[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 862 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 862

 To amend title XVIII of the Social Security Act to change the payment 
  system for health maintenance organizations and competitive medical 
                                 plans.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              June 9, 1997

  Mr. Grassley (for himself, Mr. Baucus, Mr. Jeffords, Mr. Hatch, Mr. 
    Kerrey, Mr. Thomas, Mr. Roberts, and Mr. Hagel) 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 change the payment 
  system for health maintenance organizations and competitive medical 
                                 plans.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medicare Equity and Choice 
Enhancement Act of 1997''.

SEC. 2. PAYMENTS TO HEALTH MAINTENANCE ORGANIZATIONS AND COMPETITIVE 
              MEDICAL PLANS.

    (a) 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 August 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) The annual per capita rate of payment for each individual 
enrolled under this section shall be equal to the adjusted capitation 
rate (as defined in paragraph (4)), after any adjustment described in 
paragraph (9), 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) in 1999 and any succeeding year, such risk factors 
        as health status, diagnoses, 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 the factors 
described in clause (ii), if such changes will improve the 
determination of actuarial equivalence.
    ``(C) In the case of an eligible organization with a risk-sharing 
contract, the Secretary shall make monthly payments--
            ``(i) in advance and in accordance with the rate determined 
        under subparagraph (B); and
            ``(ii) 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 which 
the individual enrolls with an eligible organization (which 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) for a year, 
the Secretary shall include an explanation of the assumptions 
(including any benefit coverage assumptions) and changes in methodology 
used in the announcement in sufficient detail so that 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 which 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 subsections (c)(2)(B)(ii) and (c)(7), payments 
under a contract to an eligible organization under paragraph (1) or (2) 
shall be instead of the amounts which (in the absence of the contract) 
would be otherwise payable, pursuant to sections 1814(b) and 1833(a), 
for services furnished by or through the organization to individuals 
enrolled with the organization under this section.
    ``(4)(A) For purposes of this section, the `adjusted capitation 
rate' for a medicare payment area (as defined in paragraph (5)) is 
equal to the greater 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 capitation rate 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 capitation rate 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, 85 percent of the input-
                price-adjusted national adjusted capitation rate for 
                the year, as determined under subparagraph (D); and
                    ``(II) 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.
    ``(B) For purposes of subparagraph (A)(i)--
            ``(i) for 1998, the `area-specific percentage' is 85 
        percent and the `national percentage' is 15 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 65 
        percent and the `national percentage' is 35 percent;
            ``(iv) for 2001, the `area-specific percentage' is 55 
        percent and the `national percentage' is 45 percent; and
            ``(v) for a year after 2001, the `area-specific percentage' 
        is 50 percent and the `national percentage' is 50 percent.
    ``(C) For purposes of subparagraph (A)(i), the area-specific 
adjusted capitation rate for a medicare payment area--
            ``(i) for 1998, is the average of the modified annual per 
        capita rates of payment for the area for 1995 through 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 
        capitation rate for the previous year determined under this 
        subparagraph for the area, increased by the national average 
        per capita growth percentage for such subsequent year.
    ``(D)(i) For purposes of clauses (i) and (ii) of subparagraph (A), 
the input-price-adjusted national adjusted capitation rate 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 capitation rate 
        (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 
capitation rate' for a year is equal to--
            ``(I) the sum (for all medicare payment areas) of the 
        product of (aa) the area-specific adjusted capitation rate for 
        that year for the area under subparagraph (C), and (bb) the 
        average number of standardized medicare beneficiaries residing 
        in that area in the year; divided by
            ``(II) the total average number of standardized 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 national average annual per capita 
                rate of payment for part A for 1997 to the total 
                average annual per capita rate of payment 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; and
            ``(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).
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 be greater than 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' is equal to the percentage growth in medicare fee-for-
service per capita expenditures, which the Secretary shall project for 
each year.
    ``(G) For purposes of subparagraph (C), the modified annual per 
capita rate of payment for any year is the annual per capita rate of 
payment for the area for such year determined--
            ``(1) adjusting the 1995 and 1996 rates of payment to 1997 
