[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 386 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 386

To amend title XVIII of the Social Security Act to protect and improve 
             the medicare program, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 3, 1997

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

_______________________________________________________________________

                                 A BILL


 
To amend title XVIII of the Social Security Act to protect and improve 
             the medicare program, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS; DEFINITION OF SECRETARY.

    (a) Short Title.--This Act may be cited as the ``Medicare 
Modernization and Patient Protection Act of 1997''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents; definition of Secretary.
Sec. 2. Findings.
  TITLE I--PROMOTING COMPETITION, QUALITY, AND BENEFICIARY CHOICE IN 
                                MEDICARE

Sec. 101. Establishment of plan improvement and competition office.
Sec. 102. HMO competitive pricing demonstration projects.
Sec. 103. Medigap amendments.
             TITLE II--INCREASING MEDICARE COVERAGE OPTIONS

                   Subtitle A--Risk Plan Improvements

Sec. 201. Financing and quality modernization and reform.
Sec. 202. Quality report cards and comparative reports.
Sec. 203. Preemption of State laws restricting managed care.
Sec. 204. Appeals.
Sec. 205. Medicare HMO enrollment fair.
            Subtitle B--Maintaining Fee-for-Service Program

Sec. 211. Failsafe budget mechanism.
Sec. 212. Maintenance of part B premium at current percentage of part B 
                            program costs.
TITLE III--PROMOTION OF PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY 
     (PACE) AND OF SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS)

Sec. 301. Definitions.
Sec. 302. Expanding the availability of qualified organizations for 
                            frail elderly community projects (Program 
                            of All-Inclusive Care for the Elderly 
                            (PACE)).
Sec. 303. Application of spousal impoverishment rules.
Sec. 304. Permitting expansion and making permanent SHMO waivers.
Sec. 305. Repeals; effective date.
                    TITLE IV--OTHER MEDICARE CHANGES

Sec. 401. Application of competitive acquisition process for part B 
                            items and services.
Sec. 402. Simpler procedure for inherent reasonableness determinations.
Sec. 403. Promoting advance directives.
Sec. 404. Antifraud efforts.
Sec. 405. Hospice benefits.
Sec. 406. Study providing pharmacy services to medicare beneficiaries.
Sec. 407. Respite benefit.
         TITLE V--PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES

Sec. 501. Payment for home health services.
Sec. 502. Review by peer review organization of home health services.
Sec. 503. Retroactive reinstatement of presumptive waiver of liability.
      TITLE VI--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

Sec. 601. Definitions.
Sec. 602. Payment objectives.
Sec. 603. Powers and duties of the Secretary.
Sec. 604. Relationship to title XVIII of the Social Security Act.
Sec. 605. Establishment of resident classification system.
Sec. 606. Cost centers for nursing facility payment.
Sec. 607. Resident assessment.
Sec. 608. The per diem rate for nursing service costs.
Sec. 609. The per diem rate for administrative and general costs.
Sec. 610. Payment for fee-for-service ancillary services.
Sec. 611. Reimbursement of selected ancillary services and other costs.
Sec. 612. Per diem payment for property costs.
Sec. 613. Mid-year rate adjustments.
Sec. 614. Exception to payment methods for new and low volume nursing 
                            facilities.
Sec. 615. Appeal procedures.
Sec. 616. Transition period.
Sec. 617. Effective date; inconsistent provisions.
                        TITLE VII--TELEMEDICINE

Sec. 701. Internet access for health care providers for rural areas.
Sec. 702. Commission on telemedicine.
    (c) Definition of Secretary.--As used in this Act, the term 
``Secretary'' means the Secretary of Health and Human Services.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) It is in the interest of both taxpayers and 
        beneficiaries under the medicare program under title XVIII of 
        the Social Security Act (42 U.S.C. 1395 et seq.) that the 
        program provide those beneficiaries with a broad array of 
        health plan choices and generally encourage competition between 
        providers to promote lower costs and greater variety among 
        plans offered by eligible organizations under section 1876 of 
        that Act (42 U.S.C. 1395mm).
            (2) Such competition and consumer choice is consistent with 
        a guaranteed defined package of basic health care service 
        benefits, including ready access to physicians and other health 
        care providers, hospitalization and home care services, and a 
        comprehensive system of preventive care options.
            (3) As the medicare program evolves into a program offering 
        beneficiaries more choices, it is critical that those 
        beneficiaries have more definitive and more easily comparable 
        information about plans offered by eligible organizations under 
        section 1876 of that Act, and that those beneficiaries are 
        protected against adverse coverage decisions under the medicare 
        program through a strengthened grievance and appeals process.
            (4) Establishing stronger fiscal integrity in the medicare 
        program will involve--
                    (A) eliminating unnecessary and wasteful geographic 
                variability within the medicare program's national 
                reimbursement system;
                    (B) establishing stronger antifraud provisions 
                including enhanced criminal penalties for practitioners 
                and entities involved in medicare billing abuses; and
                    (C) establishing ``smart shopper'' mandates that 
                require the medicare program to demand competitive 
                bidding and prospective payment on goods and services 
purchased by the program for beneficiaries.
            (5) The medicare program must accommodate its reimbursement 
        system to a variety of alternative and creative health care 
        systems and providers such as telemedicine, hospice care, and 
        medical care services from the nonphysician licensed 
        professions, as it has been shown that such systems offer 
        beneficiaries under the medicare program services which are as 
        good or better than those offered by traditional practitioners 
        and may save taxpayer dollars.
            (6) The frail elderly eligible under both the medicare 
        program and the medicaid program under title XIX of that Act 
        (42 U.S.C. 1396 et seq.) are among the fastest growing and most 
        costly segments of the medicare population. It is in the 
        interest of both the taxpayer and these beneficiaries that the 
        medicare program encourage and nurture the On-Lok program, 
        Social Health Maintenance Organizations, and PACE (under title 
        III of this Act) which have been designed specifically to serve 
        this population in a humane, effective, and cost-efficient 
        manner.

  TITLE I--PROMOTING COMPETITION, QUALITY, AND BENEFICIARY CHOICE IN 
                                MEDICARE

SEC. 101. ESTABLISHMENT OF PLAN IMPROVEMENT AND COMPETITION OFFICE.

    (a) Establishment.--Not later than January 1, 1998, the Secretary 
shall establish the Office of Plan Improvement and Competition (in this 
title referred to as the ``Office'') within the Health Care Financing 
Administration.
    (b) Duties.--The duties of the Office shall include the following:
            (1) To collect data from the Social Security 
        Administration's regional offices regarding the systematic 
        coverage and procedural inconsistencies in the determination by 
        intermediaries, carriers, and health maintenance organizations 
        under the medicare program as to whether an item or service is 
        covered or disallowed in full or in part.
            (2) To supervise and monitor advertising and promotional 
        materials distributed to individuals by eligible organizations 
        under section 1876 of the Social Security Act (42 U.S.C. 
        1395mm) and by organizations which provide medicare 
        supplemental policies under section 1882 of that Act (42 U.S.C. 
        1395ss) in order to ensure that the information contained in 
        such materials is accurate and enable the individuals receiving 
        the materials to compare the organizations that the individuals 
        are eligible to enroll with.
            (3) To collect data regarding the results of research by 
        organizations on improvement in health care quality and best-
        practice information.
            (4) To distribute the data collected under paragraph (3) to 
        eligible organizations under section 1876 of the Social 
        Security Act (42 U.S.C. 1395mm) and by organizations which 
        provide medicare supplemental policies under section 1882 of 
        that Act (42 U.S.C. 1395ss), and to encourage such 
        organizations to incorporate the results of that research in 
        the plans offered by the organizations to individuals.
            (5) To publish and distribute the quality report cards and 
        the comparative reports developed by the Secretary under 
        section 1805 of the Social Security Act, as added by section 
        202 of this Act.

SEC. 102. HMO COMPETITIVE PRICING DEMONSTRATION PROJECTS.

    (a) Demonstration Projects.--
            (1) In general.--The Secretary shall conduct demonstration 
        projects in every applicable area, as defined in paragraph (2), 
        for the purpose of establishing competitive pricing for 
        eligible organizations with risk-sharing contracts under 
        section 1876 of the Social Security Act (42 U.S.C. 1395mm).
            (2) Applicable area defined.--
                    (A) In general.--In paragraph (1), the term 
                ``applicable area'' means a medicare payment area--
                            (i) that has an input-price-adjusted 
                        national adjusted average per capita cost that 
                        is at least 120 percent of the national 
                        standardized adjusted average per capita cost, 
                        determined under section 1876(a)(4)(D)(ii) of 
                        the Social Security Act (42 U.S.C. 
                        1395mm(a)(4)(D)(ii)), as added by section 201 
                        of this Act; or
                            (ii) where at least 50 percent of the 
                        eligible organizations under section 1876 of 
                        the Social Security Act (42 U.S.C. 1395mm) in 
                        that area offer health plans under that section 
                        with monthly premiums that are less than $20.
                If the Secretary determines that a medicare payment 
                area is an applicable area under this section, that 
                area shall continue to be an applicable area for the 
                duration of the demonstration projects conducted under 
                this section.
                    (B) Limitation.--A medicare payment area shall not 
                be considered an applicable area if the Secretary 
                determines before starting the demonstration project in 
                that area that there are an insufficient number of 
                eligible organizations with risk-sharing contracts 
                under section 1876 of the Social Security Act (42 
                U.S.C. 1395mm) in that area to support a demonstration 
                project under this section.
                    (C) Medicare payment area; adjusted average per 
                capita cost; input-price-adjusted national adjusted 
                average per capita cost.--In this section, the terms 
                ``medicare payment area'', ``adjusted average per 
                capita cost'', and ``input-price-adjusted national 
                average per capita cost'' have the meaning given those 
                terms in section 1876(a) of the Social Security Act (42 
                U.S.C. 1395mm(a)), as added by section 201 of this Act.
            (3) Limitation of payment.--The Secretary shall not make a 
        payment to an eligible organization under a demonstration 
        project conducted under this section that is greater than the 
        payment that would have been made to that organization under 
        section 1876 of the Social Security Act (42 U.S.C. 1395mm) if 
        not for the demonstration project.
            (4) Requirement of number of bids.--The Secretary shall 
        discontinue the demonstration project conducted under this 
        section in a medicare payment area where only 1 eligible 
        organization with risk-sharing contracts under section 1876 of 
        the Social Security Act (42 U.S.C. 1395mm) submits a bid to the 
        Secretary to provide items and services under the demonstration 
        project.
    (b) Report to Congress.--
            (1) In general.--Not later than January 1, 2002, the 
        Secretary shall submit to Congress a report regarding the 
        demonstration projects conducted under this section.
            (2) Contents of report.--The report described in paragraph 
        (1) shall include the following:
                    (A) A description of the demonstration projects 
                conducted under this section.
                    (B) Recommendations for establishing a new payment 
                methodology for eligible organizations with risk-
                sharing contracts under section 1876 of the Social 
                Security Act (42 U.S.C. 1395mm), based on the results 
                of the demonstration projects conducted under this 
                section.
                    (C) Any other information regarding the 
                demonstration projects conducted under this section 
                that the Secretary determines would assist Congress in 
                revising a new payment methodology for eligible 
                organizations with risk-sharing contracts under section 
                1876 of that Act (42 U.S.C. 1395mm).
    (c) Waiver of Medicare Requirements.--The Secretary shall waive 
compliance with the requirements of title XVIII of the Social Security 
Act (42 U.S.C. 1395 et seq.) to such extent and for such period as the 
Secretary determines is necessary to conduct demonstration projects 
under this section.
    (d) No Additional Funding.--The Secretary shall conduct 
demonstration projects under this section with funds otherwise 
available to the Secretary.

SEC. 103. MEDIGAP AMENDMENTS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) of the Social 
Security Act (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:
    ``(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);
            ``(ii) 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), age, or disability; 
        and
            ``(iii) may not impose an exclusion of benefits based on a 
        pre-existing condition,
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.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
            ``(i) The individual is enrolled with an eligible 
        organization under a contract under section 1876 or with an 
        organization under an agreement under section 1833(a)(1)(A) and 
        such enrollment ceases either because the individual moves 
        outside the service area of the organization under the contract 
        or agreement or because of the termination or nonrenewal of the 
        contract or agreement.
            ``(ii) The individual is enrolled with an organization 
        under a policy described in subsection (t) and such enrollment 
        ceases either because the individual moves outside the service 
        area of the organization under the policy, because of the 
        bankruptcy or insolvency of the insurer, or because the insurer 
        closes the block of business to new enrollment.
            ``(iii) The individual is covered under a medicare 
        supplemental policy and such coverage is terminated because of 
        the bankruptcy or insolvency of the insurer issuing the policy, 
        because the insurer closes the block of business to new 
        enrollment, or because the individual changes residence so that 
        the individual no longer resides in a State in which the issuer 
        of the policy is licensed.
            ``(iv) 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 (or significantly reduces) such supplemental health 
        benefits to the individual.
            ``(v)(i) The individual is enrolled with an eligible 
        organization under a contract under section 1876 or with an 
        organization under an agreement under section 1833(a)(1)(A) and 
        such enrollment is terminated by the enrollee during the first 
        12 months of such enrollment, but only if the individual never 
        was previously enrolled with an eligible organization under a 
        contract under section 1876 or with an organization under an 
        agreement under section 1833(a)(1)(A).
            ``(ii) The individual is enrolled under a policy described 
        in subsection (t) and such enrollment is terminated during the 
        first 12 months of such enrollment, but only if the individual 
        never was previously enrolled under such a policy under such 
        subsection.
    ``(C)(i) Subject to clause (ii), a medicare supplemental policy 
described in this subparagraph, with respect to an individual described 
in subparagraph (B), is a policy the benefits under which are 
comparable or lesser in relation to the benefits under the enrollment 
described in subparagraph (B) (or, in the case of an individual 
described in clause (ii), under the most recent medicare supplemental 
policy described in clause (ii)(II)).
    ``(ii) An individual described in this clause is an individual 
who--
            ``(I) is described in subparagraph (B)(v), and
            ``(II) was enrolled in a medicare supplemental policy 
        within the 63-day period before the enrollment described in 
        such subparagraph.
    ``(iii) As a condition for approval of a State regulatory program 
under subsection (b)(1) and for purposes of applying clause (i) to 
policies to be issued in the State, the regulatory program shall 
provide for the method of determining whether policy benefits are 
comparable or lesser in relation to other benefits. With respect to a 
State without such an approved program, the Secretary shall establish 
such method.
    ``(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)(B) of the 
Social Security Act (42 U.S.C. 1395ss(s)(2)(B)) is amended to read as 
follows:
    ``(B) In the case of a policy issued during the 6-month period 
described in subparagraph (A), the policy may not exclude benefits 
based on a pre-existing condition.''.
    (c) Clarifying the Nondiscrimination Requirements During the 6-
Month Initial Enrollment Period.--Section 1882(s)(2)(A) of the Social 
Security Act (42 U.S.C. 1395ss(s)(2)(A)) is amended to read as follows:
    ``(2)(A)(i) In the case of an individual described in clause (ii), 
the issuer of a medicare supplemental policy--
            ``(I) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy, and
            ``(II) 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), age, or disability.
    ``(ii) An individual described in this clause is an individual for 
whom an application is submitted before the end of the 6-month period 
beginning with the first month as of the first day on which the 
individual is 65 years of age or older and is enrolled for benefits 
under part B.''.
    (d) Extending 6-Month Initial Enrollment Period to Nonelderly 
Medicare Beneficiaries.--Section 1882(s)(2)(A)(ii) of the Social 
Security Act (42 U.S.C. 1395ss(s)(2)(A)) (as amended by subsection (c) 
of this Act) is amended by striking ``is submitted'' and all that 
follows and inserting the following: ``is submitted--
            ``(I) before the end of the 6-month period beginning with 
        the first month as of the first day on which the individual is 
        65 years of age or older and is enrolled for benefits under 
        part B; and
            ``(II) for each time the individual becomes eligible for 
        benefits under part A pursuant to section 226(b) or 226A and is 
        enrolled for benefits under part B, before the end of the 6-
        month period beginning with the first month as of the first day 
        on which the individual is so eligible and so enrolled.''.
    (e) 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.
            (3) Clarification of nondiscrimination requirements.--The 
        amendment made by subsection (c) shall apply to policies issued 
        on or after July 1, 1998.
            (4) Extension of enrollment period to disabled 
        individuals.--
                    (A) In general.--The amendment made by subsection 
                (d) shall take effect on July 1, 1998.
                    (B) Transition rule.--In the case of an individual 
                who first became eligible for benefits under part A of 
                title XVIII of the Social Security Act pursuant to 
                section 226(b) or 226A of such Act and enrolled for 
                benefits under part B of such title before July 1, 
                1998, the 6-month period described in section 
                1882(s)(2)(A) of such Act shall begin on July 1, 1998. 
                Before July 1, 1998, the Secretary shall notify any 
                individual described in the previous sentence of their 
                rights in connection with medicare supplemental 
                policies under section 1882 of such Act, by reason of 
                the amendment made by subsection (d).
    (f) Transition Provisions.--
            (1) In general.--If the Secretary 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 
        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 Care 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 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.

             TITLE II--INCREASING MEDICARE COVERAGE OPTIONS

                   Subtitle A--Risk Plan Improvements

SEC. 201. FINANCING AND QUALITY MODERNIZATION AND REFORM.

