[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 879 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 879

 To provide for home and community-based services for individuals with 
                 disabilities, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 11, 1997

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

_______________________________________________________________________

                                 A BILL


 
 To provide for home and community-based services for individuals with 
                 disabilities, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Long-Term Care 
Reform and Deficit Reduction Act of 1997''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
    TITLE I--HOME AND COMMUNITY-BASED SERVICES FOR INDIVIDUALS WITH 
                              DISABILITIES

Sec. 101. State programs for home and community-based services for 
                            individuals with disabilities.
Sec. 102. State plans.
Sec. 103. Individuals with disabilities defined.
Sec. 104. Home and community-based services covered under State plan.
Sec. 105. Cost sharing.
Sec. 106. Quality assurance and safeguards.
Sec. 107. Advisory groups.
Sec. 108. Payments to States.
Sec. 109. Appropriations; allotments to States.
Sec. 110. Federal evaluations.
Sec. 111. Information and technical assistance grants relating to 
                            development of hospital linkage programs.
      TITLE II--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

Sec. 201. Definitions.
Sec. 202. Payment objectives.
Sec. 203. Powers and duties of the Secretary.
Sec. 204. Relationship to title XVIII of the Social Security Act.
Sec. 205. Establishment of resident classification system.
Sec. 206. Cost centers for nursing facility payment.
Sec. 207. Resident assessment.
Sec. 208. The per diem rate for nursing service costs.
Sec. 209. The per diem rate for administrative and general costs.
Sec. 210. Payment for fee-for-service ancillary services.
Sec. 211. Reimbursement of selected ancillary services and other costs.
Sec. 212. Per diem payment for property costs.
Sec. 213. Mid-year rate adjustments.
Sec. 214. Exception to payment methods for new and low volume nursing 
                            facilities.
Sec. 215. Appeal procedures.
Sec. 216. Transition period.
Sec. 217. Effective date; inconsistent provisions.
               TITLE III--ADDITIONAL MEDICARE PROVISIONS

Sec. 301. Elimination of formula-driven overpayments for certain 
                            outpatient hospital services.
Sec. 302. Permanent extension of certain secondary payer provisions.
Sec. 303. Financing and quality modernization and reform.

    TITLE I--HOME AND COMMUNITY-BASED SERVICES FOR INDIVIDUALS WITH 
                              DISABILITIES

SEC. 101. STATE PROGRAMS FOR HOME AND COMMUNITY-BASED SERVICES FOR 
              INDIVIDUALS WITH DISABILITIES.

    (a) In General.--Each State that has a plan for home and community-
based services for individuals with disabilities submitted to and 
approved by the Secretary under section 102(b) may receive payment in 
accordance with section 108.
    (b) Entitlement to Services.--Nothing in this title shall be 
construed to create a right to services for individuals or a 
requirement that a State with an approved plan expend the entire amount 
of funds to which it is entitled under this title.
    (c) Designation of Agency.--Not later than 6 months after the date 
of enactment of this Act, the Secretary shall designate an agency 
responsible for program administration under this title.

SEC. 102. STATE PLANS.