        dollars; and
            ``(2) without regard to any additional payment by reason of 
        section 1886(d)(5)(B), section 1886(d)(5)(F), or section 
        1886(h).
    ``(5)(A) In this section, except as provided in subparagraph (C), 
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 specified by 
the Secretary.
    ``(C)(i) Upon written request of the Chief Executive Officer of a 
State for a contract year (beginning after 1998) made at least 7 months 
before the beginning of the year, the Secretary shall adjust the system 
under which medicare payment areas in the State are otherwise 
determined under subparagraph (A) to a system which--
            ``(I) has a single statewide medicare payment area;
            ``(II) is a metropolitan based system described in clause 
        (iii); or
            ``(III) consolidates into a single medicare payment area 
        noncontiguous counties (or equivalent areas described in 
        subparagraph (A)) within a State.
Such adjustment shall be effective for payments for months beginning 
with January of the year following the year in which the request is 
received.
    ``(ii) In the case of a State requesting an adjustment under this 
subparagraph, the Secretary shall adjust the payment rates otherwise 
established under this section for medicare payment areas in the State 
in a manner so that the aggregate of the payments under this section in 
the State shall be equal to the aggregate payments that would have been 
made under this section for medicare payment areas in the State in the 
absence of the adjustment under this subparagraph.
    ``(iii) The metropolitan based system described in this clause is 
one in which--
            ``(I) all the portions of each metropolitan statistical 
        area in the State or in the case of a consolidated metropolitan 
        statistical area, all of the portions of each primary 
        metropolitan statistical area within the consolidated area 
        within the State, are treated as a single medicare payment 
        area; and
            ``(II) all areas in the State that do not fall within a 
        metropolitan statistical area are treated as a single medicare 
        payment area.
    ``(iv) In clause (iii), the terms `metropolitan statistical area', 
`consolidated metropolitan statistical area', and `primary metropolitan 
statistical area' mean any area designated as such by the Secretary of 
Commerce.
    ``(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 subsections (c)(2)(B)(ii) and (c)(7), 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.
    ``(8)(A) In addition to any other payments under the applicable 
sections (as defined in subparagraph (C)), the Secretary shall, for any 
fiscal year, make additional payments in an amount equal to the savings 
amount (as defined in subparagraph (D)).
    ``(B) In making the payments under subparagraph (A)--
            ``(i) the Secretary shall allocate the savings amount to 
        each of the applicable sections in the same proportion as 
        payments from such section bear to all such payments (without 
        regard to this paragraph); and
            ``(ii) the Secretary shall make the payments to 
        institutions on the basis of need, and for any savings amount 
        attributable to sections 1886(d)(5)(B) and 1886(h), by giving 
        special consideration to institutions that have a recent 
        history of training physicians who, within 2 years of such 
        training, practice in health professional shortage areas (as 
        defined in section 332(a)(1) of the Public Health Service Act).
    ``(C) In this paragraph, the term `applicable sections' means 
sections 1886(d)(5)(B), 1886(d)(5)(F), and 1886(h).
    ``(D) In this paragraph, the term `savings amount' means, for any 
fiscal year, an amount equal to--
            ``(i) the excess of the premiums that would have been paid 
        to all eligible organizations except for the adjustments made 
        under paragraph (1)(G)(2); over
            ``(ii) the total premiums paid to such organizations.
    ``(9)(A) The Secretary shall, to the extent the Secretary 
determines necessary, make annual differential adjustments to the 
adjusted capitation rate (determined under paragraph (4)) to reflect 
the differences in the applicable risk factors of beneficiaries under 
this title in a medicare payment area relative to such factors of such 
beneficiaries in all other medicare payment areas.
    ``(B) In subparagraph (B), the term `applicable risk factors' means 
such risk factors as age, disability status, gender, institutional 
status, and such other factors as the Secretary determines to be 
appropriate so as to ensure actuarial equivalence. The Secretary may 
add to, modify, or substitute for such factors, if such changes will 
improve the determination of actuarial equivalence.''.
    (b) Requirement to Contract.--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 disclose to the Secretary, 
as requested by the Secretary, the information that the Secretary 
determines is necessary to enable the Secretary to adjust the adjusted 
capitated rate under subsection (a)(1)(B).''.
    (c) Information collection.--Immediately upon enactment of this 
Act, the Secretary of Health and Human Services shall begin to collect, 
from eligible organizations under section 1876 of the Social Security 
Act (42 U.S.C. 1395mm) and other relevant sources, the information the 
Secretary determines is necessary to enable the Secretary to the adjust 
the adjusted capitated rate under subsection (a)(1)(B) of such section 
(42 U.S.C. 1395mm(a)(1)(B)).
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to contracts entered into under section 1876 of the Social 
Security Act (42 U.S.C. 1395mm) on and after the date of enactment of 
this Act.