    (a) Payments to Health Maintenance Organizations and Competitive 
Medical Plans.--
            (1) In general.--Section 1876(a) of the Social Security Act 
        (42 U.S.C. 1395mm(a)) is amended to read as follows:
    ``(a)(1)(A) The Secretary shall annually determine, and shall 
announce (in a manner intended to provide notice to interested parties) 
not later than October 1 before the calendar year concerned--
            ``(i) a per capita rate of payment for individuals who are 
        enrolled under this section with an eligible organization which 
        has entered into a risk-sharing contract and who are entitled 
        to benefits under part A and enrolled under part B, and
            ``(ii) a per capita rate of payment for individuals who are 
        so enrolled with such an organization and who are enrolled 
        under part B only.
For purposes of this section, the term `risk-sharing contract' means a 
contract entered into under subsection (g) and the term `reasonable 
cost reimbursement contract' means a contract entered into under 
subsection (h).
    ``(B)(i) The annual per capita rate of payment for each medicare 
payment area (as defined in paragraph (5)) shall be equal to 95 percent 
of the adjusted average per capita cost (as defined in paragraph (4)), 
adjusted by the Secretary for--
            ``(I) individuals who are enrolled under this section with 
        an eligible organization which has entered into a risk-sharing 
        contract and who are enrolled under part B only; and
            ``(II) 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.
    ``(ii) The Secretary shall reduce the annual per capita rate of 
payment by a uniform percentage (determined by the Secretary for a 
year, subject to adjustment under subparagraph (G)(v)) so that the 
total reduction is estimated to equal the amount to be paid under 
subparagraph (G).
    ``(C) In the case of an eligible organization with a risk-sharing 
contract, the Secretary shall make monthly payments in advance and in 
accordance with the rate determined under subparagraph (B) and except 
as provided in subsection (g)(2), to the organization for each 
individual enrolled with the organization under this section.
    ``(D) The Secretary shall establish a separate rate of payment to 
an eligible organization with respect to any individual determined to 
have end-stage renal disease and enrolled with the organization. Such 
rate of payment shall be actuarially equivalent to rates paid to other 
enrollees in the payment area (or such other area as specified by the 
Secretary).
    ``(E)(i) The amount of payment under this paragraph may be 
retroactively adjusted to take into account any difference between the 
actual number of individuals enrolled in the plan under this section 
and the number of such individuals estimated to be so enrolled in 
determining the amount of the advance payment.
    ``(ii)(I) Subject to subclause (II), the Secretary may make 
retroactive adjustments under clause (i) to take into account 
individuals enrolled during the period beginning on the date on that 
the individual enrolls with an eligible organization (that has a risk-
sharing contract under this section) under a health benefit 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 plan under this section, except that for purposes of making such 
retroactive adjustments under this clause, such period may not exceed 
90 days.
    ``(II) No adjustment may be made under subclause (I) with respect 
to any individual who does not certify that the organization provided 
the individual with the explanation described in subsection (c)(3)(E) 
at the time the individual enrolled with the organization.
    ``(F)(i) At least 45 days before making the announcement under 
subparagraph (A) for a year, the Secretary shall provide for notice to 
eligible organizations of proposed changes to be made in the 
methodology or benefit coverage assumptions from the methodology and 
assumptions used in the previous announcement and shall provide such 
organizations an opportunity to comment on such proposed changes.
    ``(ii) In each announcement made under subparagraph (A), the 
Secretary shall include an explanation of the assumptions (including 
any benefit coverage assumptions) and changes in methodology used in 
the announcement in sufficient detail so that eligible organizations 
can compute per capita rates of payment for individuals located in each 
county (or equivalent medicare payment area) which is in whole or in 
part within the service area of such an organization.
    ``(2) With respect to any eligible organization that has entered 
into a reasonable cost reimbursement contract, payments shall be made 
to such plan in accordance with subsection (h)(2) rather than paragraph 
(1).
    ``(3) Subject to subsection (c) (2)(B)(ii) and (7), payments under 
a contract to an eligible organization under paragraph (1) or (2) shall 
be instead of the amounts that (in the absence of the contract) would 
be otherwise payable, pursuant to sections 1814(b) and 1833(a), for 
services furnished by or through the organization to individuals 
enrolled with the organization under this section.
    ``(4)(A) For purposes of this section, the `adjusted average per 
capita cost' for a medicare payment area (as defined in paragraph (5)) 
is equal to the greatest of the following:
            ``(i) The sum of--
                    ``(I) the area-specific percentage for the year (as 
                specified under subparagraph (B) for the year) of the 
                area-specific adjusted average per capita cost for the 
                year for the medicare payment area, as determined under 
                subparagraph (C), and
                    ``(II) the national percentage (as specified under 
                subparagraph (B) for the year) of the input-price-
                adjusted national adjusted average per capita cost for 
                the year, as determined under subparagraph (D),
        multiplied by a budget neutrality adjustment factor determined 
        under subparagraph (E).
            ``(ii) An amount equal to--
                    ``(I) in the case of 1998, 80 percent of the 
                average annual per capita cost under parts A and B of 
                this title for 1997;
                    ``(II) in the case of 1999, 80 percent of the 
                average annual per capita cost under parts A and B of 
                this title for 1998; and
                    ``(III) in the case of a succeeding year, the 
                amount specified in this clause for the preceding year 
                increased by the national average per capita growth 
                percentage specified under subparagraph (F) for that 
                succeeding year.
            ``(iii) An amount equal to--
                    ``(I) in the case of 1998, 102 percent of the 
                annual per capita rate of payment for 1997 for the 
                medicare payment area (determined under this 
                subsection, as in effect on the day before the date of 
                enactment of the Medicare Modernization and Patient 
                Protection Act of 1997; and
                    ``(II) in the case of a subsequent year, 102 
                percent of the adjusted average per capita cost under 
                this subsection for the area for the previous year.
    ``(B) For purposes of subparagraph (A)(i)--
            ``(i) for 1998, the `area-specific percentage' is 80 
        percent and the `national percentage' is 20 percent,
            ``(ii) for 1999, the `area-specific percentage' is 75 
        percent and the `national percentage' is 25 percent,
            ``(iii) for 2000, the `area-specific percentage' is 70 
        percent and the `national percentage' is 30 percent,
            ``(iv) for 2001, the `area-specific percentage' is 65 
        percent and the `national percentage' is 35 percent, and
            ``(v) for 2002 and each subsequent year, the `area-specific 
        percentage' is 60 percent and the `national percentage' is 40 
        percent.
    ``(C) For purposes of subparagraph (A)(i), the area-specific 
adjusted average per capita cost for a medicare payment area--
            ``(i) for 1998, is the annual per capita rate of payment 
        for 1997 for the medicare payment area (determined under this 
        subsection, as in effect the day before the date of enactment 
        of the Medicare Modernization and Patient Protection Act of 
        1997), increased by the national average per capita growth 
        percentage for 1998 (as defined in subparagraph (F)); or
            ``(ii) for a subsequent year, is the area-specific adjusted 
        average per capita cost for the previous year determined under 
        this subparagraph for the medicare payment area, increased by 
        the national average per capita growth percentage for such 
        subsequent year.
    ``(D)(i) For purposes of subparagraph (A)(i), the input-price-
adjusted national adjusted average per capita cost for a medicare 
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 adjusted average per capita 
        cost (determined under clause (ii)) 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 subclause (III), the Secretary shall, subject to clause 
(iii), apply those indices under this title that are used in applying 
(or updating) national payment rates for specific areas and localities.
    ``(ii) In clause (i)(I), the `national standardized adjusted 
average per capita cost' for a year is equal to--
            ``(I) the sum (for all medicare payment areas) of the 
        product of (aa) the area-specific adjusted average per capita 
        cost for that year for the area under subparagraph (C), and 
        (bb) the average number of medicare beneficiaries residing in 
        that area in the year; divided by
            ``(II) the total average number of medicare beneficiaries 
        residing in all the medicare payment areas for that year.
    ``(iii) In applying this subparagraph 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 clause (i)(II) for such 
        types of services shall be--
                    ``(aa) for part A services, the ratio (expressed as 
                a percentage) of the average annual per capita rate of 
                payment for the area for part A for 1997 to the total 
                average annual per capita rate of payment for the area 
                for parts A and B for 1997, and
                    ``(bb) for part B services, 100 percent minus the 
                ratio described in item (aa);
            ``(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--
                    ``(aa) 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
                    ``(bb) of the remaining 34 percent of the amount of 
                such payments, 70 percent shall be adjusted by the 
                index described in subclause (III); and
            ``(V) the index values shall be computed based only on the 
        beneficiary population who are 65 years of age or older and are 
        not determined to have end-stage renal disease.
The Secretary may continue to apply the rules described in this clause 
(or similar rules) for 1999.
    ``(E) For each year, the Secretary shall compute a budget 
neutrality adjustment factor so that the aggregate of the payments 
under this section shall not exceed the aggregate payments that would 
have been made under this section if the area-specific percentage for 
the year had been 100 percent and the national percentage had been 0 
percent.
    ``(F) In this section, the `national average per capita growth 
percentage' for a year is equal to the Secretary's estimate (after 
consultation with the Secretary of the Treasury) of the 3-year average 
(ending with the year involved) of the annual rate of growth in the 
national average wage index (as defined in section 209(k)(1)) for each 
year in the period.
    ``(5)(A) In this section the term `medicare payment area' means a 
county, or equivalent area specified by the Secretary.
    ``(B) In the case of individuals who are determined to have end-
stage renal disease, the medicare payment area shall be each State.
    ``(6) The payment to an eligible organization under this section 
for individuals enrolled under this section with the organization and 
entitled to benefits under part A and enrolled under part B shall be 
made from the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund. The portion of that payment 
to the organization for a month to be paid by each trust fund shall be 
determined as follows:
            ``(A) In regard to expenditures by eligible organizations 
        having risk-sharing contracts, the allocation shall be 
        determined each year by the Secretary based on the relative 
        weight that benefits from each fund contribute to the adjusted 
        average per capita cost.
            ``(B) In regard to expenditures by eligible organizations 
        operating under a reasonable cost reimbursement contract, the 
        initial allocation shall be based on the plan's most recent 
        budget, such allocation to be adjusted, as needed, after cost 
        settlement to reflect the distribution of actual expenditures.
The remainder of that payment shall be paid by the former trust fund.
    ``(7) Subject to paragraphs (2)(B)(ii) and (7) of subsection (c), 
if an individual is enrolled under this section with an eligible 
organization having a risk-sharing contract, only the eligible 
organization shall be entitled to receive payments from the Secretary 
under this title for services furnished to the individual.''.
            (2) Effective date.--The amendment made by this subsection 
        shall take effect on October 1, 1997.
    (b) Quality Standards.--
            (1) Revision of current requirements; deemed status of 
        accredited organizations.--Section 1876(c)(6) of the Social 
        Security Act (42 U.S.C. 1395mm(c)(6)) is amended to read as 
        follows:
    ``(6)(A) The organization must meet quality standards established 
by the Secretary in consultation with appropriate private quality 
accreditation entities. Such standards shall include a requirement that 
the organization have arrangements for an ongoing quality assurance 
program for health care services it provides to such individuals, which 
(i) stresses health outcomes, and (ii) provides review by physicians 
and other health care professionals of the process followed in the 
provision of such health care services.
    ``(B) If the Secretary finds that accreditation of an organization 
by the National Committee on Quality Assurance or any other national 
accreditation body provides reasonable assurance that the organization 
meets quality standards at least as stringent as those established 
under subparagraph (A), then any organization so accredited is deemed 
to have met the quality standards established under such 
subparagraph.''.
            (2) Waiver of ``50/50'' rule for certain organizations.--
        Section 1876(f) of the Social Security Act (42 U.S.C. 
        1395mm(f)) is amended by adding at the end the following:
    ``(4) The requirement of paragraph (1) shall not apply in the case 
of an organization that either--
            ``(A) is (and has been for a minimum period specified by 
        the Secretary and not longer than 3 years) accredited by an 
        accreditation body described in subsection (c)(6)(B), or
            ``(B) the Secretary determines has met (or has been deemed 
        to have met) the quality standards described in subsection 
        (c)(6)(A) over a minimum period specified by the Secretary.''.
    (c) Enrollment and Disenrollment Periods.--
            (1) Monthly enrollment period.--Section 1876(c)(3) of the 
        Social Security Act (42 U.S.C. 1395mm(c)(3)) is amended by 
        striking subparagraph (A) and inserting the following:
    ``(A) Each eligible organization shall have a monthly enrollment 
period for the enrollment of individuals under this section, and shall 
provide that at any time during which enrollments are accepted, the 
organization will accept up to the limits of its capacity (as 
determined by the Secretary) and without restrictions, except as may be 
authorized in regulations, individuals who are eligible to enroll under 
subsection (d) in the order in which they apply for enrollment, unless 
to do so would result in failure to meet the requirements of subsection 
(f) or would result in the enrollment of enrollees substantially 
nonrepresentative, as determined in accordance with regulations of the 
Secretary, of the population in the geographic area served by the 
organization.''.
            (2) Disenrollment period.--The first sentence of section 
        1876(c)(3)(B) of the Social Security Act (42 U.S.C. 
        1395mm(c)(3)(B)) is amended to read as follows:
    ``(B) An individual may enroll under this section with an eligible 
organization in such manner as may be prescribed in regulations and may 
terminate that enrollment with that eligible organization as of the 
first day of every month if the request for termination is made during 
the first year that the individual is enrolled with that organization 
and as of the first day of every sixth month following such request 
thereafter.''.
    (d) Requirements for Service Areas.--
            (1) In general.--Section 1876 of the Social Security Act 
        (42 U.S.C. 1395mm) is amended by adding at the end the 
        following:
    ``(k)(1) Except as provided in paragraph (2), for purposes of this 
section, if an eligible organization's service area includes any part 
of a metropolitan statistical area, the service area shall include the 
entire metropolitan statistical area (including any area designated by 
the Secretary as a health professional shortage area under section 
332(a)(1)(A) of the Public Health Service Act within such metropolitan 
statistical area).
    ``(2) The Secretary may permit an organization's service area to 
exclude any portion of a metropolitan statistical area (other than the 
central county of such metropolitan statistical area) if--
            ``(A) the organization demonstrates that it lacks the 
        financial or administrative capacity to serve the entire 
        metropolitan statistical area; and
            ``(B) the Secretary finds that the composition of the 
        organization's service area does not reduce the financial risk 
        to the organization of providing services to enrollees because 
        of the health status or other demographic characteristics of 
        individuals residing in the service area (as compared to the 
        health status or demographic characteristics of individuals 
        residing in the portion of the metropolitan statistical area 
        not included in the organization's service area).''.
            (2) Conforming amendment.--Section 1876(c)(4)(A)(i) of the 
        Social Security Act (42 U.S.C. 1395mm(c)(4)(A)(i)) is amended 
        by striking ``the area served by the organization'' and 
        inserting ``the organization's service area''.
    (e) Other Enrollee Protections.--
            (1) Clarification of restrictions on charges for out-of-
        plan services.--
                    (A) Inpatient hospital and extended care 
                services.--Section 1866(a)(1)(O) of the Social Security 
                Act (42 U.S.C. 1395cc(a)(1)(O)) is amended in the 
                matter preceding clause (i) by inserting after ``this 
                title'' the following: ``(without regard to whether or 
                not the services are furnished on an emergency 
                basis)''.
                    (B) Physicians' services and renal dialysis 
                services.--Section 1876(j)(1)(A) of the Social Security 
                Act (42 U.S.C. 1395mm(j)(1)(A)) is amended by striking 
                ``this section'' and inserting ``this section (without 
                regard to whether or not the services are furnished on 
                an emergency basis)''.
            (2) Arrangements for dialysis services.--Section 1876(c) of 
        the Social Security Act (42 U.S.C. 1395mm(c)) is amended by 
        adding at the end the following:
    ``(9) Each eligible organization shall assure that enrollees 
requiring renal dialysis services who are temporarily outside of the 
organization's service area (within the United States) have reasonable 
access to such services by--
            ``(A) making such arrangements with providers of services 
        or renal dialysis facilities outside the service area for the 
        coverage of and payment for such services furnished to 
        enrollees as the Secretary determines necessary to assure 
        reasonable access; or
            ``(B) providing for the reimbursement of any provider of 
        services or renal dialysis facility outside the service area 
        for the furnishing of such services to enrollees.''.
            (3) Study and report.--
                    (A) Study.--The Secretary shall conduct a study of 
                how to provide increased portability of items and 
                services provided under a plan offered by an eligible 
                organization with a risk-sharing contract under section 
                1876 of the Social Security Act (42 U.S.C. 1395mm).
                    (B) Report to congress.--Not later than 18 months 
                after the date of enactment of this Act, the Secretary 
                shall submit a report to Congress which shall contain a 
                detailed statement of the findings and conclusions of 
                the Secretary with respect to the study conducted under 
                subparagraph (A), together with the Secretary's 
                recommendations for such legislation and administrative 
                actions as the Secretary considers appropriate.
    (f) Outlier Payments.-- Section 1876(a)(1) of the Social Security 
Act (42 U.S.C. 1395mm(a)(1)) (as amended by subsection (a) of this 
section) is amended by adding at the end the following:
    ``(G)(i) In the case of an eligible organization with a risk-
sharing contract, the Secretary may make additional payments to the 
organization equal to not more than 50 percent of the imputed 
reasonable cost (or, if so requested by the organization, the 
reasonable cost) above the threshold amount of services covered under 
parts A and B and provided (or paid for) in a year by the organization 
to any individual enrolled with the organization under this section.
    ``(ii) For purposes of clause (i), the `imputed reasonable cost' is 
an amount determined by the Secretary on a national, regional, or other 
basis that is related to the reasonable cost of services.
    ``(iii) For purposes of clause (i), the `threshold amount' is an 
amount determined by the Secretary from time to time, adjusted by the 
geographic factor utilized in determining payments to the organization 
under subparagraph (B) and rounded to the nearest multiple of $100, 
such that the total amount to be paid under this subparagraph for a 
year is estimated to be 5 percent or less of the total amount to be 
paid under risk-sharing contracts for services furnished for that year.
    ``(iv) An eligible organization shall submit a claim for additional 
payments under subsection (i) within such time as the Secretary may 
specify.
    ``(v) To the extent that total payments under clause (i) in a 
year--
            ``(I) exceed the payment set aside as a result of the 
        reduction under subparagraph (B) for the year, the Secretary 
        shall increase the percentage reduction under such subparagraph 
        for the following year by such percentage as will result in an 
        increase in the reduction equal to such excess in previous 
        payments, or
            ``(II) are less than the payment set aside as a result of 
        the reduction under subparagraph (B) for the year, the amount 
        of such difference shall remain available in the succeeding 
        years for additional payments under this subparagraph and the 
        Secretary may take such difference into account in establishing 
        the percentage reduction under subparagraph (B) for the 
        following year.''.
    (g) Application of Intermediate Sanctions for Any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) of the Social Security 
        Act (42 U.S.C. 1395mm(i)(1)) is amended by striking ``the 
        Secretary may terminate'' and all that follows and inserting 
        the following: ``in accordance with procedures established 
        under paragraph (9), the Secretary may at any time terminate 
        any such contract or impose the intermediate sanctions 
        described in subparagraph (B) or (C) of paragraph (6) 
        (whichever is applicable) on the eligible organization if the 
        Secretary determines that the organization--
            ``(A) has failed substantially to carry out the contract;
            ``(B) is carrying out the contract in a manner inconsistent 
        with the efficient and effective administration of this 
        section;
            ``(C) is operating in a manner that is not in the best 
        interests of the individuals covered under the contract; or
            ``(D) no longer substantially meets the applicable 
        conditions of subsections (b), (c), (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
        amended by adding at the end the following:
    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis of which 
is not described in subparagraph (A), the Secretary may apply the 
following intermediate sanctions:
            ``(i) Civil money penalties of not more than $25,000 for 
        each determination under paragraph (1) if the deficiency that 
        is the basis of the determination has directly adversely 
        affected (or has the substantial likelihood of adversely 
        affecting) an individual covered under the organization's 
        contract.
            ``(ii) Civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 1876(i) (42 
        U.S.C. 1395mm(i)) is amended by adding at the end the 
        following:
    ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accordance 
with formal investigation and compliance procedures established by the 
Secretary under which--
            ``(A) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under paragraph (1);
            ``(B) the Secretary imposes more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
            ``(C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before imposing any 
        sanction or terminating the contract.''.
            (4) Conforming amendments.--
                    (A) Section 1876(i)(6)(B) of the Social Security 
                Act (42 U.S.C. 1395mm(i)(6)(B)) is amended by striking 
                the second sentence.
                    (B) Section 1876(i)(6) of the Social Security Act 
                (42 U.S.C. 1395mm(i)(6)) is further amended by adding 
                at the end the following:
    ``(D) The provisions of section 1128A (other than subsections (a), 
(b), and (m)) shall apply to a civil money penalty under subparagraph 
(A) or (B) in the same manner as they apply to a civil money penalty or 
proceeding under section 1128A(a).''.
    (h) Agreements With Peer Review Organizations.--
            (1) Requirement for written agreement.--Section 
        1876(i)(7)(A) of the Social Security Act (42 U.S.C. 
        1395mm(i)(7)(A)) is amended by striking ``an agreement'' and 
        inserting ``a written agreement''.
            (2) Development of model agreement.--Not later than July 1, 
        1998, the Secretary shall develop a model of the agreement that 
        an eligible organization with a risk-sharing contract under 
        section 1876 of the Social Security Act (42 U.S.C. 1395mm) must 
        enter into with an entity providing peer review services with 
        respect to services provided by the organization under section 
        1876(i)(7)(A) of that Act.
            (3) Report by gao.--
                    (A) Study.--The Comptroller General of the United 
                States shall conduct a study of the costs incurred by 
                eligible organizations with risk-sharing contracts 
                under section 1876 of the Social Security Act (42 
                U.S.C. 1395mm) of complying with the requirement of 
                entering into a written agreement with an entity 
                providing peer review services with respect to services 
                provided by the organization, together with an analysis 
                of how information generated by such entities is used 
                by the Secretary to assess the quality of services 
                provided by such eligible organizations.
                    (B) Report to congress.--Not later than July 1, 
                1998, the Comptroller General of the United States 
                shall submit a report 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 on the study conducted under subparagraph (A).
    (i) Elimination of Gag Clauses.--
            (1) In General.--Section 1876(i) of the Social Security Act 
        (42 U.S.C. 1395mm(i)) (as amended by subsection (g)) is amended 
        by adding at the end the following:
    ``(10)(A) Each contract with an eligible organization under this 
section shall provide that the organization may not prohibit an 
applicable individual from openly communicating, within the scope of 
such individual's license (or such individual's group license), with 
any patient of such individual who is covered under this section with 
respect to such patients'--
            ``(i) physical or mental condition;
            ``(ii) medical care; or
            ``(iii) appropriate treatment options.
    ``(B) As used in this paragraph, the term `applicable individual' 
means a health care provider who--
            ``(i) provides items and services under this section; and
            ``(ii) is licensed or certified by the State in which such 
        items and services are provided.''.
            (2) Enforcement.--Section 1876(i)(6)(A)(vi) of the Social 
        Security Act (42 U.S.C. 1395mm(i)(6)(A)(iv)) is amended by 
        striking ``paragraph (8)'' and inserting ``paragraph (8) or 
        (10)''.
    (j) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to contract years beginning with 1998.

SEC. 202. QUALITY REPORT CARDS AND COMPARATIVE REPORTS.

    Title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) is 
amended by inserting after section 1804 the following:

             ``quality report cards and comparative reports

    ``Sec. 1805. (a) Distribution of Quality Report Cards and 
Comparative Reports.--Beginning with calendar year 1998, the Secretary 
shall include with the notice distributed under section 1804 a quality 
report card and a comparative report. The quality report card and 
comparative report shall contain information designed to assist 
medicare beneficiaries in choosing eligible organizations including a 
comparison of benefits, costs, and the quality indicators developed 
under subsection (b).
    ``(b) Quality Report Cards.--
            ``(1) In general.--The Secretary shall develop quality 
        indicators for eligible organizations that will assist medicare 
        beneficiaries' decisionmaking regarding health care and 
        treatment by allowing the beneficiaries to compare quality 
        information.
            ``(2) Quality indicators described.--The quality indicators 
        developed under paragraph (1) may include the following:
                    ``(A) Information on the number of members of an 
                eligible organization who disenroll from the 
                organization.
                    ``(B) Outcomes of care.
                    ``(C) Population health status.
                    ``(D) Appropriateness of care.
                    ``(E) Consumer satisfaction for general and 
                subgroup populations.
                    ``(F) Access to care, including access to emergency 
                care, waiting time for scheduled appointments, and 
                provider location convenience.
                    ``(G) Prevention of diseases, disorders, 
                disabilities, injuries, and other health conditions.
            ``(3) Ongoing basis.--Development of quality indicators 
        shall be done on an ongoing basis.
    ``(c) Comparative Reports.--
            ``(1) In general.--The Secretary shall develop an 
        understandable standardized comparative report on the plans 
        offered by eligible organizations, that will assist medicare 
        beneficiaries' decisionmaking regarding health care and 
        treatment by allowing the beneficiaries to compare the 
        organizations that the beneficiaries are eligible to enroll 
        with.
            ``(2) Contents of report.--The report described in 
        paragraph (1) shall include a comparison of the following:
                    ``(A) The monthly premium.
                    ``(B) The amount of any deductibles and 
                coinsurance.
                    ``(C) The choice of doctors.
                    ``(D) The choice of hospitals.
                    ``(E) The service area.
                    ``(F) Emergency room care coverage.
                    ``(G) Hospital charges.
                    ``(H) Physician charges.
                    ``(I) Coverage of prescription drugs.
                    ``(J) Ambulance coverage.
                    ``(K) Coverage of routine eye exams and eyeglasses.
                    ``(L) Coverage of skilled nursing facilities and 
                home health care.
                    ``(M) Coverage of hearing exams and hearing aids.
                    ``(N) Coverage of mental health therapy.
                    ``(O) Any physician financial incentives.
                    ``(P) The number of members in the plan.
                    ``(Q) The number of individuals who voluntarily 
                enrolled and disenrolled in the plan during the 
                previous fiscal year.
                    ``(R) The percentage of physicians in the plan who 
                left the plan during the previous fiscal year.
                    ``(S) Whether the plan offers a point of service 
                option.
                    ``(T) The number of applications during the 
                previous fiscal year requesting that the plan cover 
                certain out-of-network services and the number of such 
                applications that were denied.
                    ``(U) Any other materials that the Secretary 
                determines would be helpful for beneficiaries to 
                compare the organizations that the beneficiaries are 
                eligible to enroll with.
    ``(d) Funding and Compliance.--
            ``(1) In general.--Each eligible organization shall--
                    ``(A) disclose quality indicator data and the 
                information necessary to complete the comparative 
                report as requested, to the Secretary; and
                    ``(B) pay to the Secretary the pro rata share, as 
                determined by the Secretary, of the estimated costs to 
be incurred by the Secretary in carrying out the requirements of this 
section.
            ``(2) Appropriation.--Any funds received in the Treasury as 
        a result of payments made under paragraph (1)(B) are authorized 
        to be appropriated and are appropriated to the Secretary, for 
        the purposes described in such paragraph, and shall remain 
        available until expended.
    ``(e) Definitions.--In this section--
            ``(1) the term `eligible organization' means an 
        organization with a risk-sharing contract under section 1876;
            ``(2) the term `medicare beneficiary' means an individual 
        entitled to benefits under part A or enrolled under part B; and
            ``(3) the term `provider' means hospitals, physicians, 
        nursing homes, and providers of ancillary services to medicare 
        beneficiaries.''.