    (a) Plan Requirements.--In order to be approved under subsection 
(b), a State plan for home and community-based services for individuals 
with disabilities must meet the following requirements:
            (1) State maintenance of effort.--
                    (A) In general.--A State plan under this title 
                shall provide that the State will, during any fiscal 
                year that the State is furnishing services under this 
                title, make expenditures of State funds in an amount 
                equal to the State maintenance of effort amount for the 
                year determined under subparagraph (B) for furnishing 
                the services described in subparagraph (C) under the 
                State plan under this title or under the State plan 
                under title XIX of the Social Security Act (42 U.S.C. 
                1396 et seq.).
                    (B) State maintenance of effort amount.--
                            (i) In general.--The maintenance of effort 
                        amount for a State for a fiscal year is an 
                        amount equal to--
                                    (I) for fiscal year 1999, the base 
                                amount for the State (as determined 
                                under clause (ii)) updated through the 
                                midpoint of fiscal year 1999 by the 
                                estimated percentage change in the 
                                index described in clause (iii) during 
                                the period beginning on October 1, 
                                1997, and ending at that midpoint; and
                                    (II) for succeeding fiscal years, 
                                an amount equal to the amount 
                                determined under this clause for the 
                                previous fiscal year updated through 
                                the midpoint of the year by the 
                                estimated percentage change in the 
                                index described in clause (iii) during 
                                the 12-month period ending at that 
                                midpoint, with appropriate adjustments 
                                to reflect previous underestimations or 
                                overestimations under this clause in 
                                the projected percentage change in such 
                                index.
                            (ii) State base amount.--The base amount 
                        for a State is an amount equal to the total 
                        expenditures from State funds made under the 
                        State plan under title XIX of the Social 
                        Security Act (42 U.S.C. 1396 et seq.) during 
                        fiscal year 1997 with respect to medical 
                        assistance consisting of the services described 
                        in subparagraph (C).
                            (iii) Index described.--For purposes of 
                        clause (i), the Secretary shall develop an 
                        index that reflects the projected increases in 
                        spending for services under subparagraph (C), 
                        adjusted for differences among the States.
                    (C) Medicaid services described.--The services 
                described in this subparagraph are the following:
                            (i) Personal care services (as described in 
                        section 1905(a)(24) of the Social Security Act 
                        (42 U.S.C. 1396d(a)(24))).
                            (ii) Home or community-based services 
                        furnished under a waiver granted under 
                        subsection (c), (d), or (e) of section 1915 of 
                        such Act (42 U.S.C. 1396n).
                            (iii) Home and community care furnished to 
                        functionally disabled elderly individuals under 
                        section 1929 of such Act (42 U.S.C. 1396t).
                            (iv) Community supported living 
                        arrangements services under section 1930 of 
                        such Act (42 U.S.C. 1396u).
                            (v) Services furnished in a hospital, 
                        nursing facility, intermediate care facility 
                        for the mentally retarded, or other 
                        institutional setting specified by the 
                        Secretary.
            (2) Eligibility.--
                    (A) In general.--Within the amounts provided by the 
                State and under section 108 for such plan, the plan 
                shall provide that services under the plan will be 
                available to individuals with disabilities (as defined 
                in section 103(a)) in the State.
                    (B) Initial screening.--The plan shall provide a 
                process for the initial screening of an individual who 
                appears to have some reasonable likelihood of being an 
                individual with disabilities. Any such process shall 
                require the provision of assistance to individuals who 
                wish to apply but whose disability limits their ability 
                to apply. The initial screening and the determination 
                of disability (as defined under section 103(b)(1)) 
                shall be conducted by a public agency.
                    (C) Restrictions.--
                            (i) In general.--The plan may not limit the 
                        eligibility of individuals with disabilities 
                        based on--
                                    (I) income;
                                    (II) age;
                                    (III) residential setting (other 
                                than with respect to an institutional 
                                setting, in accordance with clause 
                                (ii)); or
                                    (IV) other grounds specified by the 
                                Secretary;
                        except that through fiscal year 2007, the 
                        Secretary may permit a State to limit 
                        eligibility based on level of disability or 
                        geography (if the State ensures a balance 
                        between urban and rural areas).
                            (ii) Institutional setting.--The plan may 
                        limit the eligibility of individuals with 
                        disabilities based on the definition of the 
                        term ``institutional setting'', as determined 
                        by the State.
                    (D) Continuation of services.--The plan must 
                provide assurances that, in the case of an individual 
                receiving medical assistance for home and community-
                based services under the State medicaid plan under 
                title XIX of the Social Security Act (42 U.S.C. 1396 et 
                seq.) as of the date a State's plan is approved under 
                this title, the State will continue to make available 
                (either under this plan, under the State medicaid plan, 
                or otherwise) to such individual an appropriate level 
                of assistance for home and community-based services, 
                taking into account the level of assistance provided as 
                of such date and the individual's need for home and 
                community-based services.
            (3) Services.--
                    (A) Needs assessment.--Not later than the end of 
                the second year of implementation, the plan or its 
                amendments shall include the results of a statewide 
                assessment of the needs of individuals with 
                disabilities in a format required by the Secretary. The 
                needs assessment shall include demographic data 
                concerning the number of individuals within each 
                category of disability described in this title, and the 
                services available to meet the needs of such 
                individuals.
                    (B) Specification.--Consistent with section 104, 
                the plan shall specify--
                            (i) the services made available under the 
                        plan;
                            (ii) the extent and manner in which such 
                        services are allocated and made available to 
                        individuals with disabilities; and
                            (iii) the manner in which services under 
                        the plan are coordinated with each other and 
                        with health and long-term care services 
                        available outside the plan for individuals with 
                        disabilities.
                    (C) Taking into account informal care.--A State 
                plan may take into account, in determining the amount 
                and array of services made available to covered 
                individuals with disabilities, the availability of 
                informal care. Any individual plan of care developed 
                under section 104(b)(1)(B) that includes informal care 
                shall be required to verify the availability of such 
                care.
                    (D) Allocation.--The State plan--
                            (i) shall specify how services under the 
                        plan will be allocated among covered 
                        individuals with disabilities;
                            (ii) shall attempt to meet the needs of 
                        individuals with a variety of disabilities 
                        within the limits of available funding;
                            (iii) shall include services that assist 
                        all categories of individuals with 
                        disabilities, regardless of their age or the 
                        nature of their disabling conditions;
                            (iv) shall demonstrate that services are 
                        allocated equitably, in accordance with the 
                        needs assessment required under subparagraph 
                        (A); and
                            (v) shall ensure that--
                                    (I) the proportion of the 
                                population of low-income individuals 
                                with disabilities in the State that 
                                represents individuals with 
                                disabilities who are provided home and 
                                community-based services either under 
                                the plan, under the State medicaid 
                                plan, or under both, is not less than
                                    (II) the proportion of the 
                                population of the State that represents 
                                individuals who are low-income 
                                individuals.
                    (E) Limitation on licensure or certification.--The 
                State may not subject consumer-directed providers of 
                personal assistance services to licensure, 
                certification, or other requirements that the Secretary 
                finds not to be necessary for the health and safety of 
                individuals with disabilities.
                    (F) Consumer choice.--To the extent feasible, the 
                State shall follow the choice of an individual with 
                disabilities (or that individual's designated 
                representative who may be a family member) regarding 
                which covered services to receive and the providers who 
                will provide such services.
            (4) Cost sharing.--The plan may impose cost sharing with 
        respect to covered services in accordance with section 105.
            (5) Types of providers and requirements for 
        participation.--The plan shall specify--
                    (A) the types of service providers eligible to 
                participate in the program under the plan, which shall 
                include consumer-directed providers of personal 
                assistance services, except that the plan--
                            (i) may not limit benefits to services 
                        provided by registered nurses or licensed 
                        practical nurses; and
                            (ii) may not limit benefits to services 
                        provided by agencies or providers certified 
                        under title XVIII of the Social Security Act 
                        (42 U.S.C. 1395 et seq.); and
                    (B) any requirements for participation applicable 
                to each type of service provider.
            (6) Provider reimbursement.--
                    (A) Payment methods.--The plan shall specify the 
                payment methods to be used to reimburse providers for 
                services furnished under the plan. Such methods may 
                include retrospective reimbursement on a fee-for-
                service basis, prepayment on a capitation basis, 
                payment by cash or vouchers to individuals with 
                disabilities, or any combination of these methods. In 
                the case of payment to consumer-directed providers of 
                personal assistance services, including payment through 
                the use of cash or vouchers, the plan shall specify how 
                the plan will assure compliance with applicable 
                employment tax and health care coverage provisions.
                    (B) Payment rates.--The plan shall specify the 
                methods and criteria to be used to set payment rates 
                for--
                            (i) agency administered services furnished 
                        under the plan; and
                            (ii) consumer-directed personal assistance 
                        services furnished under the plan, including 
                        cash payments or vouchers to individuals with 
                        disabilities, except that such payments shall 
                        be adequate to cover amounts required under 
                        applicable employment tax and health care 
                        coverage provisions.
                    (C) Plan payment as payment in full.--The plan 
                shall restrict payment under the plan for covered 
                services to those providers that agree to accept the 
                payment under the plan (at the rates established 
                pursuant to subparagraph (B)) and any cost sharing 
                permitted under section 105 as payment in full for 
                services furnished under the plan.
            (7) Quality assurance and safeguards.--The State plan shall 
        provide for quality assurance and safeguards for applicants and 
        beneficiaries in accordance with section 106.
            (8) Advisory group.--The State plan shall--
                    (A) assure the establishment and maintenance of an 
                advisory group in accordance with section 107(b); and
                    (B) include the documentation prepared by the group 
                under section 107(b)(4).
            (9) Administration and access.--
                    (A) State agency.--The plan shall designate a State 
                agency or agencies to administer (or to supervise the 
                administration of) the plan.
                    (B) Coordination.--The plan shall specify how it 
                will--
                            (i) coordinate services provided under the 
                        plan, including eligibility prescreening, 
                        service coordination, and referrals for 
                        individuals with disabilities who are 
                        ineligible for services under this title with 
                        the State medicaid plan under title XIX of the 
                        Social Security Act (42 U.S.C. 1396 et seq.), 
                        titles V and XX of such Act (42 U.S.C. 701 et 
                        seq. and 1397 et seq.), programs under the 
                        Older Americans Act of 1965 (42 U.S.C. 3001 et 
                        seq.), programs under the Developmental 
                        Disabilities Assistance and Bill of Rights Act 
                        (42 U.S.C. 6000 et seq.), programs under the 
                        Individuals with Disabilities Education Act (20 
                        U.S.C. 1400 et seq.), and any other Federal or 
                        State programs that provide services or 
                        assistance targeted to individuals with 
                        disabilities; and
                            (ii) coordinate with health plans.
                    (C) Administrative expenditures.--Effective 
                beginning with fiscal year 2007, the plan shall contain 
                assurances that not more than 10 percent of 
                expenditures under the plan for all quarters in any 
                fiscal year shall be for administrative costs.
                    (D) Information and assistance.--The plan shall 
                provide for a single point of access to apply for 
                services under the State program for individuals with 
                disabilities. Notwithstanding the preceding sentence, 
                the plan may designate separate points of access to the 
                State program for individuals under 22 years of age, 
                for individuals 65 years of age or older, or for other 
                appropriate classes of individuals.
            (10) Reports and information to secretary; audits.--The 
        plan shall provide that the State will furnish to the 
        Secretary--
                    (A) such reports, and will cooperate with such 
                audits, as the Secretary determines are needed 
                concerning the State's administration of its plan under 
                this title, including the processing of claims under 
                the plan; and
                    (B) such data and information as the Secretary may 
                require in a uniform format as specified by the 
                Secretary.
            (11) Use of state funds for matching.--The plan shall 
        provide assurances that Federal funds will not be used to 
        provide for the State share of expenditures under this title.
            (12) Health care worker redeployment.--The plan shall 
        provide for the following:
                    (A) Before initiating the process of implementing 
                the State program under such plan, negotiations will be 
                commenced with labor unions representing the employees 
                of the affected hospitals or other facilities.
                    (B) Negotiations under subparagraph (A) will 
                address the following:
                            (i) The impact of the implementation of the 
                        program upon the workforce.
                            (ii) Methods to redeploy workers to 
                        positions in the proposed system, in the case 
                        of workers affected by the program.
                    (C) The plan will provide evidence that there has 
                been compliance with subparagraphs (A) and (B), 
                including a description of the results of the 
                negotiations.
            (13) Terminology.--The plan shall adhere to uniform 
        definitions of terms, as specified by the Secretary.
    (b) Approval of Plans.--The Secretary shall approve a plan 
submitted by a State if the Secretary determines that the plan--
            (1) was developed by the State after a public comment 
        period of not less than 30 days; and
            (2) meets the requirements of subsection (a).
The approval of such a plan shall take effect as of the first day of 
the first fiscal year beginning after the date of such approval (except 
that any approval made before October 1, 1998, shall be effective as of 
such date). In order to budget funds allotted under this title, the 
Secretary shall establish a deadline for the submission of such a plan 
before the beginning of a fiscal year as a condition of its approval 
effective with that fiscal year. Any significant changes to the State 
plan shall be submitted to the Secretary in the form of plan amendments 
and shall be subject to approval by the Secretary.
    (c) Monitoring.--The Secretary shall annually monitor the 
compliance of State plans with the requirements of this title according 
to specified performance standards. In accordance with section 108(e), 
States that fail to comply with such requirements may be subject to a 
reduction in the Federal matching rates available to the State under 
section 108(a) or the withholding of Federal funds for services or 
administration until such time as compliance is achieved.
    (d) Technical Assistance.--The Secretary shall ensure the 
availability of ongoing technical assistance to States under this 
section. Such assistance shall include serving as a clearinghouse for 
information regarding successful practices in providing long-term care 
services.
    (e) Regulations.--The Secretary shall issue such regulations as may 
be appropriate to carry out this title on a timely basis.