SEC. 3. MANAGED CARE COMPETITIVE PRICING DEMONSTRATION PROJECTS.

    (a) Demonstration Projects.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as 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--
                            (i) the 5 medicare payment areas with the 
                        highest adjusted capitation rates in 1998; and
                            (ii) any other medicare payment area that 
                        the Secretary determines to be appropriate for 
                        conducting a demonstration project under this 
                        section.
                    (B) Medicare payment area; adjusted capitation 
                rate.--In subparagraph (A), the terms ``medicare 
                payment area'' and ``adjusted capitation rate'' have 
                the meaning given those terms in section 1876(a) of the 
                Social Security Act (42 U.S.C. 1395mm(a)), as amended 
                by section 2 of this Act.
    (b) Report to Congress.--
            (1) In general.--Not later than December 31, 2001, the 
        Secretary shall submit to Congress a report regarding the 
        demonstration projects conducted under subsection (a).
            (2) Contents of report.--The report described in paragraph 
        (1) shall include the following:
                    (A) A description of the demonstration projects 
                conducted pursuant to subsection (a).
                    (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 pursuant to 
                subsection (a).
                    (C) Any other information regarding the 
                demonstration projects conducted pursuant to subsection 
                (a) that the Secretary determines would assist Congress 
                in revising the payment methodology for eligible 
                organizations with risk-sharing contracts under section 
                1876 of the Social Security Act (42 U.S.C. 1395mm).
    (c) Waiver of Medicare Requirements.--The Secretary shall waive 
compliance with the requirements of titles XI, XVIII, or XIX of the 
Social Security Act (42 U.S.C. 1301 et seq.; 1395 et seq.; 1396 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. 4. REMOVAL OF 50/50 REQUIREMENT FOR HEALTH MAINTENANCE 
              ORGANIZATIONS AND COMPETITIVE MEDICAL PLANS.

    (a) In General.--Section 1876 of the Social Security Act (42 U.S.C. 
1395mm) is amended by striking subparagraph (f).
    (b) Conforming Amendments.--Section 1876 of the Social Security Act 
(42 U.S.C. 1395mm) is amended--
            (1) in subsection (c)(3)(A)(i), by striking ``would result 
        in failure to meet the requirements of subsection (f) or''; and
            (2) in subsection (i)(1)(C), by striking ``(e), and (f)'' 
        and inserting ``and (e)''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to contracts entered into with the Secretary of Health and 
Human Services under section 1876 of the Social Security Act (42 U.S.C. 
1395mm) on and after the date of enactment of this Act.

SEC. 5. STUDY AND REPORT TO CONGRESS REGARDING CHANGES IN PAYMENTS TO 
              HEALTH MAINTENANCE ORGANIZATIONS AND COMPETITIVE MEDICAL 
              PLANS.

    (a) Study.--The Secretary of Health and Human Services shall 
conduct a thorough study regarding the implementation and effects of 
the amendments to section 1876 of the Social Security Act (42 U.S.C. 
1395mm) made by this Act.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, and annually thereafter, the Secretary of Health and Human 
Services shall submit a report to Congress that contains a detailed 
statement of the findings and conclusions of the Secretary regarding 
the study conducted pursuant to subsection (a), together with the 
Secretary's recommendations for such legislation and administrative 
actions as the Secretary considers appropriate.
    (c) PPRC.--In addition to any other duties required by law, the 
Physician Payment Review Commission established under section 1845 of 
the Social Security Act (42 U.S.C. 1395w-1) shall--
            (1) comment on the Secretary of Health and Human Service's 
        annual report described in subsection (b); and
            (2) include such comment in the Commission's annual report 
        to Congress.
                                 <all>