SEC. 203. PREEMPTION OF STATE LAWS RESTRICTING MANAGED CARE.

    (a) Preemption of State Benefit Mandates.--No State shall establish 
or enforce any law or regulation that requires the offering, as part of 
health insurance coverage to be offered to an individual entitled to 
benefits under the medicare program, of any services, category of care, 
or services of any class or type of provider.
    (b) Preemption of State Law Restrictions on Managed Care 
Arrangements.--
            (1) Limitation on restrictions on network plans.--A State 
        may not prohibit or limit--
                    (A) a carrier or group health plan providing health 
                coverage from including incentives for enrollees to use 
                the services of participating providers;
                    (B) such a carrier or plan from limiting coverage 
                of services to those provided by a participating 
                provider;
                    (C) the negotiation of rates and forms of payments 
                for providers by such a carrier or plan with respect to 
                health coverage;
                    (D) such a carrier or plan from limiting the number 
                of participating providers;
                    (E) such a carrier or plan from requiring that 
                services be provided (or authorized) by a practitioner 
                selected by the enrollee from a list of available 
                participating providers or from requiring enrollees to 
                obtain referral in order to have coverage for treatment 
                by a specialist or health institution; and
                    (F) the corporate practice of medicine.
            (2) Definitions.--In this subsection:
                    (A) Managed care arrangement.--The term ``managed 
                care arrangement'' means, with respect to an 
                arrangement under a group health plan or under health 
                insurance coverage, providers who have entered into an 
                agreement under the arrangement under which such 
                providers are obligated to provide items and services 
                covered under the arrangement to individuals covered 
                under the plan or who have such coverage.
                    (B) Managed care coverage.--The term ``managed care 
                coverage'' means health coverage to the extent the 
                coverage is provided through a managed care arrangement 
                (as defined in subparagraph (A)).
                    (C) Participating provider.--The term 
                ``participating provider'' means an entity or 
                individual that provides, sells, or leases health care 
                services as part of a provider network (as defined in 
                subparagraph (D)).
                    (D) Provider network.--The term ``provider 
                network'' means, with respect to a group health plan or 
                health insurance coverage, providers who have entered 
                into an agreement described in subparagraph (A) under a 
                managed care arrangement.
    (c) Preemption of State Laws Restricting Utilization Review 
Programs.--
            (1) In general.--No State law or regulation shall prohibit 
        or regulate activities under a utilization review program (as 
        defined in paragraph (2)).
            (2) Utilization review program defined.--In this 
        subsection, the term ``utilization review program'' means a 
        system of reviewing the medical necessity and appropriateness 
        of patient services (which may include inpatient and outpatient 
        services) using specified guidelines. Such a system may include 
        preadmission certification, the application of practice 
        guidelines, continued stay review, discharge planning, 
        preauthorization of ambulatory procedures, and retrospective 
        review.
            (3) Exemption of laws preventing denial of lifesaving 
        medical treatment pending transfer to another health care 
        provider.--Nothing in this section shall be construed to 
        invalidate any State law that has the effect of preventing 
        involuntary denial of life-preserving medical treatment when 
        such denial would cause the involuntary death of the patient 
        pending transfer of the patient to a health care provider 
        willing to provide such treatment.
    (d) Effective Date.--This section takes effect on January 1, 1998.

SEC. 204. APPEALS.

    (a) Ombudsman for Medicare HMO's.--Section 1876(c) of the Social 
Security Act (42 U.S.C. 1395mm(c)) (as amended by section 201(e)(2) of 
this Act) is amended by adding at the end the following:
    ``(10) The organization shall designate an independent ombudsman to 
assist members enrolled with such organization with exercising such 
members' right to file grievances and appeals under paragraph (5).''.
    (b) Notice by Medicare HMO's of Right To File Grievances and 
Appeals.--Section 1876(c)(5) of the Social Security Act (42 U.S.C. 
1395mm(c)(5)) is amended by adding at the end the following:
    ``(C)(i) The organization shall provide to a member enrolled with 
the organization a clear and understandable statement regarding such 
member's right to file grievances and appeals under paragraph (5).
    ``(ii) The statement described in clause (i) shall be provided to 
the member each time the member applies to the organization for items 
or services to be covered.''.
    (c) Expediting Determinations and Appeals.--
            (1) In general.--Not later than 90 days after the date of 
        enactment of this Act, the Secretary shall promulgate 
        regulations that are intended to expedite determinations and 
        appeals regarding covered items and services for individuals 
        who are entitled to items and services under part A and 
        eligible for items and services under part B of title XVIII of 
        the Social Security Act.
            (2) Contents.--In promulgating the regulations required 
        under paragraph (1), the Secretary shall consider whether to 
        include a regulation that states that an individual need not 
        partake in a fair hearing regarding a covered service if Health 
        Care Financing Administration policy would require the fair 
        hearing officer to rule against the individual.

SEC. 205. MEDICARE HMO ENROLLMENT FAIR.

    (a) In General.--Section 1876 of the Social Security Act (42 U.S.C. 
1395mm) (as amended by section 201(d) of this Act) is amended by adding 
at the end the following:
    ``(l) In the month of November of each year, the Secretary shall 
coordinate an annual enrollment fair in each medicare payment area in 
order for eligible organizations to inform individuals eligible to 
enroll in the plans offered by those organizations under this section 
about the aspects of those plans, including the aspects described in 
section 1805(c)(2).''.
    (b) Requirement for Eligible Organizations.--Section 1876(c) of the 
Social Security Act (42 U.S.C. 1395mm(c)) (as amended by section 204(a) 
of this Act) is amended by adding at the end the following:
    ``(11) The organization shall participate in the annual enrollment 
fair (coordinated by the Secretary under subsection (l)) in each 
medicare payment area in which the organization offers a plan under 
this section.''.

            Subtitle B--Maintaining Fee-for-Service Program

SEC. 211. FAILSAFE BUDGET MECHANISM.

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

                      ``failsafe budget mechanism

    ``Sec. 1894. (a) Requirement of Payment Adjustments To Achieve 
Medicare Budget Targets.--
            ``(1) In general.--If the Secretary determines under 
        subsection (e)(3)(C) before a fiscal year (beginning with 
        fiscal year 2000) that--
                    ``(A) the fee-for-service expenditures (as defined 
                in subsection (f)) for all sectors of medicare services 
                (as defined in subsection (b)) for the fiscal year, 
                will exceed
                    ``(B) the sum of the allotments specified under 
                subsection (c)(2) for such fiscal year (taking into 
                account any adjustment in the allotment under 
                subsection (g) for that fiscal year) for all sectors,
        then, notwithstanding any other provision of this title, there 
        shall be an adjustment (consistent with subsection (d)) in 
        applicable payment rates or payments for items and services 
        included in each excess spending sector in the fiscal year. In 
        this section, the term `aggregate excess spending' means, for a 
        fiscal year, the amount by which the amount described in 
        subparagraph (A) (for the fiscal year) exceeds the amount 
        described in subparagraph (B) for such year.
            ``(2) Excess spending sector.--In this section, the term 
        `excess spending sector' means, for a fiscal year, a sector of 
        medicare services for which the Secretary determines under 
        subsection (e)(3)(C)--
                    ``(A) the fee-for-service expenditures (as defined 
                in subsection (f)) for the fiscal year, will exceed
                    ``(B) the allotment specified under subsection 
                (c)(2) for such fiscal year (taking into account any 
                adjustment in the allotment under subsection (g) for 
                that fiscal year).
        In this section, the term `excess spending' means, for a fiscal 
        year with respect to such a sector, the amount by which the 
        amount described in subparagraph (A) (for the fiscal year and 
        sector) exceeds the amount described in subparagraph (B) for 
        such year and sector.
    ``(b) Sectors of Medicare Services Described.--
            ``(1) In general.--For purposes of this section, items and 
        services included under each of the following subparagraphs 
        shall be considered to be a separate `sector' of medicare 
        services:
                    ``(A) Inpatient hospital services.
                    ``(B) Home health services.
                    ``(C) Extended care services (for inpatients of 
                skilled nursing facilities).
                    ``(D) Hospice care.
                    ``(E) Physicians' services (including services and 
                supplies described in section 1861(s)(2)(A)) and 
                services of other health care professionals (including 
                certified registered nurse anesthetists, nurse 
                practitioners, physician assistants, and clinical 
                psychologists) for which separate payment is made under 
                this title.
                    ``(F) Outpatient hospital services and ambulatory 
                facility services.
                    ``(G) Durable medical equipment and supplies, 
                including prosthetic devices and orthotics.
                    ``(H) Diagnostic tests (including clinical 
                laboratory services and x-ray services).
                    ``(I) Other items and services.
            ``(2) Classification of items and services.--The Secretary 
        shall classify each type of item and service covered and paid 
        for separately under this title into one of the sectors 
        specified in paragraph (1). After publication of such 
        classification under subsection (e)(1), the Secretary is not 
        authorized to make substantive changes in such classification.
    ``(c) Allotment.--
            ``(1) Allotments for each sector.--For purposes of this 
        section, subject to subsection (g)(1), the allotment for a 
        sector of medicare services for a fiscal year is equal to the 
        product of--
                    ``(A) the total allotment for the fiscal year 
                established under paragraph (2), and
                    ``(B) the allotment proportion (specified under 
                paragraph (3)) for the sector and fiscal year involved.
            ``(2) Total allotment.--
                    ``(A) In general.--For purposes of this section, 
                the total allotment for a fiscal year is equal to--
                            ``(i) the medicare benefit budget for the 
                        fiscal year (as specified under subparagraph 
                        (B)), reduced by
                            ``(ii) the amount of payments the Secretary 
                        estimates will be made in the fiscal year under 
                        section 1876.
                In making the estimate under clause (ii), the Secretary 
                shall take into account estimated enrollment and 
                demographic profile of individuals electing to enroll 
                in section 1876.
                    ``(B) Medicare benefit budget.--For purposes of 
                this subsection, subject to subparagraph (C), the 
                `medicare benefit budget'--
                            ``(i) for fiscal year 1998 is 
                        $225,070,000,000;
                            ``(ii) for fiscal year 1999 is 
                        $239,590,000,000;
                            ``(iii) for fiscal year 2000 is 
                        $252,490,000,000;
                            ``(iv) for fiscal year 2001 is 
                        $271,890,000,000;
                            ``(v) for fiscal year 2002 is 
                        $292,020,000,000; and
                            ``(viii) for a subsequent fiscal year is 
                        equal to the medicare benefit budget under this 
                        subparagraph for the preceding fiscal year 
                        multiplied by the product of (I) 1.05, and (II) 
                        1 plus the annual percentage increase in the 
                        average number of medicare beneficiaries from 
                        the previous fiscal year to the fiscal year 
                        involved.
            ``(3) Medicare allotment proportion defined.--
                    ``(A) In general.--For purposes of this section and 
                with respect to a sector of medicare services for a 
                fiscal year, the term `medicare allotment proportion' 
                means the ratio of--
                            ``(i) the baseline-projected medicare 
                        expenditures (as determined under subparagraph 
                        (B)) for the sector for the fiscal year, to
                            ``(ii) the sum of such baseline 
                        expenditures for all such sectors for the 
                        fiscal year.
                    ``(B) Baseline-projected medicare expenditures.--In 
                this paragraph, the `baseline-projected medicare 
                expenditures' for a sector of medicare services--
                            ``(i) for fiscal year 1998 is equal to fee-
                        for-service expenditures for such sector during 
                        fiscal year 1997, increased by the baseline 
                        annual growth rate for such sector of medicare 
                        services for fiscal year 1998 (as specified in 
                        the table in subparagraph (C)); and
                            ``(ii) for a subsequent fiscal year is 
                        equal to the baseline-projected medicare 
                        expenditures under this subparagraph for the 
                        sector for the previous fiscal year increased 
                        by the baseline annual growth rate for such 
                        sector for the fiscal year involved (as 
                        specified in such table).
                    ``(C) Baseline annual growth rates.--The following 
                table specifies the baseline annual growth rates for 
                each of the sectors for different fiscal years:
      

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

    ``(d) Manner of Payment Adjustment.--
            ``(1) Payment reductions.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary shall 
                apply a payment reduction for each excess spending 
                sector for a fiscal year in such a manner as to--
                            ``(i) make a change in payment rates (to 
                        the maximum extent practicable) at the time 
                        payment rates are otherwise changed or subject 
                        to change for that fiscal year; and
                            ``(ii) provide for the full appropriate 
                        adjustment so that the fee-for-service 
                        expenditures for the sector for the fiscal year 
                        will be reduced by 133\1/3\ percent of the 
                        amount of the sector reduction target for that 
                        sector.
                    ``(B) Sector reduction target.--In paragraph (1), 
                the `sector reduction target' for an excess spending 
                sector for a fiscal year is equal to the product of--
                            ``(i) the amount of the excess spending for 
                        such sector and year (as defined in subsection 
                        (a)(2)); and
                            ``(ii) the ratio of--
                                    ``(I) the aggregate excess spending 
                                for the year (as defined in subsection 
                                (a)(1)), to
                                    ``(II) the sum of the amounts of 
                                the excess spending for all excess 
                                spending sectors.
            ``(2) Taking into account volume and cash flow.--In 
        providing for an adjustment in payments under this subsection 
        for a sector for a fiscal year, the Secretary shall take into 
        account (in a manner consistent with actuarial projections)--
                    ``(A) the impact of such an adjustment on the 
                volume or type of services provided in such sector (and 
                other sectors), and
                    ``(B) the fact that an adjustment may apply to 
                items and services furnished in a fiscal year (payment 
                for which may occur in a subsequent fiscal year),
        in a manner that is consistent with assuring that total fee-
        for-services expenditures for each sector for the fiscal year 
        will not exceed the allotment under subsection (c)(1) for such 
        sector for such year.
            ``(3) Proportionality of reductions within a sector.--In 
        making adjustments under this subsection in payment for items 
        and services included within a sector of medicare services for 
        a fiscal year, the Secretary shall provide for such an 
        adjustment that results (to the maximum extent feasible) in the 
        same percentage reductions in aggregate Federal payments under 
        parts A and B for the different classes of items and services 
        included within the sector for the fiscal year.
            ``(4) Application to payments made based on prospective 
        payment rates determined on a fiscal year basis.--
                    ``(A) In general.--In applying subsection (a) with 
                respect to items and services for which payment is made 
                under part A or B on the basis of rates that are 
                established on a prospective basis for (and in advance 
of) a fiscal year, the Secretary shall provide for the payment 
adjustment under such subsection through an appropriate reduction in 
such rates established for items and services furnished (or, in the 
case of payment for operating costs of inpatient hospital services of 
subsection (d) hospitals and subsection (d) Puerto Rico hospitals (as 
defined in paragraphs (1)(B) and (9)(A) of section 1886(d)), discharges 
occurring) during such year.
                    ``(B) Description of application to specific 
                services.--The payment adjustment described in 
                subparagraph (A) applies for a fiscal year to at least 
                the following:
                            ``(i) Update factor for payment for 
                        operating costs of inpatient hospital services 
                        of pps hospitals.--To the computation of the 
                        applicable percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                            ``(ii) Home health services.--To the extent 
                        payment amounts for home health services are 
                        based on per visit payment rates under section 
                        1895, to the computation of the increase in the 
                        national per visit payment rates established 
                        for the year under section 1895(b)(2)(B).
                            ``(iii) Hospice care.--To the update of 
                        payment rates for hospice care under section 
                        1814(i) for services furnished during the 
                        fiscal year.
                            ``(iv) Update factor for payment of 
                        operating costs of inpatient hospital services 
                        of pps-exempt hospitals.--To the computation of 
                        the target amount under section 1886(b)(3) for 
                        discharges occurring during the fiscal year.
            ``(5) Application to payments made based on prospective 
        payment rates determined on a calendar year basis.--
                    ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                rates that are established on a prospective basis for 
                (and in advance of) a calendar year, the Secretary 
                shall provide for the payment adjustment under such 
                subsection through an appropriate reduction in such 
                rates established for items and services furnished at 
                any time during such calendar year as follows:
                            ``(i) For fiscal year 1999, the reduction 
                        shall be made for payment rates during calendar 
                        year 1999 in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of calendar year 1999.
                            ``(ii) For a subsequent fiscal year, the 
                        reduction shall be made for payment rates 
                        during the calendar year in which the fiscal 
                        year ends in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of the calendar year, but 
                        also taking into account the payment reductions 
                        made in the first quarter of the fiscal year 
                        resulting from payment reductions made under 
                        this paragraph for the previous calendar year.
                            ``(iii) Payment rate reductions effected 
                        under this subparagraph for a calendar year and 
                        applicable to the last 3 quarters of the fiscal 
                        year in which the calendar year ends shall 
                        continue to apply during the first quarter of 
                        the succeeding fiscal year.
                    ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                            ``(i) Update in conversion factor for 
                        physicians' services.--To the computation of 
                        the conversion factor under subsection (d) of 
                        section 1848 used in the fee schedule 
                        established under subsection (b) of such 
                        section, for items and services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
                            ``(ii) Payment rates for other health care 
                        professionals.--To the computation of payments 
                        for professional services, furnished during the 
                        calendar year in which the fiscal year ends, of 
                        certified registered nurse anesthetists under 
                        section 1833(l), nurse midwives, physician 
                        assistants, nurse practitioners and clinical 
                        nurse specialists under section 
1833(r), clinical psychologists, clinical social workers, physical or 
occupational therapists, and any other health professionals for which 
payment rates are based (in whole or in part) on payments for 
physicians' services.
                            ``(iii) Update in laboratory fee 
                        schedule.--To the computation of the fee 
                        schedule amount under section 1833(h)(2) for 
                        clinical diagnostic laboratory services 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(iv) Update in reasonable charges for 
                        vaccines.--To the computation of the reasonable 
                        charge for vaccines described in section 
                        1861(s)(10) for vaccines furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(v) Durable medical equipment-related 
                        items.--To the computation of the payment basis 
                        under section 1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for items 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(vi) Radiologist services.--To the 
                        computation of conversion factors for 
                        radiologist services under section 1834(b), for 
                        services furnished during the calendar year in 
                        which the fiscal year ends.
                            ``(vii) Screening mammography.--To the 
                        computation of payment rates for screening 
                        mammography under section 1834(c)(1)(C)(ii), 
                        for screening mammography performed during the 
                        calendar year in which the fiscal year ends.
                            ``(viii) Prosthetics and orthotics.--To the 
                        computation of the amount to be recognized 
                        under section 1834(h) for payment for 
                        prosthetic devices and orthotics and 
                        prosthetics, for items furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(ix) Surgical dressings.--To the 
                        computation of the payment amount referred to 
                        in section 1834(i)(1)(B) for surgical 
                        dressings, for items furnished during the 
                        calendar year in which the fiscal year ends.
                            ``(x) Parenteral and enteral nutrition.--To 
                        the computation of reasonable charge screens 
                        for payment for parenteral and enteral 
                        nutrition under section 1834(h), for nutrients 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                            ``(xi) Ambulance services.--To the 
                        computation of limits on reasonable charges for 
                        ambulance services, for services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
            ``(6) Application to payments made based on costs during a 
        cost reporting period.--
                    ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                costs incurred for items and services in a cost 
                reporting period, the Secretary shall provide for the 
                payment adjustment under such subsection for a fiscal 
                year through an appropriate proportional reduction in 
                the payment for costs for such items and services 
                incurred at any time during each cost reporting period 
                any part of which occurs during the fiscal year 
                involved, but only (for each such cost reporting 
                period) in the same proportion as the fraction of the 
                cost reporting period that occurs during the fiscal 
                year involved.
                    ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                            ``(i) Capital-related costs of hospital 
                        services.--To the computation of payment 
                        amounts for inpatient and outpatient hospital 
                        services under sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                            ``(ii) Operating costs for pps-exempt 
                        hospitals.--To the computation of payment 
                        amounts under section 1886(b) for operating 
                        costs of inpatient hospital services of PPS-
                        exempt hospitals for portions of cost reporting 
                        periods occurring during the fiscal year.
                            ``(iii) Direct graduate medical 
                        education.--To the computation of payment 
                        amounts under section 1886(h) for reasonable 
                        costs of direct graduate medical education 
costs for portions of cost reporting periods occurring during the 
fiscal year.
                            ``(iv) Inpatient rural primary care 
                        hospital services.--To the computation of 
                        payment amounts under section 1814(l) for 
                        inpatient rural primary care hospital services 
                        for portions of cost reporting periods 
                        occurring during the fiscal year.
                            ``(v) Extended care services of a skilled 
                        nursing facility.--To the computation of 
                        payment amounts under section 1861(v) for post-
                        hospital extended care services of a skilled 
                        nursing facility for portions of cost reporting 
                        periods occurring during the fiscal year.
                            ``(vi) Reasonable cost contracts.--To the 
                        computation of payment amounts under section 
                        1833(a)(1)(A) for organizations for portions of 
                        cost reporting periods occurring during the 
                        fiscal year.
                            ``(vii) Home health services.--Subject to 
                        paragraph (4)(B)(ii), for payment amounts for 
                        home health services, for portions of cost 
                        reporting periods occurring during such fiscal 
                        year.
            ``(7) Other.--In applying subsection (a) for a fiscal year 
        with respect to items and services for which payment is made 
        under part A or B on a basis not described in a previous 
        paragraph of this subsection, the Secretary shall provide for 
        the payment adjustment under such subsection through an 
        appropriate proportional reduction in the payments (or payment 
        bases for items and services furnished) during the fiscal year.
            ``(8) Adjustment of payment limits.--The Secretary shall 
        provide for such proportional adjustment in any limits on 
        payment established under part A or B for items and services 
        within a sector as may be appropriate based on (and in order to 
        properly carry out) the adjustment to the amount of payment 
        under this subsection in the sector.
            ``(9) References to payment rates.--Except as the Secretary 
        may provide, any reference in this title (other than this 
        section) to a payment rate is deemed a reference to such a rate 
        as adjusted under this subsection.
    ``(e) Publication of Determinations; Judicial Review.--
            ``(1) One-time publication of sectors and general payment 
        adjustment methodology.--Not later than October 1, 1998, the 
        Secretary shall publish in the Federal Register the 
        classification of medicare items and services into the sectors 
        of medicare services under subsection (b) and the general 
        methodology to be used in applying payment adjustments to the 
        different classes of items and services within the sectors.
            ``(2) Inclusion of information in president's budget.--
                    ``(A) In general.--With respect to fiscal years 
                beginning with fiscal year 2001, the President shall 
                include in the budget submitted under section 1105 of 
                title 31, United States Code, information on--
                            ``(i) the fee-for-service expenditures, 
                        within each sector, for the second previous 
                        fiscal year, and how such expenditures compare 
                        to the adjusted sector allotment for that 
                        sector for that fiscal year; and
                            ``(ii) actual annual growth rates for fee-
                        for-service expenditures in the different 
                        sectors in the second previous fiscal year.
                    ``(B) Recommendations regarding growth factors.--
                The President may include in such budget for a fiscal 
                year (beginning with fiscal year 2000) recommendations 
                regarding percentages that should be applied (for one 
                or more fiscal years beginning with that fiscal year) 
                instead of the baseline annual growth rates under 
                subsection (c)(3)(C). Such recommendations shall take 
                into account medically appropriate practice patterns.
            ``(3) Determinations concerning payment adjustments.--
                    ``(A) Recommendations of commissions.--By not later 
                than March 1 of each year (beginning with 1999), the 
                Prospective Payment Review Commission and the Physician 
                Payment Review Commission shall jointly submit to the 
                Secretary and the Congress a report that analyzes the 
                previous operation (if any) of this section and that 
                includes recommendations concerning the manner in which 
                this section should be applied for the following fiscal 
                year.
                    ``(B) Preliminary notice by secretary.--Not later 
                than May 15 preceding the beginning of each fiscal year 
                (beginning with fiscal year 2000), the Secretary shall 
publish in the Federal Register a notice containing the Secretary's 
preliminary determination, for each sector of medicare services, 
concerning the following:
                            ``(i) The projected allotment under 
                        subsection (c) for such sector for the fiscal 
                        year.
                            ``(ii) Whether there will be a payment 
                        adjustment for items and services included in 
                        such sector for the fiscal year under 
                        subsection (a).
                            ``(iii) If there will be such an 
                        adjustment, the size of such adjustment and the 
                        methodology to be used in making such a payment 
                        adjustment for classes of items and services 
                        included in such sector.
                            ``(iv) Beginning with fiscal year 2001, the 
                        fee-for-service expenditures for such sector 
                        for the second preceding fiscal year.
                Such notice shall include an explanation of the basis 
                for such determination. Determinations under this 
                subparagraph and subparagraph (C) shall be based on the 
                best data available at the time of such determinations.
                    ``(C) Final determination.--Not later than 
                September 1 preceding the beginning of each fiscal year 
                (beginning with fiscal year 2000), the Secretary shall 
                publish in the Federal Register a final determination, 
                for each sector of medicare services, concerning the 
                matters described in subparagraph (B) and an 
                explanation of the reasons for any differences between 
                such determination and the preliminary determination 
                for such fiscal year published under subparagraph (B).
            ``(4) Limitation on administrative or judicial review.--
        There shall be no administrative or judicial review under 
        section 1878 or otherwise of--
                    ``(A) the classification of items and services 
                among the sectors of medicare services under subsection 
                (b),
                    ``(B) the determination of the amounts of 
                allotments for the different sectors of medicare 
                services under subsection (c),
                    ``(C) the determination of the amount (or method of 
                application) of any payment adjustment under subsection 
                (d), or
                    ``(D) any adjustment in an allotment effected under 
                subsection (g).
    ``(f) Fee-for-Service Expenditures Defined.--In this section, the 
term `fee-for-service expenditures', for items and services within a 
sector of medicare services in a fiscal year, means amounts payable for 
such items and services which are furnished during the fiscal year, 
and--
            ``(1) includes types of expenses otherwise reimbursable 
        under parts A and B (including administrative costs incurred by 
        organizations described in sections 1816 and 1842) with respect 
        to such items and services, and
            ``(2) does not include amounts paid under section 1876.
    ``(g) Look-Back Adjustment in Allotments To Reflect Actual 
Expenditures.--
            ``(1) Determinations.--
                    ``(A) In general.--If the Secretary estimates under 
                subsection (e)(3)(B) with respect to a particular 
                fiscal year (beginning with fiscal year 2000) that--
                            ``(i) the fee-for-service expenditures for 
                        all sectors of medicare services for the second 
                        preceding fiscal year, exceeded
                            ``(ii) the sum of the adjusted allotments 
                        for all sectors for such year (as defined in 
                        paragraph (2)),
                then the allotment for each final excess spending 
                sector (as defined in subparagraph (B)(i)) for the 
                particular fiscal year shall be reduced by the look-
                back sector reduction amount determined under 
                subparagraph (B)(ii) for such sector and year.
                    ``(B) Final excess spending sectors.--
                            ``(i) In general.--In this paragraph, the 
                        term `final excess spending sector' means, for 
                        a fiscal year, a sector of medicare services 
                        for which the Secretary determines under 
                        subsection (e)(3)(B) that--
                                    ``(I) the fee-for-service 
                                expenditures (as defined in subsection 
                                (f)) for the fiscal year, exceeded
                                    ``(II) the adjusted allotment for 
                                such fiscal year.
                        For purposes of clause (ii), the term `final 
                        excess spending' means, for a fiscal year with 
                        respect to such a sector, the amount by which 
                        the amount described in subclause (I) (for the 
                        fiscal year and sector) exceeds the amount 
                        described in subclause (II) for such year and 
                        sector.
                            ``(ii) Look-back sector reduction amount.--
                        In subparagraph (A)(i), the `look-back sector 
                        reduction amount' for a final excess spending 
                        sector for a fiscal year is equal to the 
                        product of--
                                    ``(I) the amount of the final 
                                excess spending for such sector and 
                                year (as defined in clause (i)); and
                                    ``(II) the ratio of--
                                            ``(a) the aggregate final 
                                        excess spending for the year 
                                        (described in subparagraph 
                                        (A)(i)), to
                                            ``(b) the sum of the 
                                        amounts of the final excess 
                                        spending for all final excess 
                                        spending sectors.
            ``(2) Adjusted allotment.--The adjusted allotment under 
        this paragraph for a sector for a fiscal year is--
                    ``(A) the amount that would be computed as the 
                allotment under subsection (c) for the sector for the 
                fiscal year if the actual amount of payments made in 
                the fiscal year under the section 1876 in the fiscal 
                year were substituted for the amount described in 
                subsection (c)(2)(A)(ii) for that fiscal year,
                    ``(B) adjusted to take into account the amount of 
                any adjustment under paragraph (1) for that fiscal year 
                (based on expenditures in the second preceding fiscal 
                year).''.
    (b) Report of Trustees on Growth Rate in Part A Expenditures.--
Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following:
    ``(k) Each annual report provided in subsection (b)(2) shall 
include information regarding the annual rate of growth in program 
expenditures that would be required to maintain the financial solvency 
of the Trust Fund and the extent to which the provisions of section 
1894 restrain the rate of growth of expenditures under this part in 
order to achieve such solvency.''.