SEC. 103. INDIVIDUALS WITH DISABILITIES DEFINED.

    (a) In General.--For purposes of this title, the term ``individual 
with disabilities'' means any individual within 1 or more of the 
following categories:
            (1) Individuals requiring help with activities of daily 
        living.--An individual of any age who--
                    (A) requires hands-on or standby assistance, 
                supervision, or cueing (as defined in regulations) to 
                perform 3 or more activities of daily living (as 
                defined in subsection (d)); and
                    (B) is expected to require such assistance, 
                supervision, or cueing for a chronic condition that 
                will last at least 180 days.
            (2) Individuals who require supervision due to cognitive or 
        other mental impairments.--An individual of any age--
                    (A) who requires supervision to protect himself or 
                herself from threats to health or safety due to 
                impaired judgment, or who requires supervision due to 
                symptoms of 1 or more serious behavioral problems (that 
                is on a list of such problems specified by the 
                Secretary); and
                    (B) who is expected to require such supervision for 
                a chronic condition that will last at least 180 days.
        Not later than 2 years after the date of enactment of this Act, 
        the Secretary shall make recommendations regarding the most 
        appropriate duration of disability under this paragraph.
            (3) Individuals with severe or profound mental 
        retardation.--An individual of any age who has severe or 
        profound mental retardation (as determined according to a 
        protocol specified by the Secretary).
            (4) Individuals with medical management needs.--An 
        individual of any age who due to a physical cognitive or other 
        mental impairment requires assistance to manage his or her 
        medical or nursing care (as determined by the Secretary).
            (5) Young children with severe disabilities.--An individual 
        under 6 years of age who--
                    (A) has a severe disability or chronic medical 
                condition that limits functioning in a manner that is 
                comparable in severity to the standards established 
                under paragraphs (1), (2), or (3); and
                    (B) is expected to have such a disability or 
                condition for at least 180 days.
        The Secretary shall elaborate the criteria for children under 6 
        years of age based on an analysis of Phase I (1994) and II 
        (1996) of the National Disability Survey.
            (6) State option with respect to individuals with 
        comparable disabilities.--Not more than 5 percent of a State's 
        allotment for services under this title may be expended for the 
        provision of services to individuals with severe disabilities 
        and long-term medical or nursing needs that are comparable in 
        severity to the criteria described in paragraphs (1) through 
        (5), but who fail to meet the criteria in any single category 
        under such paragraphs.
    (b) Determination.--
            (1) In general.--In formulating eligibility criteria under 
        subsection (a), the Secretary shall establish criteria for 
        assessing the functional level of disability among all 
        categories of individuals with disabilities that are comparable 
        in severity, regardless of the age or the nature of the 
        disabling condition of the individual. The determination of 
        whether an individual is an individual with disabilities shall 
        be made by a public or nonprofit agency that is specified under 
        the State plan and that is not a provider of home and 
        community-based services under this title and by using a 
        uniform protocol consisting of an initial screening and a 
        determination of disability specified by the Secretary. A State 
        may not impose cost sharing with respect to a determination of 
        disability. A State may collect additional information, at the 
        time of obtaining information to make such determination, in 
        order to provide for the assessment and plan described in 
        section 104(b) or for other purposes.
            (2) Periodic reassessment.--The determination that an 
        individual is an individual with disabilities shall be 
        considered to be effective under the State plan for a period of 
        not more than 6 months (or for such longer period in such cases 
        as a significant change in an individual's condition that may 
        affect such determination is unlikely). A reassessment shall be 
        made if there is a significant change in an individual's 
        condition that may affect such determination.
    (c) Eligibility Criteria.--The Secretary shall reassess the 
validity of the eligibility criteria described in subsection (a) as new 
knowledge regarding the assessments of functional disabilities becomes 
available. The Secretary shall report to the Congress on its findings 
under the preceding sentence as determined appropriate by the 
Secretary.
    (d) Activity of Daily Living Defined.--In this title, the term 
``activity of daily living'' means any of the following: eating, 
toileting, dressing, bathing, and transferring.
    (e) Individuals With Cognitive or Other Mental Impairments 
Defined.--In this title, the term ``individuals with cognitive or other 
mental impairments'' means an individual with Alzheimer's disease, 
dementia, autism, mental illness, mental retardation, congenital or 
acquired brain injury, or any other severe mental condition.

