the following new paragraph:
    ``(4)(A) In the case of an individual who is entitled to benefits 
under part A pursuant to section 226(b) and--
            ``(i) who at the time the individual first satisfies 
        paragraph (1) or (2) of section 1836--
                    ``(I) is enrolled in a group health plan described 
                in section 1862(b)(1)(A)(v) by reason of the 
                individual's (or the individual's spouse's) current 
                employment or otherwise, and
                    ``(II) has elected not to enroll (or to be deemed 
                enrolled) under this section during the individual's 
                initial enrollment period; and
            ``(ii) whose continuous enrollment under such group health 
        plan is involuntarily terminated at a time when the enrollment 
        under the plan is not by reason of the individual's (or the 
        individual's spouse's) current employment,
there shall be a special enrollment period described in subparagraph 
(B).
    ``(B) The special enrollment period referred to in subparagraph (A) 
is the 6-month period beginning on the date of the enrollment 
termination described in subparagraph (A)(ii).''.
            (2) Coverage period.--Section 1838(e) (42 U.S.C. 1395q(e)) 
        is amended--
                    (A) by inserting ``or 1837(i)(4)(B)'' after 
                ``1837(i)(3)'' the first place it appears, and
                    (B) by inserting ``or specified in section 
                1837(i)(4)(A)(i)'' after ``1837(i)(3)'' the second 
                place it appears''.
    (c) Effective Date.--The amendments made by this section shall 
apply to involuntary terminations of coverage under a group health plan 
occurring on or after the date of the enactment of this Act.

SEC. 10744. PLACEMENT OF ADVANCE DIRECTIVE IN MEDICAL RECORD.

    (a) In General.--Section 1866(f)(1)(B) (42 U.S.C. 1395cc(f)(1)(B)) 
is amended by striking ``in the individual's medical record'' and 
inserting ``in a prominent part of the individual's current medical 
record''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to provider agreements entered into, renewed, or extended on or 
after such date (not later than 1 year after the date of the enactment 
of this Act) as the Secretary of Health and Human Services specifies.

                  Subtitle I--Medical Liability Reform

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 10801. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

    (a) Applicability.--This subtitle shall apply with respect to any 
health care liability action brought in any State or Federal court, 
except that this subtitle shall not apply to--
            (1) an action for damages arising from a vaccine-related 
        injury or death to the extent that title XXI of the Public 
        Health Service Act applies to the action, or
            (2) an action under the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1001 et seq.).
    (b) Preemption.--This subtitle shall preempt any State law to the 
extent such law is inconsistent with the limitations contained in this 
subtitle. This subtitle shall not preempt any State law that provides 
for defenses or places limitations on a person's liability in addition 
to those contained in this subtitle or otherwise imposes greater 
restrictions than those provided in this subtitle.
    (c) Effect on Sovereign Immunity and Choice of Law or Venue.--
Nothing in subsection (b) shall be construed to--
            (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
            (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
            (3) affect the applicability of any provision of the 
        Foreign Sovereign Immunities Act of 1976;
            (4) preempt State choice-of-law rules with respect to 
        claims brought by a foreign nation or a citizen of a foreign 
        nation; or
            (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
    (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
    (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 10802. DEFINITIONS.

    As used in this subtitle:
            (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
            (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
            (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
            (4) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established. Such measure or degree of proof is more than that 
        required under preponderance of the evidence but less than that 
        required for proof beyond a reasonable doubt.
            (5) Collateral source payments.--The term ``collateral 
        source payments'' means any amount paid or reasonably likely to 
        be paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                    (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                    (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                    (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                    (D) any other publicly or privately funded program.
            (6) Drug.--The term ``drug'' has the meaning given such 
        term in section 201(g)(1) of the Federal Food, Drug, and 
        Cosmetic Act (21 U.S.C. 321(g)(1)).
            (7) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from injury (including the loss of 
        earnings or other benefits related to employment, medical 
        expense loss, replacement services loss, loss due to death, 
        burial costs, and loss of business or employment 
        opportunities), to the extent recovery for such loss is allowed 
        under applicable State law.
            (8) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
            (9) Health benefit plan.--The term ``health benefit plan'' 
        means--
                    (A) a hospital or medical expense incurred policy 
                or certificate,
                    (B) a hospital or medical service plan contract,
                    (C) a health maintenance subscriber contract, or
                    (D) a MedicarePlus product (offered under part C of 
                title XVIII of the Social Security Act),
        that provides benefits with respect to health care services.
            (10) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health benefit plan (including any person or entity acting 
        under a contract or arrangement to provide or administer any 
        health benefit), or the manufacturer, distributor, supplier, 
        marketer, promoter, or seller of a medical product, in which 
        the claimant alleges a claim (including third party claims, 
        cross claims, counter claims, or distribution claims) based 
        upon the provision of (or the failure to provide or pay for) 
        health care services or the use of a medical product, 
        regardless of the theory of liability on which the claim is 
        based or the number of plaintiffs, defendants, or causes of 
        action.
            (11) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that injury was caused by the provision of (or the failure to 
        provide) health care services.
            (12) Health care provider.--The term ``health care 
        provider'' means any person that is engaged in the delivery of 
        health care services in a State and that is required by the 
        laws or regulations of the State to be licensed or certified by 
        the State to engage in the delivery of such services in the 
        State.
            (13) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a health 
        benefit plan including services related to the delivery or 
        administration of such service.
            (14) Medical device.--The term ``medical device'' has the 
        meaning given such term in section 201(h) of the Federal Food, 
        Drug, and Cosmetic Act (21 U.S.C. 321(h)).
            (15) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        consortium, injury to reputation, humiliation, and other 
        nonpecuniary losses.
            (16) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
            (17) Product seller.--
                    (A) In general.--Subject to subparagraph (B), the 
                term ``product seller'' means a person who, in the 
                course of a business conducted for that purpose--
                            (i) sells, distributes, rents, leases, 
                        prepares, blends, packages, labels, or is 
                        otherwise involved in placing, a product in the 
                        stream of commerce, or
                            (ii) installs, repairs, or maintains the 
                        harm-causing aspect of a product.
                    (B) Exclusion.--Such term does not include--
                            (i) a seller or lessor of real property;
                            (ii) a provider of professional services in 
                        any case in which the sale or use of a product 
                        is incidental to the transaction and the 
                        essence of the transaction is the furnishing of 
                        judgment, skill, or services; or
                            (iii) any person who--
                                    (I) acts in only a financial 
                                capacity with respect to the sale of a 
                                product; or
                                    (II) leases a product under a lease 
                                arrangement in which the selection, 
                                possession, maintenance, and operation 
                                of the product are controlled by a 
                                person other than the lessor.
            (18) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
            (19) State.--The term ``State'' means each of the several 
        States, the District of Columbia, Puerto Rico, the Virgin 
        Islands, Guam, American Samoa, the Northern Mariana Islands, 
        and any other territory or possession of the United States.

SEC. 10803. EFFECTIVE DATE.

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

     CHAPTER 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 10811. STATUTE OF LIMITATIONS.

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

SEC. 10812. CALCULATION AND PAYMENT OF DAMAGES.

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

SEC. 10813. ALTERNATIVE DISPUTE RESOLUTION.

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