SEC. 212. MAINTENANCE OF PART B PREMIUM AT CURRENT PERCENTAGE OF PART B 
              PROGRAM COSTS.

    (a) In General.--Section 1839(e)(1) of the Social Security Act (42 
U.S.C. 1395r(e)(1)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``and prior to January 1999'', and
                    (B) by inserting ``(or, if higher the percent 
                described in subparagraph (C))'' after ``50 percent''; 
                and
            (2) by adding at the end the following:
    ``(C) For purposes of subparagraph (A), the percent described in 
this subparagraph is the ratio (expressed as a percent) of the monthly 
premium established under this section for months in 1996 to the 
monthly actuarial rate for enrollees age 65 and over, as determined 
under subsection (a)(1) and applicable to such months.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
premiums for months beginning with January 1997.

TITLE III--PROMOTION OF PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY 
     (PACE) AND OF SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS)

SEC. 301. DEFINITIONS.

    In this title:
            (1) PACE provider.--The term ``PACE provider'' means a 
        provider of services--
                    (A) that--
                            (i) has filed an agreement with the 
                        Secretary under section 1866 of the Social 
                        Security Act (42 U.S.C. 1395cc);
                            (ii) is eligible to participate in a State 
                        plan under title XIX of the Social Security Act 
                        (42 U.S.C. 1396 et seq.); or
                            (iii) is eligible to receive payment for 
                        such services under any other applicable title 
                        of the Social Security Act (42 U.S.C. 301 et 
                        seq.); and
                    (B) that has had an application approved under this 
                title.
            (2) Medicaid program.--The term ``medicaid program'' means 
        the health care program under title XIX of the Social Security 
        Act (42 U.S.C. 1396 et seq.).
            (3) Medicare program.--The term ``medicare program'' means 
        the health care program under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.).

SEC. 302. EXPANDING THE AVAILABILITY OF QUALIFIED ORGANIZATIONS FOR 
              FRAIL ELDERLY COMMUNITY PROJECTS (PROGRAM OF ALL-
              INCLUSIVE CARE FOR THE ELDERLY (PACE)).

    (a) Establishment of PACE Provider Status.--
            (1) In general.--The Secretary shall establish PACE 
        provider status for public and nonprofit community-based 
        organizations (including nonprofit community-based 
        organizations that are pending qualification for such status 
        under section 501(c)(3) of the Internal Revenue Code of 1986) 
        to enable such organizations to provide comprehensive health 
        care services of proper quality on a cost-effective, capitated 
        basis to frail elderly patients at risk of institutionalization 
        under titles XVIII or XIX of the Social Security Act (42 U.S.C. 
        1935 et seq., 1396 et seq.), or under any other applicable 
        title of that Act. Each of the initial 3 years of such status 
        shall be conditioned upon annual reapplication for such status 
        and timely review and approval by the Secretary as to 
        compliance with program requirements. During the 3-year period 
        of conditional PACE provider status, the organization may, at 
        its option and with the approval of the Secretary, or where 
        determined necessary by the Secretary, institute procedures 
        such as risk-sharing of service costs to allow the organization 
        to progressively assume full financial risk. At the conclusion 
        of the initial 3-year period, the organization shall undertake 
        full financial risk for the cost of services provided to 
        enrollees. Upon successful completion of the 3-year period, an 
        organization may continue as a PACE provider, not conditioned 
        upon annual reapplication for such status, but must thereafter 
        continue to meet program requirements.
            (2) Approval of applications.--An appropriately completed 
        initial application for PACE provider status and any subsequent 
        reapplication required under this title is deemed approved 
        unless the Secretary specifically disapproves it in writing--
                    (A) not later than 90 days after the date the 
                completed application is filed in proper form; or
                    (B) not later than 90 days after the date 
                additional information is provided to the Secretary if 
                the Secretary requests reasonable and substantial 
                additional information during the 90-day period 
                described in subparagraph (A).
            (3) Sole authority.--The Secretary shall have sole and 
        exclusive authority from the date of enactment of this Act to 
        approve or disapprove the initial or continuing eligibility of 
        an organization to participate in the program established under 
        this title.
            (4) Consideration of existing organizations.--In reviewing 
        an application for PACE provider status under this title, the 
        Secretary shall--
                    (A) consider whether any existing organization 
                already operates as a PACE provider under this title in 
                the proposed service area identified in the 
                application; and
                    (B) if the Secretary determines that such an 
                organization exists, ensure that the potential 
                population of eligible individuals to be served by the 
                applicant is reasonably sufficient to sustain an 
                additional organization without jeopardizing the 
                economic or service viability of any other organization 
                operating in that service area.
    (b) Terms and Conditions for Provider Status.--
            (1) In general.--Except as otherwise provided by law or 
        regulation, the terms and conditions of PACE provider status 
        granted pursuant to this title (other than terms and conditions 
        specific to research and demonstration programs) shall be the 
        following:
                    (A) The terms and conditions of the On Lok waiver 
                (referred to in section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21, 97 Stat. 168) and 
                extended by section 9220 of the Consolidated Omnibus 
                Budget Reconciliation Act of 1985 (Public Law 99-272, 
                100 Stat. 183)).
                    (B) The terms and conditions provided under the 
                Protocol for the Program of All-inclusive Care for the 
                Elderly (PACE), as published by On Lok, Inc. as of 
                April 14, 1995, and made generally available--
                            (i) including the components of the PACE 
                        service delivery model that--
                                    (I) focus on frail, elderly 
                                enrollees who are age 55 or older, who 
                                meet State health status criteria for a 
                                nursing home level of care;
                                    (II) provide comprehensive, 
                                integrated acute and long-term care 
                                services, including, at a minimum, all 
                                services covered under the medicare 
                                program and the medicaid 
program, without regard to any limitations on scope, extent, or 
frequency of service, and without requirement of deductible or 
copayment contributions;
                                    (III) follow an interdisciplinary 
                                team approach to care management and 
                                service delivery;
                                    (IV) utilize capitated, integrated 
                                financing that allows the organization 
                                to pool payments received under the 
                                medicare program, the medicaid program, 
                                or from private entities or 
                                individuals; and
                                    (V) allow the organization to 
                                progressively assume full financial 
                                risk; and
                            (ii) allowing, where appropriate and with 
                        approval from the Secretary or the State, 
                        reasonable flexibility in adapting the PACE 
                        service delivery model (in cases such as 
                        programs operated in rural areas, or allowing 
                        for the use of nonstaff physicians) where such 
                        flexibility is not inconsistent with and would 
                        not impair the essential elements, objectives, 
                        and requirements of the PACE program that are 
                        identified in clause (i).
                    (C) Mandatory reevaluation of an enrollee's 
                eligibility for a nursing home level of care 1 year 
                from the date of the individual's initial enrollment 
                with a PACE provider, in order to assure the continued 
                eligibility of enrollees over time, except that a State 
                may, in accordance with regulations issued by the 
                Secretary, ease the administrative burden imposed by 
                such a recertification process in any case where the 
                advanced age, severity of chronic condition, or degree 
                of impairment of functional capacity of the enrollee 
                offers no reasonable expectation of improvement or 
                significant change in eligibility during that 1-year 
                period. If a State finds that an enrollee technically 
                no longer meets the health status eligibility criteria 
                for a nursing home level of care, the State may deem 
                the enrollee eligible for continued enrollment with the 
                PACE provider if the State finds, in accordance with 
                regulations issued by the Secretary, that in the 
                absence of the care being provided by the PACE 
                provider, the enrollee reasonably would be expected to 
                requalify for the program within the succeeding 6-month 
                period. In the case of an enrollee that, through the 
                recertification process is found to be ineligible for 
                continuation in the program (including ineligible for 
                deemed eligibility) the PACE provider shall assist the 
                enrollee by making appropriate referrals and by making 
                the enrollee's medical records available to new 
                providers.
                    (D) A State may, upon notice to the Secretary, 
                modify requirements under the State plan under title 
                XIX of the Social Security Act (42 U.S.C. 1396 et seq.) 
                that relate to income or resources for otherwise 
                eligible individuals where such modifications are 
                comparable to modifications previously authorized by 
                the Secretary for a State under a waiver granted prior 
                to December 31, 1996, on behalf of organizations 
                operating sites authorized under section 9412(b) of the 
                Omnibus Budget Reconciliation Act of 1986 (Public Law 
                99-509, 100 Stat. 2063), unless the Secretary formally 
                finds that any such modification is not reasonably 
                comparable to a modification previously authorized for 
                the State under a waiver.
            (2) Information requirements.--
                    (A) In general.--The Secretary's approval of PACE 
                provider status shall not be conditioned upon an 
                organization collecting information for purposes other 
                than operational purposes, including monitoring of cost 
                and quality of care provided, except to the extent, if 
                any, that any such information might have been required 
                of a organization participating under waivers as of 
                December 31, 1996, but such unusual requirement may not 
                continue beyond October 1, 1997. Issuance of interim 
                and final regulations and implementation of this title 
                shall not be conditioned upon any such information. 
                Nothing in the preceding sentence shall be construed as 
                prohibiting the Secretary, subsequent to the collection 
                and review of any such unusual information, to make 
                necessary modifications, if any, to implementing 
                regulations for this title. The Secretary shall issue 
                any regulations required under this title in a timely 
                manner.
                    (B) Research.--The Secretary may require 
                information from an organization operating as a PACE 
                provider under this title for purposes of general 
                research or general evaluation, but only if the 
organization agrees to participate in such research or evaluation and 
the organization is appropriately compensated for any expenses 
incurred, or where such research is undertaken entirely at the expense 
of the Secretary.
    (c) Eligibility for Provider Status.--
            (1) In general.--Upon successful completion of the first 3 
        years as a PACE provider under this title (conditioned upon 
        annual review and annual approval of a renewal application by 
        the Secretary, as provided in subsection (a)(1)), an 
        organization that continues to meet the requirements of this 
        title shall continue as a PACE provider under any applicable 
        title of the Social Security Act (42 U.S.C. 301 et seq.), and 
        shall be recognized as such in accordance with regulations 
        promulgated by the Secretary, except that such regulations 
        shall not condition such recognition upon formal annual review 
        and approval.
            (2) Requirements.--No organization may be eligible to be a 
        PACE provider under this title or under any applicable title of 
        the Social Security Act (42 U.S.C. 301 et seq.) if--
                    (A) the Secretary specifically and formally finds 
                that projected reimbursement for such organization 
                would not, without any reimbursement modifications 
                specified in the Secretary's finding, or, in the case 
                of reimbursement under the medicaid program, a finding 
                by the State, result in payments below the projected 
                costs for a comparable population under the medicare 
                program, the medicaid program, or under a program 
                operated under any other applicable title of such Act, 
                or that the care provided by such organization is 
                significantly deficient; and
                    (B) such projected reimbursement costs or 
                significant deficiencies in quality of care are not 
                appropriately adjusted or corrected on a timely basis 
                (as determined by the Secretary) in accordance with the 
                specific recommendations for reimbursement adjustments 
                or corrections in the quality of service included in 
                the Secretary's (or the State's, as applicable) formal 
                finding under subparagraph (A).
    (d) Reimbursement.--Notwithstanding any other provision of law, an 
organization that is eligible to be a PACE provider under any 
applicable title of the Social Security Act (42 U.S.C. 301 et seq.) as 
a result of this title, shall ordinarily be reimbursed on a capitation 
basis. Any such organization may provide additional services as deemed 
appropriate by the organization for qualified enrollees without regard 
to whether such services are specifically reimbursable through 
capitation payments. To the extent such services, in terms of type or 
frequency, are not reimbursable, no payments for such services may be 
required of enrollees.
    (e) Application to On Lok Waivers.--The provisions of this title 
also shall apply to an organization operating under the On Lok waiver 
described in subsection (b)(1)(A).
    (f) Application of Income and Resources Standards for Certain 
Institutionalized Spouses.--Section 1924 of the Social Security Act (42 
U.S.C. 1396r-5) (relating to the treatment of income and resources for 
certain institutionalized spouses) shall apply to any individual 
receiving services from an organization operating as a PACE provider 
under this title.
    (g) Provision of Services to Additional Populations.--Nothing in 
this title shall prevent any participating organization from 
independently developing distinct programs to provide appropriate 
services to frail populations other than the elderly under any 
provision of law other than this title, except where the Secretary 
finds that the provision of such services impairs the ability of the 
organization to provide services under this title.

SEC. 303. APPLICATION OF SPOUSAL IMPOVERISHMENT RULES.

    Section 1924(a)(5) of the Social Security Act (42 U.S.C. 1396r-
5(a)(5)) is amended to read as follows:
            ``(5) Application to individuals receiving services from 
        certain organizations.--This section applies to individuals 
        receiving institutional or noninstitutional services from any 
        organization--
                    ``(A) operating under a waiver under--
                            ``(i) section 603(c) of the Social Security 
                        Amendments of 1983 (Public Law 98-21, 97 Stat. 
                        168) (as in effect on the day before the date 
                        of enactment of the Medicare Modernization and 
                        Patient Protection Act of 1997);
                            ``(ii) section 9412(b) of the Omnibus 
                        Budget Reconciliation Act of 1986 (Public Law 
                        99-509, 100 Stat. 2063) (as so in effect); or
                            ``(iii) section 301 of the Medicare 
                        Modernization and Patient Protection Act of 
                        1997; or
                    ``(B) that is a PACE provider under the Medicare 
                Modernization and Patient Protection Act of 1997.''.

SEC. 304. PERMITTING EXPANSION AND MAKING PERMANENT SHMO WAIVERS.