SEC. 104. HOME AND COMMUNITY-BASED SERVICES COVERED UNDER STATE PLAN.

    (a) Specification.--
            (1) In general.--Subject to the succeeding provisions of 
        this section, the State plan under this title shall specify--
                    (A) the home and community-based services available 
                under the plan to individuals with disabilities (or to 
                such categories of such individuals); and
                    (B) any limits with respect to such services.
            (2) Flexibility in meeting individual needs.--Subject to 
        subsection (e)(2), such services may be delivered in an 
        individual's home, a range of community residential 
        arrangements, or outside the home.
    (b) Requirement for Needs Assessment and Plan of Care.--
            (1) In general.--The State plan shall provide for home and 
        community-based services to an individual with disabilities 
        only if the following requirements are met:
                    (A) Comprehensive assessment.--
                            (i) In general.--A comprehensive assessment 
                        of an individual's need for home and community-
                        based services (regardless of whether all 
                        needed services are available under the plan) 
                        shall be made in accordance with a uniform, 
                        comprehensive assessment tool that shall be 
                        used by a State under this paragraph with the 
                        approval of the Secretary. The comprehensive 
                        assessment shall be made by a public or 
                        nonprofit agency that is specified under the 
                        State plan and that is not a provider of home 
                        and community-based services under this title.
                            (ii) Exception.--The State may elect to 
                        waive the provisions of clause (i) if--
                                    (I) with respect to any area of the 
                                State, the State has determined that 
                                there is an insufficient pool of 
                                entities willing to perform 
                                comprehensive assessments in such area 
                                due to a low population of individuals 
                                eligible for home and community-based 
                                services under this title residing in 
                                the area; and
                                    (II) the State plan specifies 
                                procedures that the State will 
                                implement in order to avoid conflicts 
                                of interest.
                    (B) Individualized plan of care.--
                            (i) In general.--An individualized plan of 
                        care based on the assessment made under 
                        subparagraph (A) shall be developed by a public 
                        or nonprofit agency that is specified under the 
                        State plan and that is not a provider of home 
                        and community-based services under this title, 
                        except that the State may elect to waive the 
                        provisions of this sentence if, with respect to 
                        any area of the State, the State has determined 
                        there is an insufficient pool of entities 
                        willing to develop individualized plans of care 
                        in such area due to a low population of 
                        individuals eligible for home and community-
                        based services under this title residing in the 
                        area, and the State plan specifies procedures 
                        that the State will implement in order to avoid 
                        conflicts of interest.
                            (ii) Requirements with respect to plan of 
                        care.--A plan of care under this subparagraph 
                        shall--
                                    (I) specify which services included 
                                under the individual plan will be 
                                provided under the State plan under 
                                this title;
                                    (II) identify (to the extent 
                                possible) how the individual will be 
                                provided any services specified under 
                                the plan of care and not provided under 
                                the State plan;
                                    (III) specify how the provision of 
                                services to the individual under the 
                                plan will be coordinated with the 
                                provision of other health care services 
                                to the individual; and
                                    (IV) be reviewed and updated every 
                                6 months (or more frequently if there 
                                is a change in the individual's 
                                condition).
                        The State shall make reasonable efforts to 
                        identify and arrange for services described in 
                        subclause (II). Nothing in this subsection 
                        shall be construed as requiring a State (under 
                        the State plan or otherwise) to provide all the 
                        services specified in such a plan.
                    (C) Involvement of individuals.--The individualized 
                plan of care under subparagraph (B) for an individual 
                with disabilities shall--
                            (i) be developed by qualified individuals 
                        (specified in subparagraph (B));
                            (ii) be developed and implemented in close 
                        consultation with the individual (or the 
                        individual's designated representative); and
                            (iii) be approved by the individual (or the 
                        individual's designated representative).
    (c) Requirement for Care Management.--
            (1) In general.--The State shall make available to each 
        category of individuals with disabilities care management 
        services that at a minimum include--
                    (A) arrangements for the provision of such 
                services; and
                    (B) monitoring of the delivery of services.
            (2) Care management services.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the care management services described in 
                paragraph (1) shall be provided by a public or private 
                entity that is not providing home and community-based 
                services under this title.
                    (B) Exception.--A person who provides home and 
                community-based services under this title may provide 
                care management services if--
                            (i) the State determines that there is an 
                        insufficient pool of entities willing to 
                        provide such services in an area due to a low 
                        population of individuals eligible for home and 
                        community-based services under this title 
                        residing in such area; and
                            (ii) the State plan specifies procedures 
                        that the State will implement in order to avoid 
                        conflicts of interest.
    (d) Mandatory Coverage of Personal Assistance Services.--The State 
plan shall include, in the array of services made available to each 
category of individuals with disabilities, both agency-administered and 
consumer-directed personal assistance services (as defined in 
subsection (h)).
    (e) Additional Services.--
            (1) Types of services.--Subject to subsection (f), services 
        available under a State plan under this title may include any 
        (or all) of the following:
                    (A) Homemaker and chore assistance.
                    (B) Home modifications.
                    (C) Respite services.
                    (D) Assistive technology devices, as defined in 
                section 3(2) of the Technology-Related Assistance for 
                Individuals With Disabilities Act of 1988 (29 U.S.C. 
                2202(2)).
                    (E) Adult day services.
                    (F) Habilitation and rehabilitation.
                    (G) Supported employment.
                    (H) Home health services.
                    (I) Transportation.
                    (J) Any other care or assistive services specified 
                by the State and approved by the Secretary that will 
                help individuals with disabilities to remain in their 
                homes and communities.
            (2) Criteria for selection of services.--The State electing 
        services under paragraph (1) shall specify in the State plan--
                    (A) the methods and standards used to select the 
                types, and the amount, duration, and scope, of services 
                to be covered under the plan and to be available to 
                each category of individuals with disabilities; and
                    (B) how the types, and the amount, duration, and 
                scope, of services specified, within the limits of 
                available funding, provide substantial assistance in 
                living independently to individuals within each of the 
                categories of individuals with disabilities.
    (f) Exclusions and Limitations.--A State plan may not provide for 
coverage of--
            (1) room and board;
            (2) services furnished in a hospital, nursing facility, 
        intermediate care facility for the mentally retarded, or other 
        institutional setting specified by the Secretary; or
            (3) items and services to the extent coverage is provided 
        for the individual under a health plan or the medicare program.
    (g) Payment for Services.--In order to pay for covered services, a 
State plan may provide for the use of--
            (1) vouchers;
            (2) cash payments directly to individuals with 
        disabilities;
            (3) capitation payments to health plans; and
            (4) payment to providers.
    (h) Personal Assistance Services.--
            (1) In general.--For purposes of this title, the term 
        ``personal assistance services'' means those services specified 
        under the State plan as personal assistance services and shall 
        include at least hands-on and standby assistance, supervision, 
        cueing with activities of daily living, and such instrumental 
        activities of daily living as deemed necessary or appropriate, 
        whether agency-administered or consumer-directed (as defined in 
        paragraph (2)). Such services shall include services that are 
        determined to be necessary to help all categories of 
        individuals with disabilities, regardless of the age of such 
        individuals or the nature of the disabling conditions of such 
        individuals.
            (2) Consumer-directed.--For purposes of this title:
                    (A) In general.--The term ``consumer-directed'' 
                means, with reference to personal assistance services 
                or the provider of such services, services that are 
                provided by an individual who is selected and managed 
                (and, at the option of the service recipient, trained) 
                by the individual receiving the services.
                    (B) State responsibilities.--A State plan shall 
                ensure that where services are provided in a consumer-
                directed manner, the State shall create or contract 
                with an entity, other than the consumer or the 
                individual provider, to--
                            (i) inform both recipients and providers of 
                        rights and responsibilities under all 
                        applicable Federal labor and tax law; and
                            (ii) assume responsibility for providing 
                        effective billing, payments for services, tax 
                        withholding, unemployment insurance, and 
                        workers' compensation coverage, and act as the 
                        employer of the home care provider.
                    (C) Right of consumers.--Notwithstanding the State 
                responsibilities described in subparagraph (B), service 
                recipients, and, where appropriate, their designated 
                representative, shall retain the right to independently 
                select, hire, terminate, and direct (including manage, 
                train, schedule, and verify services provided) the work 
                of a home care provider.
            (3) Agency administered.--For purposes of this title, the 
        term ``agency-administered'' means, with respect to such 
        services, services that are not consumer-directed.