    Notwithstanding any other provision of law, in the case of projects 
described in section 2355(b) of the Deficit Reduction Act of 1984 
(Public Law 98-369, 98 Stat. 1103)--
            (1) there shall be no limitation on the number of projects 
        that the Secretary may approve under such section;
            (2) there shall be no limitation on the number of 
        individuals that may participate in any such project;
            (3) there shall be no limitation on the period of the 
        waivers under subsection (c) of such section with respect to 
        such a project so long as the Secretary continues to find that 
        the project meets the applicable requirements of such section; 
        and
            (4) the projects shall not be required to submit research-
        related reports after completion of the authorized period of 
        the project (determined without regard to paragraph (3)).

SEC. 305. REPEALS; EFFECTIVE DATE.

    (a) Repeals.--Except as provided in subsection (b), section 603(c) 
of the Social Security Amendments of 1983 (Public Law 98-21, 97 Stat. 
168), section 9220 of the Consolidated Omnibus Budget Reconciliation 
Act of 1985 (Public Law 99-272, 100 Stat. 183), and section 9412(b) of 
the Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509, 100 
Stat. 2063) are repealed.
    (b) Regulations.--Not later than the first day of the month that 
begins 9 months after the date of enactment of this Act, the Secretary 
shall issue, implement, and make effective interim final regulations 
applicable to the provisions of this title. Until such date or the date 
that interim final regulations applicable to this title are effective 
and implemented, if earlier, the authority for--
            (1) On Lok and up to 15 demonstration sites, as authorized 
        under section 603(c) of the Social Security Amendments of 1983 
        (Public Law 98-21, 97 Stat. 168) (as in effect on the day 
        before the date of enactment of this Act) and extended by 
        section 9220 of the Consolidated Omnibus Budget Reconciliation 
        Act of 1985 (Public Law 99-272, 100 Stat. 183); and
            (2) demonstration sites under section 9412(b) of the 
        Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509, 
        100 Stat. 2063) (as so in effect),
shall remain in effect. Upon issuance and implementation of interim 
final regulations governing PACE providers, On Lok and any 
demonstration site that has completed an initial 3-year demonstration 
period, and which are otherwise qualified under such regulations, shall 
be eligible for PACE provider status without requirement of annual 
reapplication so long as On Lok and the site comply, as determined by 
the Secretary in a timely fashion, with applicable program 
requirements. A demonstration site otherwise qualified, but which has 
not completed a 3-year period under waivers, shall convert from a 
waivered program to a PACE provider with such status predicated upon 
annual review and approval by the Secretary under this title. Following 
successful completion, as determined by the Secretary, of the third 
year, such site may continue as a PACE provider not conditioned upon 
annual reapplication for such status but must thereafter continue to 
meet program requirements.
    (c) Transition Rule.--Any organization informally known as a pre-
PACE site operating on a capitation basis under only the medicaid 
program and which has formally expressed the intent to move to dual 
capitation under both the medicare program and the medicaid program, 
but which, as of the date of enactment of this Act, has not received 
waivers authorized under section 9412(b) of the Omnibus Budget 
Reconciliation Act of 1986 (Public Law 99-509, 100 Stat. 2063), shall 
be eligible to operate as a PACE provider on a temporary basis if the 
organization applies for such status under the medicare program and the 
medicaid program prior to any issuance of interim or final regulations 
by the Secretary and the organization meets the terms and conditions 
applied to organizations operating under demonstration authority 
provided under section 9412(b) of the Omnibus Budget Reconciliation Act 
of 1986 (Public Law 99-509, 100 Stat. 2063) prior to the date of 
enactment of this Act. Upon issuance of interim or final regulations 
governing PACE providers, an organization operating as a PACE provider 
under the authority of this subsection, shall apply for regular PACE 
provider status under this title.

                    TITLE IV--OTHER MEDICARE CHANGES

SEC. 401. APPLICATION OF COMPETITIVE ACQUISITION PROCESS FOR PART B 
              ITEMS AND SERVICES.

    (a) General Rule.--Part B of title XVIII of the Social Security Act 
is amended by inserting after section 1846 the following:

            ``competition acquisition for items and services

    ``Sec. 1847. (a) Establishment of Bidding Areas.--
            ``(1) In general.--The Secretary is authorized to establish 
        competitive acquisition areas for the purpose of awarding a 
        contract or contracts for the furnishing under this part of the 
        items and services described in subsection (c) on or after 
January 1, 1997. The Secretary may establish different competitive 
acquisition areas under this subsection for different classes of items 
and services under this part.
            ``(2) Criteria for establishment.--The competitive 
        acquisition areas established under paragraph (1) shall be 
        chosen based on the availability and accessibility of multiple 
        suppliers and the probable savings to be realized by the use of 
        competitive bidding in the furnishing of items and services in 
        the area.
    ``(b) Awarding of Contracts in Areas.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying items and 
        services under this part for each competitive acquisition area 
        established under subsection (a) for each class of items and 
        services.
            ``(2) Conditions of competition.--
                    ``(A) Secretarial flexibility.--In conducting the 
                competition, the Secretary may provide, with respect to 
                items and services that are subject to the competition 
                and are furnished in the area involved, that--
                            ``(i) the selected entity (or entities) 
                        shall be the exclusive supplier (or suppliers) 
                        of such items and services in the area, if such 
                        entity (or entities) have the sufficient 
                        capacity to provide all such items and services 
                        required in the area under this part; or
                            ``(ii) the amount of payment made under 
                        this part for such items and services shall be 
                        determined based upon the lowest bid among 
                        entities participating in that competition for 
                        all suppliers of such items and services in the 
                        area who agree to accept such payment amount as 
                        payment in full under this part.
                    ``(B) Treatment of related professional services.--
                In the case of a competition relating to diagnostic 
                tests, a bid may not be accepted in relation to related 
                professional services unless the services will be 
                furnished by a physician who is a participating 
                physician or otherwise agrees to accept payment on an 
                assignment-related basis for all such services.
            ``(3) Conditions for awarding contract.--The Secretary may 
        not award a contract to any individual or entity under the 
        competition conducted pursuant to paragraph (1) to furnish an 
        item or service under this part unless the Secretary finds that 
        the individual or entity--
                    ``(A) meets quality standards specified by the 
                Secretary for the furnishing of such item or service; 
                and
                    ``(B) in the case of a competition described in 
                subsection (b)(2)(A)(i), offers to furnish a total 
                quantity of such item or service that is sufficient to 
                meet the expected need within the competitive 
                acquisition area.
            ``(4) Contents of contract.--A contract entered into with 
        an individual or entity under the competition conducted 
        pursuant to paragraph (1) shall specify (for all of the items 
        and services within a class)--
                    ``(A) in the case of a competition described in 
                subsection (b)(2)(A)(i), the quantity of items and 
                services the entity shall provide; and
                    ``(B) such other terms and conditions as the 
                Secretary may require.
    ``(c) Services Described.--The items and services to which the 
provisions of this section shall apply are as follows:
            ``(1) Durable medical equipment and related supplies, 
        including oxygen and oxygen equipment.
            ``(2) Clinical laboratory services.
            ``(3) Prosthetic devices, orthotics, prosthetics, and 
        related supplies.
            ``(4) Diagnostic tests, including magnetic resonance 
        imaging tests and computerized axial tomography scans, 
        including a physician's interpretation of the results of 
        diagnostic tests.
            ``(5) Surgical dressings.
            ``(6) Such other items and services for which the Secretary 
        determines that the use of competitive acquisition under this 
        section will be appropriate and cost-effective.''.
    (b) Implementation of Competition.--
            (1) Limitation to selected suppliers in case of exclusive 
        competitions.--Section 1862(a) of the Social Security Act (42 
        U.S.C. 1395y(a)) is amended--
                    (A) by striking ``or'' at the end of paragraph 
                (14);
                    (B) by striking the period at the end of paragraph 
                (15) and inserting ``; or''; and
                    (C) by inserting after paragraph (15) the 
                following:
            ``(16) where such expenses are for an item or service 
        furnished in a competitive acquisition area (as established by 
        the Secretary under section 1847(a)) pursuant to a competition 
        described in section 1847(b)(2)(A)(i) by an individual or 
        entity other than the supplier with whom the Secretary has 
        entered into a contract under section 1847(b) for the 
        furnishing of such item or service in that area, except in the 
        case of professional services described in section 1847(c)(4) 
        and in such other cases (such as an emergency) as the Secretary 
        may specify.''.
            (2) Limitation to lowest bid in case of nonexclusive 
        competitions.--Section 1833(a) of the Social Security Act (42 
        U.S.C. 1395l(a)) is amended--
                    (A) by striking ``and'' at the end of paragraph 
                (6);
                    (B) by striking the period at the end of paragraph 
                (7) and inserting ``; and''; and
                    (C) by adding at the end the following:
            ``(8) notwithstanding the previous provisions of this 
        subsection, in the case of an item or service which is subject 
        to a competition described in section 1847(b)(2)(A)(ii), 80 
        percent of the amount determined pursuant to the 
        competition.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished under part B of title XVIII of 
the Social Security Act on or after January 1, 1997.

SEC. 402. SIMPLER PROCEDURE FOR INHERENT REASONABLENESS DETERMINATIONS.

    (a) In General.--The first sentence of section 1834(a)(10)(B) of 
the Social Security Act (42 U.S.C. 1395m(a)(10)(B)) is amended by 
striking ``paragraphs (8) and (9)'' and all that follows up to the 
period at the end and inserting ``section 1842(b)(8) to covered items 
and suppliers of such items and payments under this subsection as such 
provisions apply to items and services and entities and a reasonable 
charge under section 1842(b)''.
    (b) Elimination of Obsolete Provisions.--Section 1842(b) of the 
Social Security Act (42 U.S.C. 1395u(b)) is amended--
            (1) in paragraph (8)--
                    (A) by striking subparagraphs (B) and (C), and
                    (B) in subparagraph (A)--
                            (i) by striking ``(A)'', and
                            (ii) by redesignating clauses (i) and (ii) 
                        as subparagraphs (A) and (B), respectively; and
            (2) by striking paragraph (9).
    (c) Effective Date.--The amendments made by this section shall 
apply to items furnished on or after January 1, 1997.

SEC. 403. PROMOTING ADVANCE DIRECTIVES.

    (a) Inclusion of Directives in Patient's Medical Record.--Section 
1866(f)(1)(B) of the Social Security Act (42 U.S.C. 1395cc(f)(1)(B)) is 
amended by inserting before the semicolon at the end the following: 
``and, if the individual has executed such a directive, to ensure that 
a copy of such directive is included in the medical chart for the 
individual''.
    (b) Establishment and Dissemination of Uniform National Forms.--
Section 1866(f) of the Social Security Act (42 U.S.C. 1395cc(f)) is 
amended--
            (1) in paragraph (1)(A), by striking the semicolon at the 
        end and insert a comma and the following:
        ``as well as a copy of the national uniform advance directive 
        form established under paragraph (4)''; and
            (2) by adding at the end the following:
    ``(4) By January 1, 1997, the Secretary shall establish minimum 
standards for advance directives and a national uniform advance 
directives form which may be used in any State.''.
    (c) Health Plan Incentives.--Section 1876(c)(8) of the Social 
Security Act (42 U.S.C. 1395mm(c)(8)) is amended by adding at the end 
the following: ``Nothing in this title shall be construed as preventing 
such an organization from encouraging, through education and 
dissemination of promotional material and the organization of 
information sessions, enrollees to learn about and execute advance 
directives.''.
    (d) Information Campaign.--The Secretary shall provide for an 
information campaign concerning the execution and use of advance 
directives, particularly with respect to individuals eligible for 
benefits under the medicare program. Such campaign shall include 
training of medicare hotline personnel concerning the execution and use 
of such directives and the availability of community resources.

SEC. 404. ANTIFRAUD EFFORTS.

    (a) Increased Penalties for Medicare Fraud.--
            (1) Offense.--Part I of title 18, United States Code, is 
        amended by inserting after chapter 50A the following:

                     ``CHAPTER 50B--MEDICARE FRAUD

``Sec.
``1101. Medicare fraud.
``1102. Penalties.
``1103. Restitution.
``Sec. 1101. Medicare fraud
    ``(a) Definition.--In this section, the term `health care provider' 
means--
            ``(1) a physician, nurse, dentist, therapist, pharmacist, 
        or other professional provider of health care; and
            ``(2) a hospital, health maintenance organization, 
        pharmacy, laboratory, clinic, or other health care facility or 
        a provider of medical services, medical devices, medical 
        equipment, or other medical supplies.
    ``(b) Offense.--A health care provider that engages in conduct 
constituting an offense under section 1341 or 1343 of this title for 
the purpose of or in connection with the provision of health care 
services or supplies or the payment therefore or reimbursement of the 
costs thereof under the medicare program under title XVIII of the 
Social Security Act, when--
            ``(1) the amount of loss caused by the fraudulent conduct 
        exceeds $10,000; or
            ``(2) the offender had previously been convicted of fraud 
        in Federal or State court,
shall be fined under this title, imprisoned in accordance with section 
1102 of this title, or both.
``Sec. 1102. Penalties
    ``(a) In General.--In the case of an offense under section 1101 of 
this title not described in subsection (b) or (c) of this section, the 
offender shall be sentenced to a term of imprisonment of not more than 
10 years.
    ``(b) Serious Physical Injury or Endangerment of Life of Patient.--
In the case of an offense under section 1101 of this title that--
            ``(1) caused serious physical injury to a patient; or
            ``(2) endangered the life of a patient,
the offender shall be sentenced to a term of imprisonment of not more 
than 20 years.
    ``(c) Death of Patient.--In the case of an offense under section 
1101 of this title that caused the death of a patient, the offender 
shall be sentenced to a term of imprisonment of not more than life.
``Sec. 1103. Restitution
    ``(a) In General.--In sentencing a person convicted of an offense 
under section 1101 of this title, the court shall order the offender to 
pay restitution to the patient and the Federal Government for economic 
loss sustained as a result of the offense.
    ``(b) Restitution Procedure.--Except to the extent inconsistent 
with this section, sections 3363 and 3364 of this title apply to 
restitution made under this section.''.
            (2) Clerical amendment.--The table of chapters at the 
        beginning of part I of title 18, United States Code, is amended 
        by inserting after the item relating to chapter 50A the 
        following:

``50B. Medicare fraud.''.
    (b) Permitting Forfeiture for Real or Personal Property Derived 
From Medicare Fraud.--Section 982(a) of title 18, United States Code, 
is amended by adding at the end the following:
    ``(6) The court, in imposing sentence on a person convicted of an 
offense under section 1101 of this title that relates to the medicare 
program under title XVIII of the Social Security Act, shall order that 
the offender forfeit to the United States any real or personal property 
constituting or derived from proceeds that the offender obtained 
directly or indirectly as the result of the offense.''.
    (c) Study on Standardization of Claims Administration.--
            (1) Study.--The Secretary shall conduct a study on the 
        feasibility and desirability of establishing a standardized 
        medicare claims administration process, implementing other 
        measures to improve recordkeeping, and taking other appropriate 
        steps to reduce waste, fraud, and abuse in making payments 
        under the medicare program.
            (2) Report.--Not later than 1 year after the date of 
        enactment of this Act, the Secretary shall submit a report to 
        Congress on the study conducted under paragraph (1). The 
        Secretary shall include in the report such recommendations as 
        the Secretary considers appropriate.
    (d) Report on Consolidation of Antifraud Efforts.--Not later than 1 
year after the date of enactment of this Act, the Vice President's 
Commission on Reinventing Government shall submit a report to Congress 
on the effectiveness of the current efforts of the Federal Government 
to combat waste, fraud, and abuse in the medicare program and on 
whether such efforts would be enhanced by the establishment of a 
coordinated, all-payer, multijurisdiction antifraud program.

SEC. 405. HOSPICE BENEFITS.

    (a) Restructuring of Benefit Period.--
            (1) In general.--Section 1812 of the Social Security Act 
        (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''.
            (2) Conforming amendments.--
                    (A) Section 1812 of the Social Security Act (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''.
                    (B) Section 1814(a)(7)(A) of the Social Security 
                Act (42 U.S.C. 1395f(a)(7)(A)) is amended--
                            (i) in clause (i), by inserting ``and'' at 
                        the end;
                            (ii) 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
                            (iii) by striking clause (iii).
    (b) Ambulance Services, Diagnostic Tests, Chemotherapy Services, 
and Radiation Therapy Services Included in Hospice Care.--Section 
1861(dd)(1) of the Social Security Act (42 U.S.C. 1395x(dd)(1)) is 
amended--
            (1) in subparagraph (E), by inserting ``anticancer 
        chemotherapeutic agents and other'' before ``drugs'';
            (2) in subparagraph (G), by striking ``and'' at the end;
            (3) in subparagraph (H), by striking the period at the end 
        and inserting a comma; and
            (4) by inserting after subparagraph (H) the following:
            ``(I) ambulance services,
            ``(J) diagnostic tests, and
            ``(K) radiation therapy services.''.
    (c) Contracting With Independent Physicians or Physician Groups for 
Hospice Care Services Permitted.--Section 1861(dd)(2) of the Social 
Security Act (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 under 
        contract with'' after ``employed by''.
    (d) Waiver of Certain Staffing Requirements for Hospice Care 
Programs in Nonurbanized Areas.--Section 1861(dd)(5) of the Social 
Security Act (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.''.
    (e) Limitation on Liability of Beneficiaries and Providers for 
Certain Hospice Coverage Denials.--
            (1) In general.--Section 1879(g) of the Social Security Act 
        (42 U.S.C. 1395pp(g)) is amended--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively, and indenting 
                appropriately;
                    (B) by striking ``is,'' and inserting ``is--'';
                    (C) by making the remaining text of subsection (g), 
                as amended, that follows ``is--'' a new paragraph (1) 
                and indenting such paragraph appropriately;
                    (D) by striking the period at the end and inserting 
                ``; and''; and
                    (E) by adding at the end the following:
            ``(2) with respect to the provision of hospice care to an 
        individual, a determination that the individual is not 
        terminally ill.''.
            (2) Waiver period extended.--Section 9305(f)(2) of the 
        Omnibus Budget Reconciliation Act of 1986 is amended by 
        striking ``and before December 31, 1995.''.
            (3) Effective date.--The amendments made by this subsection 
        take effect December 31, 1995.
    (f) Extending the Period for Physician Certification of an 
Individual's Terminal Illness.--Section 1814(a)(7)(A)(i)(II) of the 
Social Security Act (42 U.S.C. 1395f(a)(7)(A)(i)(II)) is amended 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''.
    (g) Effective Date.--Except as provided in subsection (e)(3), the 
amendments made by this section apply to benefits provided on or after 
the date of enactment of this Act, 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 that date.

SEC. 406. STUDY PROVIDING PHARMACY SERVICES TO MEDICARE BENEFICIARIES.

    (a) Study.--The Secretary shall conduct a thorough study in order 
to identify--
            (1) any cost savings to the medicare program under title 
        XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) 
        resulting from the provision of pharmacy services (described in 
        subsection (b)) to beneficiaries under that program; and
            (2) the various methods of payment for those pharmacy 
        services, including a fee schedule and a resource-based value 
        scale.
    (b) Pharmacy Services Described.--The pharmacy services described 
in this subsection are--
            (1) consultations with a physician relative to a change in 
        an individual's drug regimen;
            (2) consultations with a physician which results in 
        improved compliance with the drug regimen established by that 
        physician for certain drugs frequently prescribed to 
        beneficiaries under the medicare program; and
            (3) disease management programs for hypertension, asthma, 
        and other chronic conditions prevalent in beneficiaries under 
        the medicare program.
    (c) Recommendations.--The Secretary shall develop recommendations 
on--
            (1) which pharmacy services should be covered by the 
        medicare program; and
            (2) the levels at which those services should be reimbursed 
        by that program.
    (d) Report.--Not later than 2 years after the date of enactment of 
this Act, the Secretary shall submit a report to Congress which shall 
contain a detailed statement of the findings and conclusions of the 
Secretary, together with its recommendations for such legislation and 
administrative actions as the Secretary considers appropriate.

SEC. 407. RESPITE BENEFIT.