SEC. 105. COST SHARING.

    (a) No Cost Sharing for Poorest.--
            (1) In general.--The State plan may not impose any cost 
        sharing for individuals with income (as determined under 
        subsection (d)) less than 150 percent of the official poverty 
        level applicable to a family of the size involved (referred to 
        in paragraph (2)).
            (2) Official poverty level.--For purposes of paragraph (1), 
        the term ``official poverty level applicable to a family of the 
        size involved'' means, for a family for a year, the official 
        poverty line (as defined by the Office of Management and 
        Budget, and revised annually in accordance with section 673(2) 
        of the Community Services Block Grant Act (42 U.S.C. 9902(2)) 
        applicable to a family of the size involved.
    (b) Sliding Scale for Remainder.--The State plan may impose cost 
sharing for individuals not described in subsection (a) in such form 
and manner as the State determines is appropriate.
    (c) Recommendation of the Secretary.--The Secretary shall make 
recommendations to the States as to how to reduce cost-sharing for 
individuals with extraordinary out-of-pocket costs for whom the 
imposition of cost-sharing could jeopardize their ability to take 
advantage of the services offered under this title. The Secretary shall 
establish a methodology for reducing the cost-sharing burden for 
individuals with exceptionally high out-of-pocket costs under this 
title.
    (d) Determination of Income for Purposes of Cost Sharing.--The 
State plan shall specify the process to be used to determine the income 
of an individual with disabilities for purposes of this section. Such 
standards shall include a uniform Federal definition of income and any 
allowable deductions from income.

SEC. 106. QUALITY ASSURANCE AND SAFEGUARDS.

    (a) Quality Assurance.--
            (1) In general.--The State plan shall specify how the State 
        will ensure and monitor the quality of services, including--
                    (A) safeguarding the health and safety of 
                individuals with disabilities;
                    (B) setting the minimum standards for agency 
                providers and how such standards will be enforced;
                    (C) setting the minimum competency requirements for 
                agency provider employees who provide direct services 
                under this title and how the competency of such 
                employees will be enforced;
                    (D) obtaining meaningful consumer input, including 
                consumer surveys that measure the extent to which 
                participants receive the services described in the plan 
                of care and participant satisfaction with such 
                services;
                    (E) establishing a process to receive, investigate, 
                and resolve allegations of neglect or abuse;
                    (F) establishing optional training programs for 
                individuals with disabilities in the use and direction 
                of consumer directed providers of personal assistance 
                services;
                    (G) establishing an appeals procedure for 
                eligibility denials and a grievance procedure for 
                disagreements with the terms of an individualized plan 
                of care;
                    (H) providing for participation in quality 
                assurance activities; and
                    (I) specifying the role of the Long-Term Care 
                Ombudsman (under the Older Americans Act of 1965 (42 
                U.S.C. 3001 et seq.)) and the protection and advocacy 
                system (established under section 142 of the 
                Developmental Disabilities Assistance and Bill of 
                Rights Act (42 U.S.C. 6042)) in assuring quality of 
                services and protecting the rights of individuals with 
                disabilities.
            (2) Issuance of regulations.--Not later than 1 year after 
        the date of enactment of this Act, the Secretary shall issue 
        regulations implementing the quality provisions of this 
        subsection.
    (b) Federal Standards.--The State plan shall adhere to Federal 
quality standards in the following areas:
            (1) Case review of a specified sample of client records.
            (2) The mandatory reporting of abuse, neglect, or 
        exploitation.
            (3) The development of a registry of provider agencies or 
        home care workers and consumer directed providers of personal 
        assistance services against whom any complaints have been 
        sustained, which shall be available to the public.
            (4) Sanctions to be imposed on States or providers, 
        including disqualification from the program, if minimum 
        standards are not met.
            (5) Surveys of client satisfaction.
            (6) State optional training programs for informal 
        caregivers.
    (c) Client Advocacy.--
            (1) In general.--The State plan shall provide that the 
        State will expend the amount allocated under section 109(b)(2) 
        for client advocacy activities. The State may use such funds to 
        augment the budgets of the Long-Term Care Ombudsman (under the 
        Older Americans Act of 1965 (42 U.S.C. 3001 et seq.) and the 
        protection and advocacy system (established under section 142 
        of the Developmental Disabilities Assistance and Bill of Rights 
        Act (42 U.S.C. 6042)) or may establish a separate and 
        independent client advocacy office in accordance with paragraph 
        (2) to administer a new program designed to advocate for client 
        rights.
            (2) Client advocacy office.--
                    (A) In general.--A client advocacy office 
                established under this paragraph shall--
                            (i) identify, investigate, and resolve 
                        complaints that--
                                    (I) are made by, or on behalf of, 
                                clients; and
                                    (II) relate to action, inaction, or 
                                decisions, that may adversely affect 
                                the health, safety, welfare, or rights 
                                of the clients (including the welfare 
                                and rights of the clients with respect 
                                to the appointment and activities of 
                                guardians and representative payees), 
                                of--
                                            (aa) providers, or 
                                        representatives of providers, 
                                        of long-term care services;
                                            (bb) public agencies; or
                                            (cc) health and social 
                                        service agencies;
                            (ii) provide services to assist the clients 
                        in protecting the health, safety, welfare, and 
                        rights of the clients;
                            (iii) inform the clients about means of 
                        obtaining services provided by providers or 
                        agencies described in clause (i)(II) or 
                        services described in clause (ii);
                            (iv) ensure that the clients have regular 
                        and timely access to the services provided 
                        through the office and that the clients and 
                        complainants receive timely responses from 
                        representatives of the office to complaints; 
                        and
                            (v) represent the interests of the clients 
                        before governmental agencies and seek 
                        administrative, legal, and other remedies to 
                        protect the health, safety, welfare, and rights 
                        of the clients with regard to the provisions of 
                        this title.
                    (B) Contracts and arrangements.--
                            (i) In general.--Except as provided in 
                        clause (ii), the State agency may establish and 
                        operate the office, and carry out the program, 
                        directly, or by contract or other arrangement 
                        with any public agency or nonprofit private 
                        organization.
                            (ii) Licensing and certification 
                        organizations; associations.--The State agency 
                        may not enter into the contract or other 
                        arrangement described in clause (i) with an 
                        agency or organization that is responsible for 
                        licensing, certifying, or providing long-term 
                        care services in the State.
    (d) Safeguards.--
            (1) Confidentiality.--The State plan shall provide 
        safeguards that restrict the use or disclosure of information 
        concerning applicants and beneficiaries to purposes directly 
        connected with the administration of the plan.
            (2) Safeguards against abuse.--The State plans shall 
        provide safeguards against physical, emotional, or financial 
        abuse or exploitation (specifically including appropriate 
        safeguards in cases where payment for program benefits is made 
        by cash payments or vouchers given directly to individuals with 
        disabilities). All providers of services shall be required to 
        register with the State agency.
            (3) Regulations.--Not later than October 1, 1998, the 
        Secretary shall promulgate regulations with respect to the 
        requirements on States under this subsection.
    (e) Specified Rights.--The State plan shall provide that in 
furnishing home and community-based services under the plan the 
following individual rights are protected:
            (1) The right to be fully informed in advance, orally and 
        in writing, of the care to be provided, to be fully informed in 
        advance of any changes in care to be provided, and (except with 
        respect to an individual determined incompetent) to participate 
        in planning care or changes in care.
            (2) The right to--
                    (A) voice grievances with respect to services that 
                are (or fail to be) furnished without discrimination or 
                reprisal for voicing grievances;
                    (B) be told how to complain to State and local 
                authorities; and
                    (C) prompt resolution of any grievances or 
                complaints.
            (3) The right to confidentiality of personal and clinical 
        records and the right to have access to such records.
            (4) The right to privacy and to have one's property treated 
        with respect.
            (5) The right to refuse all or part of any care and to be 
        informed of the likely consequences of such refusal.
            (6) The right to education or training for oneself and for 
        members of one's family or household on the management of care.
            (7) The right to be free from physical or mental abuse, 
        corporal punishment, and any physical or chemical restraints 
        imposed for purposes of discipline or convenience and not 
        included in an individual's plan of care.
            (8) The right to be fully informed orally and in writing of 
        the individual's rights.
            (9) The right to a free choice of providers.
            (10) The right to direct provider activities when an 
        individual is competent and willing to direct such activities.

SEC. 107. ADVISORY GROUPS.

    (a) Federal Advisory Group.--
            (1) Establishment.--The Secretary shall establish an 
        advisory group, to advise the Secretary and States on all 
        aspects of the program under this title.
            (2) Composition.--The group shall be composed of 
        individuals with disabilities and their representatives, 
        providers, Federal and State officials, and local community 
        implementing agencies. A majority of its members shall be 
        individuals with disabilities and their representatives.
    (b) State Advisory Groups.--
            (1) In general.--Each State plan shall provide for the 
        establishment and maintenance of an advisory group to advise 
        the State on all aspects of the State plan under this title.
            (2) Composition.--Members of each advisory group shall be 
        appointed by the Governor (or other chief executive officer of 
        the State) and shall include individuals with disabilities and 
        their representatives, providers, State officials, and local 
        community implementing agencies. A majority of its members 
        shall be individuals with disabilities and their 
        representatives. The members of the advisory group shall be 
        selected from those nominated as described in paragraph (3).
            (3) Selection of members.--Each State shall establish a 
        process whereby all residents of the State, including 
        individuals with disabilities and their representatives, shall 
        be given the opportunity to nominate members to the advisory 
        group.
            (4) Particular concerns.--Each advisory group shall--
                    (A) before the State plan is developed, advise the 
                State on guiding principles and values, policy 
                directions, and specific components of the plan;
                    (B) meet regularly with State officials involved in 
                developing the plan, during the development phase, to 
                review and comment on all aspects of the plan;
                    (C) participate in the public hearings to help 
                assure that public comments are addressed to the extent 
                practicable;
                    (D) report to the Governor and make available to 
                the public any differences between the group's 
                recommendations and the plan;
                    (E) report to the Governor and make available to 
                the public specifically the degree to which the plan is 
                consumer-directed; and
                    (F) meet regularly with officials of the designated 
                State agency (or agencies) to provide advice on all 
                aspects of implementation and evaluation of the plan.