    (a) Entitlement.--Section 1832(a)(2) of the Social Security Act (42 
U.S.C. 1395k(a)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph (I);
            (2) by striking the period at the end of subparagraph (J) 
        and inserting ``; and''; and
            (3) by adding at the end the following:
                    ``(K) respite services for not more than 32 hours 
                each year.''.
    (b) Conditions and Limitations on Payment.--
            (1) Payment rate.--Section 1833(a)(2) (42 U.S.C. 
        1395l(a)(2)) is amended by--
                    (A) in subparagraph (E), by striking ``and'' at the 
                end;
                    (B) in subparagraph (F), by adding ``and'' at the 
                end; and
                    (C) by adding at the end the following:
                    ``(G)(i) with respect to respite services, payment 
                shall be made at a rate equal to $7.50 per hour for 
                1998 and at a rate to be determined by the Secretary in 
                subsequent years; and
                    ``(ii) notwithstanding any provisions of section 
                1861(v), in the case of respite services furnished by a 
                home health agency (or other organization designated by 
                the Secretary pursuant to regulations), payment to the 
                agency or other organization for respite services may 
                not exceed 100 percent of the hourly respite allowance 
                times the number of hours of respite for which the 
                agency authorizes payment;''.
            (2) Conditions of payment.--Section 1835(a)(2) (42 U.S.C. 
        1395n(a)(2)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (E);
                    (B) by striking the period at the end of 
                subparagraph (F) and inserting ``; and''; and
                    (C) by inserting after subparagraph (F) the 
                following:
                    ``(G) in the case of respite services, the 
                individual for whom payment is claimed is severely 
                impaired due to irreversible dementia (as evidenced by 
                a score of 3 or more errors on the Short Portable 
                Mental Status Questionnaire) and either needs 
                assistance in at least one out of five activities of 
                daily living (bathing, dressing, transferring, 
                toileting, and eating) or in at least 1 out of 4 
                instrumental activities of daily living (meal 
                preparation, medication management, money management, 
                and telephoning), or needs constant supervision because 
                of one or more behavioral problems, as defined by the 
                Secretary.''.
            (3) Family designation of respite services provider and 
        care giver.--Section 1835(a)(2) (42 U.S.C. 1395n(a)(2)) is 
        amended by adding at the end the following: ``In the case of 
        respite services that are the subject of the 
certification described in subparagraph (G), the entity or individual 
providing the care for which respite is sought shall designate a 
respite services caregiver either through a home health agency or (if 
the Secretary designates other organizations to provide or arrange for 
such services) another organization. The agency or organization shall 
determine the amount of respite entitlement remaining in the calendar 
year and inform the entity or individual of the extent to which respite 
services may be authorized. When services have been provided, the 
entity or individual shall inform the agency or organization, which 
shall then make payment to the caregiver. Where additional payment is 
made on behalf of the beneficiary, the agency or organization shall 
ensure that the entity or individual is informed of the limits 
applicable to payments for such services. No payment may be made under 
this title for respite services if the per-hour charge to the patient 
for care by respite aides exceeds by more than $2 the hourly rates 
established under this title.''.
    (c) Definitions.--Section 1861 (42 U.S.C. 1395x) is amended--
            (1) in subsection (m)--
                    (A) by striking ``and'' at the end of paragraph 
                (6);
                    (B) by adding ``and'' at the end of paragraph (7); 
                and
                    (C) by inserting after paragraph (7) the following:
            ``(8) respite services as described in subsection (oo);'';
            (2) in subsection (o)--
                    (A) by striking ``and'' at the end of paragraph 
                (6);
                    (B) by adding ``and'' at the end of paragraph (7); 
                and
                    (C) by inserting after paragraph (7) the following:
            ``(8) agrees to provide or arrange for respite services as 
        described in subsection (oo);''; and
            (3) by adding after subsection (nn) the following:

          ``Respite Services; Respite Aides; Respite Providers

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

         TITLE V--PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES

SEC. 501. PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) (as amended by section 211 of this Act) is amended by 
adding at the end the following:

                   ``payment for home health services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide for payments for home health services in 
accordance with a prospective payment system as follows:
            ``(1) Per visit payments.--Subject to subsection (c), the 
        Secretary shall make per visit payments to a home health agency 
        in accordance with this section for each type of home health 
        service described in paragraph (2) furnished to an individual 
        who at the time the service is furnished is under a plan of 
        care by the home health agency under this title (without regard 
        to whether or not the item or service was furnished by the 
        agency or by others under arrangement with them made by the 
        agency, under any other contracting or consulting arrangement, 
        or otherwise).
            ``(2) Types of services.--The types of home health services 
        described in this paragraph are the following:
                    ``(A) Part-time or intermittent nursing care 
                provided by or under the supervision of a registered 
                professional nurse.
                    ``(B) Physical therapy.
                    ``(C) Occupational therapy.
                    ``(D) Speech-language pathology services.
                    ``(E) Medical social services under the direction 
                of a physician.
                    ``(F) To the extent permitted in regulations, part-
                time or intermittent services of a home health aide who 
                has successfully completed a training program approved 
                by the Secretary.
    ``(b) Establishment of Per Visit Rate for Each Type of 
Assistance.--
            ``(1) In general.--The Secretary shall, subject to 
        paragraph (3), establish a per visit payment rate for a home 
        health agency in an area (which shall be the same area used to 
        determine the area wage index applicable to hospitals under 
        section 1886(d)(3)(E)) for each type of home health service 
        described in subsection (a)(2). Such rate shall be equal to the 
        national per visit payment rate determined under paragraph (2) 
        for each such type, except that the labor-related portion of 
        that rate shall be adjusted by the area wage index applicable 
        under section 1886(d)(3)(E) for the area in which the agency is 
        located (as determined without regard to any reclassification 
        of the area under section 1886(d)(8)(B) or a decision of the 
        Medicare Geographic Classification Review Board or the 
        Secretary under section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1996).
            ``(2) National per visit payment rate.--The national per 
        visit payment rate for each type of service described in 
        subsection (a)(2)--
                    ``(A) for fiscal year 1998, is an amount equal to 
                the national average amount reimbursed per visit under 
                this title to home health agencies for such type of 
                service (including medical supplies) during the most 
                recent 12-month cost reporting period ending on or 
                before December 31, 1995, updated by the home health 
                market basket percentage increase for each year before 
                the date in such fiscal year in which this section 
                first applies; and
                    ``(B) for each subsequent fiscal year, is an amount 
                equal to the national per visit payment rate in effect 
                under this paragraph for the preceding fiscal year, 
                increased by the home health market basket percentage 
                increase for such subsequent fiscal year.
            ``(3) Payments above per visit rates.--
                    ``(A) Election.--A home health agency may elect to 
                receive per visit payments in excess of the per visit 
                payment rate under paragraph (1) up to the per visit 
                payment limit under subparagraph (B) if the agency can 
                demonstrate to the satisfaction of the Secretary that 
                it can reasonably expect to incur such costs and that 
                total payments will not exceed the agency's aggregate 
                limit under subsection (c). The Secretary shall further 
                provide for exemptions, exceptions, and adjustments to 
                the per visit payment limit of this section on the same 
                basis as are provided under subsection (c)(3) with 
                respect to the limitations on final payment.
                    ``(B) Per visit payment limit.--For fiscal year 
                1998, the per visit payment limit under this 
                subparagraph is calculated as established by section 
                1861(v)(1)(L). For each subsequent year, such payment 
                limit is equal to the limit for the preceding fiscal 
                year under this subparagraph increased by the home 
                health market basket index for the fiscal year 
                involved.
            ``(4) Home health market basket percentage increase.--For 
        purposes of this subsection, the term `home health market 
        basket percentage increase' means, with respect to a fiscal 
        year, a percentage (estimated by the Secretary before the 
        beginning of the fiscal year) determined and applied with 
        respect to the types of home health services described in 
        subsection (a)(2) in the same manner as the market basket 
percentage increase under section 1886(b)(3)(B)(iii) is determined and 
applied to inpatient hospital services for discharges in the fiscal 
year.
    ``(c) Aggregate Limits.--
            ``(1) Phase i aggregate limit.--
                    ``(A) In general.--Before the end of the second 12-
                month period beginning on the effective date of this 
                section, except as provided in paragraphs (3) and (4), 
                a home health agency may not receive aggregate per 
                visit payments under subsection (a) for such a 12-month 
                period in excess of an amount equal to the product of--
                            ``(i) the number of unduplicated medicare 
                        beneficiaries receiving home health services 
                        from the agency during the period; and
                            ``(ii) the per patient limit determined for 
                        such period.
                    ``(B) Establishment of per patient limits for 
                initial year.--
                            ``(i) In general.--For the initial 12-month 
                        period, the per patient limit for an agency is 
                        equal to the product of--
                                    ``(I) the sum of 75 percent of the 
                                updated per visit costs described in 
                                clause (ii) for the agency and 25 
                                percent of the regional average 
                                described in clause (iii) for the 
                                agency; and
                                    ``(II) the average annual number of 
                                medicare home health agency visits per 
                                unduplicated medicare beneficiary for 
                                fiscal year 1996.
                            ``(ii) Updated per visit costs.--The 
                        updated per visit costs described in this 
                        clause, for a home health agency for a payment 
                        period, is the average per visit reasonable 
                        costs for home health services of the agency, 
                        calculated for the base year, based on fiscal 
                        year 1995 cost per visit, updated by the home 
                        health market basket percentage increase 
                        through the payment period involved.
                            ``(iii) Regional average.--The regional 
                        average described in this clause, for a home 
                        health agency for a payment period, is the 
                        average of the updated per visit costs 
                        described in clause (ii) for the period for 
                        home health agencies located in the same census 
                        region in which the agency is located.
                    ``(C) Establishment of per patient limits for 
                second year.--For the second 12-month period, the per 
                patient limit for an agency is equal to the product 
                of--
                            ``(i) the sum of--
                                    ``(I) 50 percent of the updated per 
                                visit costs described in subparagraph 
                                (B)(ii) for the agency for the period, 
                                and
                                    ``(II) 50 percent of the regional 
                                average described in subparagraph 
                                (B)(iii) for the agency for the period; 
                                and
                            ``(ii) the average annual number of 
                        medicare home health agency visits per 
                        unduplicated medicare beneficiary for fiscal 
                        year 1996.
                    ``(D) New providers and providers without base 
                year.--For a new home health agency or a home health 
                agency for which there is no base year under 
                subparagraph (B)(ii), the per patient limit shall be 
                equal to the mean of these limits applied to home 
                health agencies in the same census region in which the 
                agency is located as determined by the Secretary. A 
                home health agency shall not be treated as a new home 
                health agency by reason of any corporate restructuring 
                or change of name.
            ``(2) Phase ii aggregate limits.--
                    ``(A) In general.--After the end of the second 12-
                month period beginning on the effective date of this 
                section and until the effective date of any episodic 
                prospective payment system (including a system 
                developed under subsection (h)) that is enacted by the 
                Congress, except as provided in paragraphs (3) and (4), 
                a home health agency may not receive aggregate per 
                visit payments under subsection (a) for a 12-month 
                payment period in excess of an amount equal to the sum 
                of the following:
                            ``(i) The sum (for all case-mix categories) 
                        of the products (determined separately for each 
                        such category) of--
                                    ``(I) the total number of episodes 
                                for the category for which the agency 
                                receives payments during the payment 
                                period, and
                                    ``(II) the per episode limit 
                                determined under subparagraph (B) for 
                                the category and payment year.
                            ``(ii) The product of--
                                    ``(I) the number of unduplicated 
                                medicare beneficiaries receiving home 
                                health services from the agency beyond 
                                120 days during the payment year, and
                                    ``(II) the per patient limit for 
                                services provided beyond 120 days, as 
                                specified in subparagraph (E).
                    ``(B) Establishment of per episode limits for first 
                120 days.--
                            ``(i) In general.--The per episode limit 
                        under this subparagraph for a payment year for 
                        a case-mix category for the area in which a 
                        home health agency is located (which shall be 
                        the same area used to determine the area wage 
                        index applicable to hospitals under section 
                        1886(d)(3)(E)) is equal to the product of--
                                    ``(I) the mean number of visits for 
                                each type of home health service 
                                described in subsection (a)(2) 
                                furnished during an episode of such 
                                case-mix category in such area during 
                                fiscal year 1996; and
                                    ``(II) the per visit payment rate 
                                established under subsection (b) for 
                                such type of home health service for 
                                the fiscal year for which the 
                                determination is being made.
                            ``(ii) Determination of area.--In the case 
                        of an area which the Secretary determines has 
                        an insufficient number of home health agencies 
                        to establish an appropriate per episode limit 
                        under this subparagraph, the Secretary may 
                        establish an area other than the area used to 
                        determine the area wage under section 
                        1886(d)(3)(E) for purposes of establishing an 
                        appropriate per episode limit.
                    ``(C) Case-mix category.--For purposes of this 
                paragraph, the term `case-mix category' means each of 
                the 18 case-mix categories established under the Home 
                Health Agency Prospective Payment Demonstration Project 
                conducted by the Health Care Financing Administration. 
                The Secretary may develop and apply a more accurate 
                methodology for determining case-mix categories subject 
                to prior public notice and comment under section 553 of 
                title 5, United States Code.
                    ``(D) Episode.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `episode' means the 
                        continuous 120-day period that--
                                    ``(I) begins on the date of an 
                                individual's first visit for a type of 
                                home health service described in 
                                subsection (a)(2) for a case-mix 
                                category, and
                                    ``(II) is immediately preceded by a 
                                45-day period in which the individual 
                                did not receive visits for a type 
of home health service described in subsection (a)(2).
                            ``(ii) Proration of episode limit spanning 
                        payment years.--The Secretary shall provide for 
                        such rules as appropriate to prorate episode 
                        limits under this paragraph which begin during 
                        a payment year and end in a subsequent payment 
                        year.
                    ``(E) Establishment of a per patient annual limit 
                for services provided after 120 days.--
                            ``(i) In general.--The per patient limit 
                        for services provided by a home health agency 
                        after 120 days for a payment period is equal to 
                        the product of--
                                    ``(I) the sum of 50 percent of the 
                                updated per visit costs described in 
                                paragraph (1)(B)(ii) for the agency and 
                                year and 50 percent of the regional 
                                average described in paragraph 
                                (1)(B)(iii) for the agency and year; 
                                and
                                    ``(II) the average annual number of 
                                medicare home health agency visits over 
                                120 days per unduplicated medicare 
                                beneficiary for fiscal year 1996.
                            ``(ii) New providers and providers without 
                        base year.--The provisions of subparagraph (D) 
                        of paragraph (1) shall apply with respect to 
                        clause (i)(I) in the same manner as they apply 
                        to subparagraph (B)(ii) of paragraph (1).
            ``(3) Exemptions and exceptions.--
                    ``(A) Extraordinary costs.--The Secretary shall 
                provide for an exemption from, or an exception and 
                adjustment to, at the request of the home health 
                agency, the methods under this subsection for 
                determining payment limits where events beyond the home 
                health agency's control or extraordinary circumstances, 
                including the case mix of such home health agency, 
                create reasonable costs for a payment year which exceed 
                the applicable payment limits.
                    ``(B) Other factors.--The Secretary may provide for 
                such other exemptions from, and exceptions and 
                adjustments to, such methods, as the Secretary deems 
                appropriate, as determined by the Secretary.
                    ``(C) Timely determination.--The Secretary shall 
                announce a decision on any request for an exemption, 
                exception, or adjustment under this paragraph not later 
                than 120 days after receiving a completed application 
                from the home health agency for such exemption, 
                exception, or adjustment, and shall include in such 
                decision a detailed explanation of the grounds on which 
                such request was approved or denied.
                    ``(D) Limitation.--The cumulative expenditures for 
                exemptions and exceptions under this paragraph shall 
                not exceed the cumulative amount that would have been 
                payable under paragraph (4)(B) if the 10 percent 
                limitation under clause (ii) of such paragraph did not 
                apply.
            ``(4) Reconciliation of amounts.--
                    ``(A) Payments in excess of limits.--If a home 
                health agency has received aggregate per visit payments 
                under subsection (a) for a fiscal year in excess of the 
                amount determined under paragraph (1) with respect to 
                such home health agency for such fiscal year, the 
                Secretary shall reduce payments under this section to 
                the home health agency in the following fiscal year in 
such manner as the Secretary considers appropriate (including on an 
installment basis) to recapture the amount of such excess.
                    ``(B) Share of savings.--
                            ``(i) Computation.--If a home health agency 
                        has received aggregate per visit payments under 
                        subsection (a) for a payment year in an amount 
                        less than the limit determined under paragraph 
                        (1) or (2) (as applicable) with respect to such 
                        home health agency for such payment year and, 
                        with respect only to paragraphs (1) and (2)(E), 
                        the home health agency has an average payment 
                        per unduplicated medicare beneficiary at or 
                        below 125 percent of the regional average 
                        (described in paragraph (1)(B)(iii) or 
                        (2)(E)(iii), respectively), subject to clause 
                        (ii), the Secretary shall pay such home health 
                        agency a payment equal to 50 percent of the 
                        difference between the aggregate payment and 
                        each applicable limit under paragraphs (1), 
                        (2)(B), or (2)(E).
                            ``(ii) Limitation.--In no case shall 
                        payments under clause (i) for an agency for a 
                        year exceed 10 percent of the aggregate per 
                        visit payments made to the agency for the year.
                            ``(iii) Installment payments.--The 
                        Secretary may make the payments to a home 
                        health agency under clause (i) during a payment 
                        year on an installment basis based on the 
                        estimated payment that the agency would be 
                        eligible to receive with respect to such 
                        payment year.
    ``(d) Medical Review Process.--The Secretary shall implement a 
medical review process for the system of payments described in this 
section that shall provide an assessment of the pattern of care 
furnished to individuals receiving home health services for which 
payments are made under this section to ensure that such individuals 
receive appropriate home health services.
    ``(e) Adjustments.--
            ``(1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to a home health agency 
        under this section to ensure that the agency does not engage in 
        the following for the purposes of circumventing the limits:
                    ``(A) Discharging patients to another home health 
                agency or similar provider.
                    ``(B) Altering corporate structure or name to avoid 
                being subject to this section or for the purpose of 
                increasing payments under this title.
            ``(2) Tracking of patients that switch home health 
        agencies.--
                    ``(A) Development of system.--The Secretary shall 
                develop a system that tracks home health patients that 
                receive home health services described in subsection 
(a)(2) from more than 1 home health agency.
                    ``(B) Adjustment of limits.--The Secretary shall 
                adjust limits under this section to each home health 
                agency that furnishes an individual with a type of home 
                health service described in subsection (a)(2) to ensure 
                that aggregate payments on behalf of such individual 
                during such episode do not exceed the amount that would 
                be paid under this section if the individual received 
                such services from a single home health agency.
            ``(3) Monitoring low-cost cases.--
                    ``(A) In general.--The Secretary shall develop and 
                implement a system designed to monitor significant 
                changes in the percentage distribution of low-cost and 
                high-cost patients for which home health services are 
                furnished by a home health agency over such percentage 
                distribution determined for the agency under 
                subparagraph (B).
                    ``(B) Distribution.--The Secretary shall profile 
                home health service patients to determine the 
                distribution of patients for the purpose of determining 
                regional and national trends.
                    ``(C) Low-cost and high-cost patients.--For 
                purposes of this paragraph, the Secretary shall define 
                a low-cost and high-cost patient in a manner that 
                provides that a home health agency has an incentive to 
                be cost-efficient in delivering home health services 
                and that the volume of such services does not increase 
                as a result of factors other than patient needs.
                    ``(D) Report on access.--The Secretary shall report 
                to Congress on an annual basis findings and 
                recommendations for ensuring access to appropriate home 
                health services.
    ``(f) Special Rule for Christian Science Providers.--
            ``(1) Payment permitted for services.--Notwithstanding any 
        other provision of this title, payment shall be made under this 
        title for home health services furnished by Christian Science 
        providers who meet applicable requirements of the First Church 
        of Christ, Scientist, Boston, Massachusetts, and are certified 
        for purposes of this title under criteria established by the 
        Secretary, in accordance with a payment methodology established 
        by the Secretary.
            ``(2) Effective date.--Paragraph (1) shall apply to 
        services furnished during cost reporting periods which begin 
        after the date on which the Secretary establishes the payment 
        methodology and the certification criteria described in 
        paragraph (1).
    ``(g) Report by Medicare Prospective Payment Review Commission.--
During the first 3 years in which payments are made under this section, 
the Medicare Prospective Payment Review Commission shall annually 
submit a report to Congress on the effectiveness of the payment 
methodology established under this section that shall include 
recommendations regarding the following:
            ``(1) Case-mix and volume increases.
            ``(2) Quality monitoring of home health agency practices.
            ``(3) Whether providers of service are adequately 
        reimbursed.
            ``(4) On the adequacy of the exemptions and exceptions to 
        the limits provided under subsection (c)(1)(E).
            ``(5) The appropriateness of the methods provided under 
        this section to adjust the aggregate limits and annual payment 
        updates to reflect changes in the mix of services, number of 
        visits, and assignment to case categories to reflect changing 
        patterns of home health care.
            ``(6) The geographic areas used to determine the per 
        episode and per patient limits.
    ``(h) Development of Episodic Prospective Payment System for Home 
Health Services.--
            ``(1) In general.--The Secretary shall develop a method of 
        payments for home health services under this title in 
        accordance with an episodic prospective payment system. In 
        developing the system, the Secretary shall take into 
        consideration--
                    ``(A) the data and processes from subsection (c)(2) 
                that have proven valid and reliable, and
                    ``(B) the degree of disruption resulting from 
                changing the payment system.
            ``(2) Additional considerations.--The per episode amount 
        under the system shall include all services covered and paid 
        under home health services under this title as of the date of 
        enactment of this section, including medical supplies. In 
        defining an episode of care under the system, the Secretary 
        shall consider an appropriate length of time for an episode, 
        the use of services and the number of visits provided within an 
episode, potential changes in the mix of services provided within an 
episode and their cost, and a general system design that will provide 
for continued access to quality services. The per episode amount shall 
be based on the most current data available to the Secretary and shall 
include consideration of the cost of new regulatory requirements, 
changes in technology, and new care practices.
            ``(3) Use of case mix adjuster.--Under the system the 
        Secretary shall employ an appropriate case mix adjuster that 
        explains a significant amount of the variation in cost.
            ``(4) Updates and labor adjustment.--Under the system, the 
        episode payment amount shall be updated annually by the home 
        health market basket index and the labor portion of the episode 
        amount shall be adjusted for geographic differences in labor-
        related costs based on the most current hospital wage index.
            ``(5) Outliers.--Under the system the Secretary may 
        designate a payment provision for outliers, recognizing the 
        need to adjust payments due to unusual variations in the type 
        or amount of medically necessary care.
            ``(6) Coordination requirement.--Under the system, a home 
        health agency shall be responsible for coordinating all care 
        for a beneficiary under this title.
            ``(7) Input.--The system shall be developed with input from 
        and coordination with representatives from the home health 
        services industry and consumers of home health services.
            ``(8) Proposal.--The Secretary shall submit to Congress a 
        proposal for the system, consistent with this subsection, not 
        later than 4 years after the date of enactment of this section.
            ``(9) Implementation.--The system developed under this 
        subsection shall become effective only pursuant to an Act of 
        Congress. It is the intent of Congress that the effective date 
        of the system be not later than 18 months after enactment of 
        such an Act.
    ``(i) Development of Data Base.--Within 60 days after the date of 
enactment of this section, the Secretary shall initiate the development 
of a data base upon which a fair and accurate case mix adjustor, as 
required by subsections (c)(2)(C) and (h)(3), can be developed and 
implemented. The data base must--
            ``(1) be capable of linking case mix data with cost and 
        utilization data;
            ``(2) contain data from HCFA Forms 485 and UB-92;
            ``(3) contain additional data elements sufficient to 
        support the case-mix categories in subsection (c)(2)(C); and
            ``(4) contain any additional data elements determined 
        necessary by the Secretary in consultation with representatives 
        of the home health industry.''.
    (b) Appeals to Provider Reimbursement Review Board.--Section 
1878(a) of the Social Security Act (42 U.S.C. 1395oo(a)) is amended by 
inserting ``, any home health agency which has received payment 
pursuant to section 1895 may obtain a hearing by the Board, with 
respect to such payment,'' after ``subsection (h)''.
    (c) Sunset of Reasonable Cost Limitations.--Section 1861(v)(1)(L) 
of the Social Security Act (42 U.S.C. 1395x(v)(1)(L)) is amended by 
adding at the end the following:
    ``(iv) This subparagraph shall apply only to services furnished by 
home health agencies before the effective date of section 1895.''.
    (d) Effective Date.--The amendments made by subsections (a) and (c) 
shall apply to payment for home health services furnished on or after 
such date (not later than 6 months after the date of enactment of this 
Act) as the Secretary specifies.