SEC. 108. PAYMENTS TO STATES.

    (a) In General.--Subject to section 102(a)(9)(C) (relating to 
limitation on payment for administrative costs), the Secretary, in 
accordance with the Cash Management Improvement Act of 1990 (31 U.S.C. 
6501 note), shall authorize payment to each State with a plan approved 
under this title, for each quarter (beginning on or after October 1, 
1998), from its allotment under section 109(b), an amount equal to--
            (1)(A) with respect to the amount demonstrated by State 
        claims to have been expended during the year for home and 
        community-based services under the plan for individuals with 
        disabilities that does not exceed 20 percent of the amount 
        allotted to the State under section 109(b), 100 percent of such 
        amount; and
            (B) with respect to the amount demonstrated by State claims 
        to have been expended during the year for home and community-
        based services under the plan for individuals with disabilities 
        that exceeds 20 percent of the amount allotted to the State 
        under section 109(b), the Federal home and community-based 
        services matching percentage (as defined in subsection (b)) of 
        such amount; plus
            (2) an amount equal to 90 percent of the amount 
        demonstrated by the State to have been expended during the 
        quarter for quality assurance activities under the plan; plus
            (3) an amount equal to 90 percent of the amount expended 
        during the quarter under the plan for activities (including 
        preliminary screening) relating to determinations of 
        eligibility and performance of needs assessment; plus
            (4) an amount equal to 90 percent (or, beginning with 
        quarters in fiscal year 2007, 75 percent) of the amount 
        expended during the quarter for the design, development, and 
        installation of mechanical claims processing systems and for 
        information retrieval; plus
            (5) an amount equal to 50 percent of the remainder of the 
        amounts expended during the quarter as found necessary by the 
        Secretary for the proper and efficient administration of the 
        State plan.
    (b) Federal Home and Community-Based Services Matching 
Percentage.--In subsection (a), the term ``Federal home and community-
based services matching percentage'' means, with respect to a State, 
the State's Federal medical assistance percentage (as defined in 
section 1905(b) of the Social Security Act (42 U.S.C. 1396d(b))) 
increased by 15 percentage points, except that the Federal home and 
community-based services matching percentage shall in no case be more 
than 95 percent.
    (c) Payments on Estimates With Retrospective Adjustments.--The 
method of computing and making payments under this section shall be as 
follows:
            (1) The Secretary shall, prior to the beginning of each 
        quarter, estimate the amount to be paid to the State under 
        subsection (a) for such quarter, based on a report filed by the 
        State containing its estimate of the total sum to be expended 
        in such quarter, and such other information as the Secretary 
        may find necessary.
            (2) From the allotment available therefore, the Secretary 
        shall provide for payment of the amount so estimated, reduced 
        or increased, as the case may be, by any sum (not previously 
        adjusted under this section) by which the Secretary finds that 
        the estimate of the amount to be paid the State for any prior 
        period under this section was greater or less than the amount 
        that should have been paid.
    (d) Application of Rules Regarding Limitations on Provider-Related 
Donations and Health Care-Related Taxes.--The provisions of section 
1903(w) of the Social Security Act (42 U.S.C. 1396b(w)) shall apply to 
payments to States under this section in the same manner as they apply 
to payments to States under section 1903(a) of such Act (42 U.S.C. 
1396b(a)).
    (e) Failure To Comply With State Plan.--If a State furnishing home 
and community-based services under this title fails to comply with the 
State plan approved under this title, the Secretary may either reduce 
the Federal matching rates available to the State under subsection (a) 
or withhold an amount of funds determined appropriate by the Secretary 
from any payment to the State under this section.

SEC. 109. APPROPRIATIONS; ALLOTMENTS TO STATES.