SEC. 502. REVIEW BY PEER REVIEW ORGANIZATION OF HOME HEALTH SERVICES.

    (a) In General.--Section 1154 of the Social Security Act (42 U.S.C. 
1320c-3) is amended by adding at the end the following:
    ``(g)(1) Each contract under this part shall require that the 
utilization and quality control peer review organization's review 
responsibility pursuant to subsection (a)(1) will include review of the 
level of care and quality of services provided individuals receiving 
home health services pursuant to sections 1812(a)(3) and 
1832(a)(2)(A)(i).
    ``(2) If--
            ``(A) a home health agency has determined that a patient 
        does not meet the conditions for payment of home health 
        services under section 1814 or section 1833,
            ``(B) the home health agency has determined that a patient 
        no longer requires home health services,
            ``(C) the home health agency has determined that a patient 
        requires a level of care which is inconsistent with the care 
prescribed by the patient's attending physician, or
            ``(D) the patient has been authorized by the home health 
        agency to receive a level of care less than that considered by 
        the patient as appropriate to meet the patient's needs,
the home health agency shall provide the patient (or the patient's 
representative) with a notice (meeting the conditions prescribed by the 
Secretary under section 1879) of the determination.
    ``(3)(A) If the patient (or patient's representative)--
                    ``(i) has received a notice under paragraph (2), 
                and
                    ``(ii) requests the appropriate peer review 
                organization to review the determination,
        the organization shall conduct a review under subsection (a) of 
        the validity of the home health agency's determination and 
        shall provide notice (by telephone and in writing) to the 
patient or representative and the home health agency and attending 
physician involved of the results of the review. Such review shall be 
conducted regardless of whether the home health agency will charge for 
continued home health services or whether the patient will be liable 
for payment for such continued care.
    ``(B) If a patient (or a patient's representative) requests review 
under subparagraph (A) while the patient is still a patient of the home 
health agency and not later than noon of the first working day after 
the date the patient receives the notice under paragraph (2), then--
            ``(i) the home health agency shall provide to the 
        appropriate peer review organization the records required to 
        review the determination by the close of business of such first 
        working day, and
            ``(ii) the peer review organization must provide the notice 
        under subparagraph (A) by not later than one full working day 
        after the date the organization has received the request and 
        such records.
    ``(4) If--
            ``(A) a request is made under paragraph (3)(A) not later 
        than noon of the first working day after the date that the 
        patient (or patient's representative) receives the notice under 
        paragraph (2), and
            ``(B) the conditions described in section 1879(a)(2) with 
        respect to the patient or representative are met,
the home health agency shall not charge the patient for home health 
services furnished before noon of the day after the date the patient or 
representative receives notice of the peer review organization's 
decision.
    ``(5) In any review conducted under paragraph (2) or (3), the 
organization shall solicit the views of the patient involved (or the 
patient's representative).
    ``(h) The utilization and quality control peer review organization 
shall monitor the delivery of home health services in a manner which 
includes a review of home health agencies that present significant 
variation in utilization.''.
    (b) Hearing Rights.--Section 1155 of the Social Security Act (42 
U.S.C. 1320c-4) is amended by adding at the end the following: 
``Notwithstanding the previous provisions of this section, any 
beneficiary receiving home health services subject to review under 
section 1154(g), and the provider, who is dissatisfied with a 
determination, shall be entitled to a hearing by the Secretary and to 
judicial review of any final determination to the same extent as 
provided under section 1869.''.
    (c) Elimination of Certain Fiscal Intermediary Responsibilities.--
Section 1816(j) of the Social Security Act (42 U.S.C. 1395h(j)) is 
amended by striking ``home health services,''.
    (d) Effective Date.--The amendments made by subsections (a) and (c) 
shall apply to contract years beginning after the date of enactment of 
this Act.

SEC. 503. RETROACTIVE REINSTATEMENT OF PRESUMPTIVE WAIVER OF LIABILITY.

    (a) In General.--Section 9305(g)(3) of the Omnibus Budget 
Reconciliation Act of 1986, as amended by section 426(d) of the 
Medicare Catastrophic Coverage Act of 1988 and section 4207(b)(3) of 
the Omnibus Budget Reconciliation Act of 1990 (as renumbered by section 
160(d)(4) of the Social Security Act Amendments of 1994), is amended by 
striking ``December 31, 1995'' and inserting ``the date of 
implementation of a prospective payment system for home health care 
services under section 1894(h) of the Social Security Act''.
    (b) Presumption.--The second sentence of section 9205 of the 
Consolidated Omnibus Budget Reconciliation Act of 1985 is amended by 
striking ``December 31, 1995'' and inserting ``the date of 
implementation of a prospective payment system for home health care 
services under section 1894(h) of such Act''.

      TITLE VI--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

SEC. 601. DEFINITIONS.

    In this title:
            (1) Acuity payment.--The term ``acuity payment'' means a 
        fixed amount that will be added to the facility-specific prices 
for certain resident classes designated by the Secretary as requiring 
heavy care.
            (2) Aggregated resident invoice.--The term ``aggregated 
        resident invoice'' means a compilation of the per resident 
        invoices of a nursing facility which contain the number of 
        resident days for each resident and the resident class of each 
        resident at the nursing facility during a particular month.
            (3) Allowable costs.--The term ``allowable costs'' means 
        costs which HCFA has determined to be necessary for a nursing 
        facility to incur according to the Provider Reimbursement 
        Manual (in this title referred to as ``HCFA-Pub. 15'').
            (4) Base year.--The term ``base year'' means the most 
        recent cost reporting period (consisting of a period which is 
        12 months in length, except for facilities with new owners, in 
        which case the period is not less than 4 months and not more 
        than 13 months) for which cost data of nursing facilities is 
        available to be used for the determination of a prospective 
        rate.
            (5) Case mix weight.--The term ``case mix weight'' means 
        the total case mix score of a facility calculated by 
        multiplying the resident days in each resident class by the 
        relative weight assigned to each resident class, and summing 
        the resulting products across all resident classes.
            (6) Complex medical equipment.--The term ``complex medical 
        equipment'' means items such as ventilators, intermittent 
        positive pressure breathing machines, nebulizers, suction 
        pumps, continuous positive airway pressure devices, and bead 
        beds such as air fluidized beds.
            (7) Distinct part nursing facility.--The term ``distinct 
        part nursing facility'' means an institution which has a 
        distinct part that is certified under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.) and meets the 
        requirements of section 201.1 of the Skilled Nursing Facility 
        Manual published by HCFA (in this title referred to as ``HCFA-
        Pub. 12'').
            (8) Efficiency incentive.--The term ``efficiency 
        incentive'' means a payment made to a nursing facility in 
        recognition of incurring costs below a prespecified level.
            (9) Fixed equipment.--The term ``fixed equipment'' means 
        equipment which meets the definition of building equipment in 
        section 104.3 of HCFA-Pub. 15, including attachments to 
        buildings such as wiring, electrical fixtures, plumbing, 
        elevators, heating systems, and air conditioning systems.
            (10) Geographic ceiling.--The term ``geographic ceiling'' 
        means a limitation on payments in any given cost center for 
        nursing facilities in 1 of no fewer than 8 geographic regions, 
        further subdivided into rural and urban areas, as designated by 
        the Secretary.
            (11) HCFA.--The term ``HCFA'' means the Health Care 
        Financing Administration.
            (12) Heavy care.--The term ``heavy care'' means an 
        exceptionally high level of care which the Secretary has 
        determined is required for residents in certain resident 
        classes.
            (13) Indexed forward.--The term ``indexed forward'' means 
        an adjustment made to a per diem rate to account for cost 
        increases due to inflation or other factors during an 
        intervening period following the base year and projecting such 
        cost increases for a future period in which the rate applies. 
        Indexing forward under this title shall be determined from the 
        midpoint of the base year to the midpoint of the rate year.
            (14) MDS.--The term ``MDS'' means a resident assessment 
        instrument, currently recognized by HCFA, any extensions to 
        MDS, and any extensions to accommodate subacute care which 
        contain an appropriate core of assessment items with 
        definitions and coding categories needed to comprehensively 
        assess a nursing facility resident.
            (15) Major movable equipment.--The term ``major movable 
        equipment'' means equipment that meets the definition of major 
        movable equipment in section 104.4 of HCFA-Pub. 15.
            (16) Nursing facility.--The term ``nursing facility'' means 
        an institution that meets the requirements of a ``skilled 
        nursing facility'' under section 1819(a) of the Social Security 
        Act (42 U.S.C. 1395i-3(a)) and of a ``nursing facility'' under 
        section 1919(a) of that Act (42 U.S.C. 1396r(a)).
            (17) Per bed limit.--The term ``per bed limit'' means a 
        per-bed ceiling on the fair asset value of a nursing facility 
        for 1 of the geographic regions designated by the Secretary.
            (18) Per diem rate.--The term ``per diem rate'' refers to a 
        rate of payment for the costs of covered services for a 
        resident day.
            (19) Relative weight.--The term ``relative weight'' means 
        the index of the value of the resources required for a given 
        resident class relative to the value of resources of either a 
base resident class or the average of all the resident classes.
            (20) R.S. means index.--The term ``R.S. Means Index'' means 
        the index of the R. S. Means Company, Inc., specific to 
        commercial or industrial institutionalized nursing facilities, 
        that is based upon a survey of prices of common building 
        materials and wage rates for nursing facility construction.
            (21) Rebase.--The term ``rebase'' means the process of 
        updating nursing facility cost data for a subsequent rate year 
        using a more recent base year.
            (22) Rental rate.--The term ``rental rate'' means a 
        percentage that will be multiplied by the fair asset value of 
        property to determine the total annual rental payment in lieu 
        of property costs.
            (23) Resident classification system.--The term ``resident 
        classification system'' means a system that categorizes 
        residents into different resident classes according to 
        similarity of their assessed condition and required services of 
        the residents.
            (24) Resident day.--The term ``resident day'' means the 
        period of services for 1 resident, regardless of payment 
        source, for 1 continuous 24 hours of services. The day of 
        admission of the resident constitutes a resident day but the 
        day of discharge does not constitute a resident day. Bed hold 
        days are not to be considered resident days, and bed hold day 
        revenues are not to be offset.
            (25) Resource utilization groups, version iii.--The term 
        ``Resource Utilization Groups, Version III'' (in this title 
        referred to as ``RUG-III'') refers to a category-based resident 
        classification system used to classify nursing facility 
        residents into mutually exclusive RUG-III groups. Residents in 
        each RUG-III group utilize similar quantities and patterns of 
        resources.
            (26) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
            (27) Subacute care.--The term ``subacute care'' means 
        comprehensive inpatient care designed for an individual that 
        has an acute illness, injury, or exacerbation of a disease 
        process. The care is goal oriented treatment rendered 
        immediately after, or instead of, acute hospitalization to 
        treat 1 or more specific active complex medical conditions or 
        to administer 1 or more technically complex treatments, in the 
        context of a person's underlying long-term conditions and 
        overall situation. In most cases, the individual's condition is 
        such that the care does not depend heavily on high technology 
        monitoring or complex diagnostic procedures. Subacute care 
        requires the coordinated services of an interdisciplinary team 
        including physicians, nurses, and other relevant professional 
        disciplines, who are trained and knowledgeable to assess and 
        manage these specific conditions and perform the necessary 
        procedures. Subacute care is given as part of a specifically 
        defined program, regardless of the site. Subacute care is 
        generally more intensive than traditional nursing facility care 
        and less than acute care. It requires frequent (daily to 
        weekly) recurrent patient assessment and review of the clinical 
        course and treatment plan for a limited (several days to 
        several months) time period, until the condition is stabilized 
        or a predetermined treatment course is completed.

SEC. 602. PAYMENT OBJECTIVES.

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

SEC. 603. POWERS AND DUTIES OF THE SECRETARY.

    (a) Rules and Regulations.--The Secretary shall establish by 
regulation all rules and regulations necessary for implementation of 
this title. The rates determined under this title shall be determined 
in a budget neutral manner and shall reflect the objectives described 
in section 602 of this title.
    (b) Filing requirements.--The Secretary may require that each 
nursing facility file such data, statistics, schedules, or information 
as required to enable the Secretary to implement this title.

SEC. 604. RELATIONSHIP TO TITLE XVIII OF THE SOCIAL SECURITY ACT.

    (a) In General.--No provision in this title shall replace, or 
otherwise affect, the skilled nursing facility benefit under title 
XVIII of the Social Security Act (42 U.S.C. 1395 et seq.).
    (b) Provisions of HCFA-15.--The provisions of HCFA-Pub. 15 shall 
apply to the determination of allowable costs under this title except 
to the extent that such provisions conflict with any other provision in 
this title.

SEC. 605. ESTABLISHMENT OF RESIDENT CLASSIFICATION SYSTEM.

    (a) In General.--
            (1) Establishment.--The Secretary shall establish a 
        resident classification system which shall group residents into 
        classes according to similarity of their assessed condition and 
        required services.
            (2) Model for system.--The resident classification system 
        shall be modelled after the RUG-III system and all updated 
        versions of that system, and shall be expanded into subacute 
        categories and costs of care.
            (3) Reflective of certain time and costs.--The resident 
        classification system shall reflect of the necessary 
        professional and paraprofessional nursing staff time and costs 
        required to address the care needs of nursing facility 
        residents.
    (b) Relative Weight for Each Resident Class.--
            (1) In general.--The Secretary shall assign a relative 
        weight for each resident class based on the relative value of 
        the resources required for each resident class. If the 
        Secretary determines it to be appropriate, the assignment of 
        relative weights for resident classes shall be developed for 
        each geographic region as determined in accordance with 
        subsection (c).
            (2) Utilization of mdss.--In assigning the relative weights 
        of the resident classes in a geographic region, the Secretary 
        shall utilize information derived from the most recent MDSs of 
        all the nursing facilities in a geographic region.
            (3) Recalibrated every 3 years.--Every 3 years the 
        Secretary shall recalibrate the relative weights of the 
        resident classes in each geographic region based on any changes 
        in the cost or amount of resources required for the care of a 
        resident in the resident class.
    (c) Geographic Regions; Peer Groupings.--
            (1) Geographic regions.--The Secretary shall designate at 
        least 3 geographic regions for the total United States. Within 
        each geographic region, the Secretary shall take appropriate 
        account of variations in cost between urban and rural areas.
            (2) Peer grouping.--The Secretary shall ensure that there 
        are no peer grouping of nursing facilities based on facility 
        size or whether the nursing facilities are hospital-based or 
        not.

SEC. 606. COST CENTERS FOR NURSING FACILITY PAYMENT.

    (a) Payment Rates.--Consistent with the objectives described in 
section 602 of this title, the Secretary shall determine payment rates 
for nursing facilities using the following cost/service groupings:
            (1) The nursing service cost center shall include salaries 
        and wages for the Director of Nursing, quality assurance 
        nurses, registered nurses, licensed practical nurses, nurse 
        aides (including wages related to initial and ongoing nurse aid 
        training and other ongoing or periodic training costs incurred 
        by nursing personnel), contract nursing, fringe benefits and 
        payroll taxes associated therewith, medical records, and 
        nursing supplies.
            (2) The administrative and general cost center shall 
        include all expenses (including salaries, benefits, and other 
        costs) related to administration, plant operation, maintenance 
        and repair, housekeeping, dietary (excluding raw food), central 
        services and supply (excluding medical or nursing supplies), 
        laundry, and social services, excluding overhead allocations to 
        ancillary services.
            (3) Ancillary services that are paid on a fee-for-service 
        basis shall include physical therapy, occupational therapy, 
        speech therapy, respiratory therapy, and hyperalimentation. The 
        fee-for-service ancillary service payments under part A of 
        title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) 
        shall not affect the reimbursement of ancillary services under 
        part B of title XVIII of that Act (42 U.S.C. 1395j et seq.).
            (4) The cost center for selected ancillary services and 
        other costs shall include drugs, raw food, IV therapy, x-ray 
        services, laboratory services, property tax, property 
        insurance, and all other costs not included in the other 4 
        cost-of-service groupings.
            (5) The property cost center shall include depreciation on 
        the buildings and fixed equipment, major movable equipment, 
        motor vehicles, land improvements, amortization of leasehold 
improvements, lease acquisition costs, capital leases, interest on 
capital indebtedness, mortgage interest, lease costs, and equipment 
rental expense.
    (b) Per Diem Rate.--The Secretary shall pay nursing facilities a 
prospective, facility-specific, per diem rate based on the sum of the 
per diem rates established for the nursing service, administrative and 
general, and property cost centers as determined in accordance with 
sections 528, 529, and 532.
    (c) Facility-Specific Prospective Rate.--The Secretary shall pay 
nursing facilities a facility-specific prospective rate for each unit 
of the fee-for-service ancillary services as determined in accordance 
with section 610 of this title.
    (d) Reimbursement for Selective Ancillary Services.--Nursing 
facilities shall be reimbursed by the Secretary for selected ancillary 
services and other costs on a retrospective basis in accordance with 
section 611 of this title.

SEC. 607. RESIDENT ASSESSMENT.

    (a) In General.--In order to be eligible for payments under this 
title, a nursing facility shall perform a resident assessment in 
accordance with section 1819(b)(3) of the Social Security Act (42 
U.S.C. 1395i-3(b)(3)) within 14 days of admission of the resident and 
at such other times as required by that section.
    (b) Resident Class.--The resident assessment shall be used to 
determine the resident class of each resident in the nursing facility 
for purposes of determining the per diem rate for the nursing service 
cost center in accordance with section 608 of this title.

SEC. 608. THE PER DIEM RATE FOR NURSING SERVICE COSTS.

    (a) In General.--
            (1) Nursing service cost center rate.--The Secretary shall 
        calculate the nursing service cost center rate using a 
        prospective, facility-specific per diem rate based on the 
        nursing facility's case-mix weight and nursing service costs 
        during the base year.
            (2) Case-mix weight.--For purposes of paragraph (1), the 
        case-mix weight of a nursing facility shall be obtained by 
        multiplying the number of resident days in each resident class 
        at a nursing facility during the base year by the relative 
        weight assigned to each resident class in the appropriate 
        geographic region. Once this calculation is performed for each 
        resident class in the nursing facility, the sum of these 
        products shall constitute the case-mix weight for the nursing 
        facility.
            (3) Facility nursing unit value.--A facility nursing unit 
        value for the nursing facility for the base year shall be 
        obtained by dividing the nursing service costs for the base 
        year, which shall be indexed forward from the midpoint of the 
        base period to the midpoint of the rate period using the DRI 
        McGraw-Hill HCFA Nursing Home Without Capital Market Basket, by 
        the case-mix weight of the nursing facility for the base year.
            (4) Facility-specific nursing services price.--A facility-
        specific nursing services price for each resident class shall 
        be obtained my multiplying the lower of the indexed facility 
        unit value of the nursing facility during the base year or the 
        geographic ceiling, as determined in accordance with subsection 
        (b), by the relative weight of the resident class.
            (5) Patient classifications.--For patient classifications 
        associated with the use of complex medical equipment and other 
        specialized, noncustomary equipment (particularly subacute 
        classifications), the Secretary shall provide for a daily 
        allowance for such equipment based upon the amortized value of 
        such equipment over the life of the equipment.
            (6) Selected resident classifications.--For selected 
        resident classifications (particularly subacute 
        classifications) requiring additional or specialized medical 
        administrative staff, the Secretary shall provide for a daily 
        allowance to cover these costs.
            (7) Designation of certain resident classes.--The Secretary 
        shall designate certain resident classes, such as subacute 
        resident classes, as requiring heavy care. An acuity payment of 
        3 percent of the facility-specific nursing services price shall 
        be added to the facility-specific price for each resident that 
        the Secretary has designated as requiring heavy care.
            (8) Per diem rate.--The per diem rate for the nursing 
        service cost center for each resident in a resident class shall 
        constitute the facility-specific price, plus the acuity payment 
        where appropriate.
            (9) Per diem rate rebased annually.--The Secretary shall 
        annually rebate the per diem rate for the nursing service cost 
        center, including the facility-specific price and the acuity 
        payment.
            (10) Payment.--To determine the payment amount to a nursing 
        facility for the nursing service cost center, the Secretary 
        shall multiply the per diem rate (including the acuity payment) 
        for a resident class by the number of resident days for each 
        resident class based on aggregated resident invoices which each 
        nursing facility shall submit on a monthly basis.
    (b) Geographic Ceiling.--
            (1) Facility unit value.--The facility unit value 
        identified in subsection (a)(3) shall be subjected to 
        geographic ceilings established for the geographic regions 
        designated by the Secretary in section 605 of this title.
            (2) Determination.--
                    (A) In general.--The Secretary shall determine the 
                geographic ceiling by creating an array of indexed 
                facility unit values in a geographic region from lowest 
                to highest. Based on this array, the Secretary shall 
                identify a fixed proportion between the indexed 
                facility unit value of the nursing facility which 
                contained the medianth resident day in the array 
                (except as provided in subsection (b)(4) of this 
                section) and the indexed facility unit value of the 
                nursing facility which contained the 95th percentile 
                resident day in that array during the first year of 
                operation of the Prospective Payment System for nursing 
                facilities. The fixed proportion shall remain the same 
                in subsequent years.
                    (B) Subsequent years.--To obtain the geographic 
                ceiling on the indexed facility unit value for nursing 
                facilities in a geographic region in each subsequent 
                year, the fixed proportion identified pursuant to 
                subparagraph (A) shall be multiplied by the indexed 
                facility unit value of the nursing facility which 
                contained the medianth resident day in the array of 
                facility unit values for the geographic region during 
                the base year.
            (3) Exclusions from determination.--For purposes of 
        determining the geographic ceiling for a nursing service cost 
        center, the Secretary shall exclude low volume and new nursing 
        facilities (as defined in section 614 of this title).
    (c) Exceptions to Geographic Ceiling.--The Secretary shall 
establish by regulation procedures for allowing exceptions to the 
geographic ceiling imposed on a nursing service cost center. The 
procedure shall permit exceptions based on the following factors:
            (1) Local supply or labor shortages which substantially 
        increase costs to specific nursing facilities.
            (2) Higher per resident day usage of contract nursing 
        personnel, if utilization of contract nursing personnel is 
        warranted by local circumstances and the provider has taken all 
        reasonable measures to minimize contract personnel expense.
            (3) Extraordinarily low proportion of distinct part nursing 
        facilities in a geographic region resulting in a geographic 
        ceiling that unfairly restricts the reimbursement of distinct 
        part facilities.
            (4) Regulatory changes that increase costs to only a subset 
        of the nursing facility industry.
            (5) The offering of a new institutional health service or 
        treatment program by a nursing facility (in order to account 
        for initial startup costs).
            (6) Disproportionate usage of part-time employees, where 
        adequate numbers of full-time employees cannot reasonably be 
        obtained.
            (7) Other cost producing factors specified by the Secretary 
        in regulations that are specific to a subset of facilities in a 
        geographic region (except case-mix variation).

SEC. 609. THE PER DIEM RATE FOR ADMINISTRATIVE AND GENERAL COSTS.

    (a) In General.--
            (1) Payment.--The Secretary shall make payments for the 
        administrative and general cost center by using a facility-
        specific, prospective, per diem rate.
            (2) Standards for per diem rate.--The Secretary shall 
        assign a per diem rate to a nursing facility by applying 2 
        standards that is calculated as follows:
                    (A) Standard a.--The Secretary shall determine a 
                Standard A for each geographic region by creating an 
                array of indexed nursing facility administrative and 
                general per diem costs from lowest to highest. The 
                Secretary shall then identify a fixed proportion by 
                dividing the indexed administrative and general per 
                diem costs of the nursing facility that contains the 
                medianth resident day of the array (except as provided 
                in subsection (a)(4)) into the indexed 
administrative and general per diem costs of the nursing facility that 
contains the 75th percentile resident day in that array. Standard A for 
each base year shall constitute the product of this fixed proportion 
and the administrative and general indexed per diem costs of the 
nursing facility that contains the medianth resident day in the array 
of such costs during the base year.
                    (B) Standard b.--The Secretary shall determine a 
                Standard B for each geographic region by using the same 
                calculation as in subparagraph (A) except that the 
                fixed proportion shall use the indexed administrative 
                and general costs of the nursing facility containing 
                the 85th percentile, rather than the 75th percentile, 
                resident day in the array of such costs.
            (3) Geographic regions.--The Secretary shall use the 
        geographic regions identified in section 605(c) of this title 
        for purposes of determining Standards A and B.
            (4) Exclusion.--The Secretary shall exclude low volume and 
        new nursing facilities (as defined in section 614 of this 
        title) for purposes of determining Standard A and Standard B.
            (5) Per diem rate.--To determine a nursing facility's per 
        diem rate for the administrative and general cost center, 
        Standards A and B shall be applied to a nursing facility's 
        administrative and general per diem costs, indexed forward 
        using the DRI McGraw-Hill HCFA Nursing Home Without Capital 
        Market Basket, as follows:
                    (A) Each nursing facility having indexed costs 
                which are below the median shall be assigned a rate 
                equal to their individual indexed costs plus an 
                ``efficiency incentive'' equal to \1/2\ of the 
                difference between the median and Standard A.
                    (B) Each nursing facility having indexed costs 
                which are below Standard A but are equal to or exceed 
                the median shall be assigned a per diem rate equal to 
                their individual indexed costs plus an ``efficiency 
                incentive'' equal to \1/2\ of the difference between 
                the nursing facility's indexed costs and Standard A.
                    (C) Each nursing facility having indexed costs 
                which are between Standard A and Standard B shall be 
                assigned a rate equal to Standard A plus \1/2\ of the 
                difference between the nursing facility's indexed costs 
                and Standard A.
                    (D) Each nursing facility having indexed costs 
                which exceed Standard B shall be assigned a rate as if 
                their costs equaled Standard B. These nursing 
                facilities shall be assigned a per diem rate equal to 
                Standard A plus \1/2\ of the difference between 
                Standard A and Standard B.
                    (E) For purposes of subparagraphs (A) through (D), 
                the median represents the indexed administrative and 
                general per diem costs of a nursing facility that 
                contains the medianth resident day in the array of such 
                costs during the base year in the geographic region.
    (b) Rebasing.--Not less than annually, the Secretary shall rebase 
the payment rates for administrative and general costs.

SEC. 610. PAYMENT FOR FEE-FOR-SERVICE ANCILLARY SERVICES.

    (a) In General.--The Secretary shall make payments for the 
ancillary services described in section 606(a)(3) on a prospective fee-
for-service basis.
    (b) Payment Methodology.--The Secretary shall identify the fee for 
each of the fee-for-service ancillary services for a particular nursing 
facility by dividing the nursing facility's reasonable costs, including 
overhead allocated through the cost finding process, of providing each 
particular service, indexed forward using the DRI McGraw-Hill HCFA 
Nursing Home Without Capital Market Basket, by the units of the 
particular service provided by the nursing facility during the cost 
year.
    (c) Computation Period.--The fee for each of the fee-for-service 
ancillary services shall be calculated by the Secretary under this 
title at least once a year for each facility and ancillary service.

SEC. 611. REIMBURSEMENT OF SELECTED ANCILLARY SERVICES AND OTHER COSTS.

    (a) In General.--Reimbursement of selected ancillary services and 
other costs identified in section 606(a)(4) of this title shall be 
reimbursed by the Secretary on a retrospective basis as pass-through 
costs, including overhead allocated through the cost-finding process.
    (b) Charge-Based Interim Rates.--The Secretary shall set charge-
based interim rates for selected ancillary services and other costs for 
each nursing facility providing such services. Any overpayments or 
underpayments resulting from the difference between the interim and 
final settlement rates shall be either refunded by the nursing facility 
or paid to the nursing facility following submission of a timely filed 
medicare cost report.

SEC. 612. PER DIEM PAYMENT FOR PROPERTY COSTS.

    (a) In General.--The Secretary shall make a per diem payment for 
property costs based on a gross rental system. The amount of the 
payment shall be determined as follows:
            (1) Building and fixed equipment value.--In the case of a 
        new facility in any geographic region, the cost for building 
        and fixed equipment used in determining the gross rental shall 
        be equivalent to the median cost of home construction in the 
        region (as measured by RS Means). Such cost shall then be 
        multiplied by the factor 1.2 to account for land and the value 
        of movable equipment. The resulting value shall be indexed each 
        year using the RS Means Construction Cost Index.
            (2) Age.--
                    (A) In general.--The gross rental system 
                establishes a facility's value based on its age. The 
                older the facility, the less its value. Additions, 
                replacements, and renovations shall be recognized by 
                lowering the age of the facility and, thus, increasing 
                the facility's value. Existing facilities, 1 year or 
                older, shall be valued at the new bed value less 2 
                percent per year according to the ``age'' of the 
                facility. Facilities shall not be depreciated to an 
                amount less than 50 percent of the new construction bed 
                value.
                    (B) Addition of beds.--The addition of beds shall 
                require a computation by the Secretary of the weighted 
                average age of the facility based on the construction 
                dates of the original facility and the additions.
                    (C) Replacement of beds.--The replacement of 
                existing beds shall result in an adjustment to the age 
                of the facility. A weighted average age shall be 
                calculated by the Secretary according to the year of 
                initial construction and the year of bed replacement. 
                If a facility has a series of additions or 
                replacements, the Secretary shall assume that the 
                oldest beds are the ones being replaced when computing 
                the average facility age.
                    (D) Renovations or major improvements.--Renovations 
                or major improvements shall be calculated by the 
                Secretary as a bed replacement, except that the value 
                of the bed prior to renovation shall be taken into 
                consideration. To qualify as a bed replacement, the bed 
                being renovated must be at least 10 years old and the 
                renovation or improvements cost must be equal to or 
                greater than the difference between the existing bed 
                value and the value of a new bed. To determine the new 
                adjusted facility age, the number of renovated beds 
                assigned a ``new'' age is determined by dividing the 
                total cost of renovation by the difference between the 
                existing bed value and the value of the new bed.
                    (E) Startup of gross rental system.--To start up 
                the fair rental system, each facility's bed values 
                shall be determined by the Secretary based on the age 
                of the facility. The determination shall include 
                setting a value for the original beds with adjustments 
                for any additions, bed replacements, and major 
                renovations. For determination of bed values for use in 
                determining the initial rate, the procedures described 
                above for determining the values of original beds, 
                additions, and replacements shall be used.
            (3) Total current value.--The Secretary shall multiply the 
        per bed value by the number of beds in the facility to estimate 
        the facility's total current value.
            (4) Rental factor.--The Secretary shall apply a rental 
        factor to the facility's total current value to estimate its 
        annual gross rental value. The Secretary shall determine the 
        rental factor by using the Treasury Bond Composite Yield 
        (greater than 10 years) as published in the Federal Reserve 
        Bulletin plus a risk premium. A risk premium in the amount of 3 
        percentage points shall be added to the Treasury Yield. The 
        rental factor is multiplied by the facility's total value, as 
        determined in paragraph (3), to determine the annual gross 
        rental value.
            (5) Per diem property payment.--The annual gross rental 
        value shall be divided by the Secretary by 90 percent of the 
        facility's annual licensed bed days during the cost report 
        period to arrive at the per diem property payment.
            (6) Per resident day rental rate.--The per resident day 
        rental rate for a newly constructed facility during its first 
        year of operation shall be based on the total annual rental 
        divided by the greater of 50 percent of available resident days 
        or actual annualized resident days up to 90 percent of annual 
        licensed bed days during the first year of operation.
    (b) Facilities in operation prior to the effective date of this Act 
shall receive the per resident day rental or actual costs, as 
determined in accordance with HCFA-Pub. 15, whichever is greater, 
except that a nursing facility shall be reimbursed the per resident day 
rental on and after the earliest of the following dates:
            (1) the date upon which the nursing facility changes 
        ownership;
            (2) the date the nursing facility accepts the per resident 
        day rental; or
            (3) the date of the renegotiation of the lease for the land 
        or buildings, not including the exercise of optional extensions 
        specifically included in the original lease agreement or valid 
        extensions thereof.

SEC. 613. MID-YEAR RATE ADJUSTMENTS.

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

SEC. 614. EXCEPTION TO PAYMENT METHODS FOR NEW AND LOW VOLUME NURSING 
              FACILITIES.

    (a) Definition of Low Volume Nursing Facility.--In this title, the 
term ``low volume nursing facility'' means a nursing facility having 
fewer than 2,500 medicare part A resident days per year.
    (b) Definition of New Nursing Facility.--In this title, the term 
``new nursing facility'' means a newly constructed, licensed, and 
certified nursing facility or a nursing facility that is in its first 3 
years of operation as a provider of services under part A of the 
medicare program under title XVIII of the Social Security Act (42 
U.S.C. 1395 et seq.). A nursing facility that has operated for more 
than 3 years but has a change of ownership shall not constitute a new 
facility.
    (c) Option for Low Volume Nursing Facilities.--A Low volume nursing 
facility shall have the option of submitting a cost report to the 
Secretary to receive retrospective payment for all of the cost centers, 
other than the property cost center, or accepting a per diem rate which 
shall be based on the sum of--
            (1) the median indexed resident day facility unit value for 
        the appropriate geographic region for the nursing service cost 
        center during the base year as identified in section 608(b)(2) 
        of this title;
            (2) the median indexed resident day administrative and 
        general per diem costs of all nursing facilities in the 
        appropriate geographic region as identified in section 
        609(a)(5)(E) of this title;
            (3) the median indexed resident day costs per unit of 
        service for fee-for-service ancillary services obtained using 
        the cost information from the nursing facilities in the 
        appropriate geographic region during the base year, excluding 
        low volume and new nursing facilities, and based on an array of 
        such costs from lowest to highest; and
            (4) the median indexed resident day per diem costs for 
        selected ancillary services and other costs obtained using 
        information from the nursing facilities in the appropriate 
        geographic region during the base year, excluding low volume 
        and new nursing facilities, and based on an array of such costs 
        from lowest to highest.
    (d) Option for New Nursing Facilities.--New nursing facilities 
shall have the option of being paid by the Secretary on a retrospective 
cost pass-through basis for all costs centers, or in accordance with 
subsection (c).

SEC. 615. APPEAL PROCEDURES.

    (a) In General.--
            (1) Appeal.--Any person or legal entity aggrieved by a 
        decision of the Secretary under this title, and which results 
        in an amount in controversy of $10,000 or more, shall have the 
        right to appeal such decision directly to the Provider 
        Reimbursement Review Board (in this section referred to as 
        ``the Board'') authorized under section 1878 of the Social 
        Security Act (42 U.S.C. 1395oo).
            (2) Amount in controversy.--The $10,000 amount in 
        controversy referred to in paragraph (1) shall be computed in 
        accordance with 42 C.F.R. 405.1839.
    (b) Hearings.--Any appeals to and any hearings before the Board 
under this title shall follow the procedures under section 1878 of the 
Social Security Act (42 U.S.C. 1395oo) and the regulations contained in 
(42 C.F.R. 405.1841-1889), except to the extent that they conflict 
with, or are inapplicable on account of, any other provision of this 
title.

SEC. 616. TRANSITION PERIOD.

    The Prospective Payment System described in this title shall be 
phased in over a 3 year period using the following blended rate:
            (1) For the first year that the provisions of this title 
        are in effect, 25 percent of the payment rates will be based on 
        the Prospective Payment System under this title and 75 percent 
        will remain based upon reasonable cost reimbursement.
            (2) For the second year that the provisions of this title 
        are in effect, 50 percent of the payment rates will be based on 
        the Prospective Payment System under this title and 50 percent 
        based upon reasonable cost reimbursement.
            (3) For the third year that the provisions of this title 
        are in effect, 75 percent of the payment rates will be based on 
        the Prospective Payment System under this title and 25 percent 
        based upon reasonable cost reimbursement.
            (4) For the fourth year that the provisions of this title 
        are in effect and for all subsequent years, the payment rates 
        will be based solely on the Prospective Payment System under 
        this title.

SEC. 617. EFFECTIVE DATE; INCONSISTENT PROVISIONS.

    (a) Effective Date.--The provisions of this title shall take effect 
on October 1, 1998.
    (b) Inconsistent Provisions.--The provisions contained in this 
title shall supersede any other provisions of title XVIII or XIX of the 
Social Security Act (42 U.S.C. 1395 et seq. 1396 et seq.) which are 
inconsistent with such provisions.

                        TITLE VII--TELEMEDICINE

SEC. 701. INTERNET ACCESS FOR HEALTH CARE PROVIDERS FOR RURAL AREAS.

    (a) In General.--Paragraph (1) of section 254(h) of the 
Communications Act of 1934 (47 U.S.C. 254(h)) is amended by adding at 
the end the following:
                    ``(C) Internet access for health care providers for 
                rural areas.--In order to meet the objective of 
                providing health care services in rural areas, the 
                Commission shall adopt rules to require that 
                telecommunications carriers provide access to the 
                Internet or other interactive computer service which is 
                necessary for the provision of health care services 
                described in subparagraph (A) at rates as described in 
                that subparagraph. Such access shall include the 
                infrastructure and bandwidth necessary for the 
                provision of such services. In adopting such rules, the 
                Commission shall permit a telecommunications carrier to 
                reduce the amount of its contribution to the mechanism 
                to preserve and advance universal service by the 
                amount, if any, by which the rates for providing access 
                under this subparagraph are exceeded by the rates for 
                similar access provided to other customers in 
                comparable rural areas in the State concerned.''.
    (b) Definitions.--Paragraph (5) of such section is amended by 
adding at the end the following:
                    ``(D) Internet.--The term `Internet' has the 
                meaning given to it in section 230(e)(1).
                    ``(E) Interactive computer service.--The term 
                `interactive computer service' has the meaning given to 
                it in section 230(e)(2).''.
    (c) Conforming Amendment.--The subsection heading of such section 
is amended to read as follows:
    ``(h) Telecommunications Services and Internet Access for Certain 
Providers.--''.

SEC. 702. COMMISSION ON TELEMEDICINE.

    (a) Establishment of Commission.--
            (1) Establishment.--There is established a commission to be 
        known as the Commission on Telemedicine (in this section 
        referred to as the ``Commission'').
            (2) Membership.--
                    (A) Composition.--The Commission shall be composed 
                of 15 members of whom--
                            (i) 12 shall be appointed by the Secretary, 
                        subject to subparagraph (B); and
                            (ii) 3 shall be appointed by the Secretary 
                        from among employees within appropriate 
                        divisions of the Department of Health and Human 
                        Services.
                    (B) Prohibition.--The members of the Commission 
                appointed under subparagraph (A)(i) may not be 
                employees of the Federal Government.
                    (C) Date.--The appointments of the members of the 
                Commission shall be made not later than 90 days after 
                the date of enactment of this Act.
            (3) Period of appointment; vacancies.--Members shall be 
        appointed for the life of the Commission. Any vacancy in the 
        Commission shall not affect its powers, but shall be filled in 
        the same manner as the original appointment.
            (4) Initial meeting.--Not later than 30 days after the date 
        on which all members of the Commission have been appointed, the 
        Commission shall hold its first meeting.
            (5) Meetings.--The Commission shall meet at the call of the 
        Chairperson.
            (6) Quorum.--A majority of the members of the Commission 
        shall constitute a quorum, but a lesser number of members may 
        hold hearings.
            (7) Chairperson and vice chairperson.--The Commission shall 
        select a Chairperson and Vice Chairperson from among its 
        members.
    (b) Duties of the Commission.--
            (1) Study and recommendations.--The Commission shall 
        conduct a thorough study of and develop recommendations on all 
        matters relating to which telemedicine services should be 
        covered under the medicare program under title XVIII of the 
        Social Security Act (42 U.S.C. 1395 et seq.).
            (2) Report.--Not later than 1 year after the date of 
        enactment of this Act, the Commission shall submit a report to 
        the President and Congress containing a detailed statement of 
        the findings and conclusions of the Commission, together with 
        the Commission's recommendations for such legislation and 
        administrative actions as the Commission considers appropriate.
    (c) Powers of the Commission.--
            (1) Hearings.--The Commission may hold such hearings, sit 
        and act at such times and places, take such testimony, and 
        receive such evidence as the Commission considers advisable to 
        carry out the purposes of this section.
            (2) Information from federal agencies.--The Commission may 
        secure directly from any Federal department or agency such 
        information as the Commission considers necessary to carry out 
        the provisions of this section. Upon request of the Chairperson 
        of the Commission, the head of that department or agency shall 
        furnish that information to the Commission.
            (3) Postal services.--The Commission may use the United 
        States mails in the same manner and under the same conditions 
        as other departments and agencies of the Federal Government.
            (4) Gifts.--The Commission may accept, use, and dispose of 
        gifts or donations of services or property.
    (d) Commission Personnel Matters.--
            (1) Compensation.--Members of the Commission shall receive 
        no additional compensation by reason of their service on the 
        Commission.
            (2) Travel expenses.--The members of the Commission shall 
        be allowed travel expenses, including per diem in lieu of 
        subsistence, at rates authorized for employees of agencies 
        under subchapter I of chapter 57 of title 5, United States 
        Code, while away from their homes or regular places of business 
        in the performance of services for the Commission.
            (3) Staff.--
                    (A) In general.--The Chairperson of the Commission 
                may, without regard to the civil service laws and 
                regulations, appoint and terminate an executive 
                director and such other additional personnel as may be 
                necessary to enable the Commission to perform its 
                duties. The employment of an executive director shall 
                be subject to confirmation by the Commission.
                    (B) Compensation.--The Chairperson of the 
                Commission may fix the compensation of the executive 
                director and other personnel without regard to the 
                provisions of chapter 51 and subchapter III of chapter 
                53 of title 5, United States Code, relating to 
                classification of positions and General Schedule pay 
                rates, except that the rate of pay for the executive 
                director and other personnel may not exceed the rate 
                payable for level V of the Executive Schedule under 
                section 5316 of that title.
            (4) Detail of government employees.--Any Federal Government 
        employee may be detailed to the Commission without additional 
        reimbursement (other than the employees regular compensation), 
        and that detail shall be without interruption or loss of civil 
        service status or privilege.
            (5) Procurement of temporary and intermittent services.--
        The Chairperson of the Commission may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code, at rates for individuals which do not exceed the 
        daily equivalent of the annual rate of basic pay prescribed for 
        level V of the Executive Schedule under section 5316 of that 
        title.
    (e) Termination of the Commission.--The Commission shall terminate 
90 days after the date on which the Commission submits its report under 
subsection (b)(2).
    (f) Appropriations.--The Secretary shall provide to the Commission, 
out of funds otherwise available to the Secretary, such sums as are 
necessary to carry out the purposes of the Commission.
                                 <all>