    (a) Appropriations.--
            (1) Fiscal years 1999 through 2007.--Subject to paragraph 
        (5)(C), for purposes of this title, the appropriation 
        authorized under this title for each of fiscal years 1999 
        through 2007 is the following:
                    (A) For fiscal year 1999, $500,000,000.
                    (B) For fiscal year 2000, $750,000,000.
                    (C) For fiscal year 2001, $1,000,000,000.
                    (D) For fiscal year 2002, $1,500,000,000.
                    (E) For fiscal year 2003, $2,000,000,000.
                    (F) For fiscal year 2004, $2,500,000,000.
                    (G) For fiscal year 2005, $3,250,000,000.
                    (H) For fiscal year 2006, $4,000,000,000.
                    (I) For fiscal year 2007, $5,000,000,000.
            (2) Subsequent fiscal years.--For purposes of this title, 
        the appropriation authorized for State plans under this title 
        for each fiscal year after fiscal year 2007 is the 
        appropriation authorized under this subsection for the 
        preceding fiscal year multiplied by--
                    (A) a factor (described in paragraph (3)) 
                reflecting the change in the medical care expenditure 
                category of the Consumer Price Index for All Urban 
                Consumers (United States city average), published by 
                the Bureau of Labor Statistics for the fiscal year; and
                    (B) a factor (described in paragraph (4)) 
                reflecting the change in the number of individuals with 
                disabilities for the fiscal year.
            (3) CPI medical care expenditure increase factor.--For 
        purposes of paragraph (2)(A), the factor described in this 
        paragraph for a fiscal year is the ratio of--
                    (A) the percentage increase or decrease, 
                respectively, in the medical care expenditure category 
                of the Consumer Price Index for All Urban Consumers 
                (United States city average), published by the Bureau 
                of Labor Statistics, for the preceding fiscal year, 
                to--
                    (B) such increase or decrease, as so measured, for 
                the second preceding fiscal year.
            (4) Disabled population factor.--For purposes of paragraph 
        (2)(B), the factor described in this paragraph for a fiscal 
        year is 100 percent plus (or minus) the percentage increase (or 
        decrease) change in the disabled population of the United 
        States (as determined for purposes of the most recent update 
        under subsection (b)(3)(D)).
            (5) Legislative proposal for additional funds due to 
        medicaid offsets.--
                    (A) In general.--Not later than January 1, 1998, 
                the Secretary shall submit to the appropriate 
                committees of Congress a legislative proposal that, 
                during the period beginning on October 1, 1998, and 
                ending on September 30, 2007, for each fiscal year 
                during such period, allocates among the States with 
                plans approved under this title an amount equal to 75 
                percent of the Federal medicaid long-term care savings. 
                The legislative proposal shall provide that funds shall 
                be allocated to such States without requiring any State 
                matching payments in order to receive such funds.
                    (B) Federal medicaid long-term care savings 
                defined.--In subparagraph (A), the term `Federal 
                medicaid long-term care savings' means with respect to 
                a fiscal year, the amount equal to the amount of 
                Federal outlays that would have been made under title 
                XIX of the Social Security Act (42 U.S.C. 1396 et seq.) 
                during such fiscal year but for the provision of home 
                and community-based services under the program under 
                this title.
    (b) Allotments to States.--
            (1) In general.--The Secretary shall allot the amounts 
        available under the appropriation authorized for the fiscal 
        year under paragraph (1) of subsection (a), to the States with 
        plans approved under this title in accordance with an 
        allocation formula developed by the Secretary that takes into 
        account--
                    (A) the percentage of the total number of 
                individuals with disabilities in all States that reside 
                in a particular State;
                    (B) the per capita costs of furnishing home and 
                community-based services to individuals with 
                disabilities in the State; and
                    (C) the percentage of all individuals with incomes 
                at or below 150 percent of the official poverty line 
                (as described in section 105(a)(2)) in all States that 
                reside in a particular State.
            (2) Allocation for client advocacy activities.--Each State 
        with a plan approved under this title shall allocate \1/2\ of 1 
        percent of the State's total allotment under paragraph (1) for 
        client advocacy activities as described in section 106(c).
            (3) No duplicate payment.--No payment may be made to a 
        State under this section for any services provided to an 
        individual to the extent that the State received payment for 
        such services under section 1903(a) of the Social Security Act 
        (42 U.S.C. 1396b(a)).
            (4) Reallocations.--Any amounts allotted to States under 
        this subsection for a year that are not expended in such year 
        shall remain available for State programs under this title and 
        may be reallocated to States as the Secretary determines 
        appropriate.
    (c) State Entitlement.--This title constitutes budget authority in 
advance of appropriations Acts, and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
described in subsection (a).

SEC. 110. FEDERAL EVALUATIONS.

    Not later than December 31, 2004, December 31, 2007, and each 
December 31 thereafter, the Secretary shall provide to Congress 
analytical reports that evaluate--
            (1) the extent to which individuals with low incomes and 
        disabilities are equitably served;
            (2) the adequacy and equity of service plans to individuals 
        with similar levels of disability across States;
            (3) the comparability of program participation across 
        States, described by level and type of disability; and
            (4) the ability of service providers to sufficiently meet 
        the demand for services.

SEC. 111. INFORMATION AND TECHNICAL ASSISTANCE GRANTS RELATING TO 
              DEVELOPMENT OF HOSPITAL LINKAGE PROGRAMS.

    (a) Findings.--Congress finds that--
            (1) demonstration programs and projects have been developed 
        to offer care management to hospitalized individuals awaiting 
        discharge who are in need of long-term health care services 
        that meet individual needs and preferences in home and 
        community-based settings as an alternative to long-term nursing 
        home care or institutional placement; and
            (2) there is a need to disseminate information and 
        technical assistance to hospitals and State and local community 
        organizations regarding such programs and projects and to 
        provide incentive grants to State and local public and private 
        agencies, including area agencies on aging, to establish and 
        expand programs that offer care management to individuals 
        awaiting discharge from acute care hospitals who are in need of 
        long-term care so that services to meet individual needs and 
        preferences can be arranged in home and community-based 
        settings as an alternative to long-term placement in nursing 
        homes or other institutional settings.
    (b) Dissemination of Information, Technical Assistance, and 
Incentive Grants To Assist in the Development of Hospital Linkage 
Programs.--Part C of title III of the Public Health Service Act (42 
U.S.C. 248 et seq.) is amended by adding at the end the following:

``SEC. 327B. DISSEMINATION OF INFORMATION, TECHNICAL ASSISTANCE AND 
              INCENTIVE GRANTS TO ASSIST IN THE DEVELOPMENT OF HOSPITAL 
              LINKAGE PROGRAMS.

    ``(a) Dissemination of Information.--The Secretary shall compile, 
evaluate, publish, and disseminate to appropriate State and local 
officials and to private organizations and agencies that provide 
services to individuals in need of long-term health care services, such 
information and materials as may assist such entities in replicating 
successful programs that are aimed at offering care management to 
hospitalized individuals who are in need of long-term care so that 
services to meet individual needs and preferences can be arranged in 
home and community-based settings as an alternative to long-term 
nursing home placement. The Secretary may provide technical assistance 
to entities seeking to replicate such programs.
    ``(b) Incentive Grants To Assist in the Development of Hospital 
Linkage Programs.--The Secretary shall establish a program under which 
incentive grants may be awarded to assist private and public agencies, 
including area agencies on aging, and organizations in developing and 
expanding programs and projects that facilitate the discharge of 
individuals in hospitals or other acute care facilities who are in need 
of long-term care services and placement of such individuals into home 
and community-based settings.
    ``(c) Administrative Provisions.--
            ``(1) Eligible entities.--To be eligible to receive a grant 
        under subsection (b) an entity shall be--
                    ``(A)(i) a State agency as defined in section 
                102(43) of the Older Americans Act of 1965 (42 U.S.C. 
                3002(43)); or
                    ``(ii) a State agency responsible for administering 
                home and community care programs under title XIX of the 
                Social Security Act (42 U.S.C. 1396 et seq.); or
                    ``(B) if no State agency described in subparagraph 
                (A) applies with respect to a particular State, a 
                public or nonprofit private entity.
            ``(2) Applications.--To be eligible to receive an incentive 
        grant under subsection (b), an entity shall prepare and submit 
        to the Secretary an application at such time, in such manner, 
        and containing such information as the Secretary may require, 
        including--
                    ``(A) an assessment of the need within the 
                community to be served for the establishment or 
                expansion of a program to facilitate the discharge of 
                individuals in need of long-term care who are in 
                hospitals or other acute care facilities into home and 
                community-care programs that provide individually 
                planned, flexible services that reflect individual 
                choice or preference rather than nursing home or 
                institutional settings;
                    ``(B) a plan for establishing or expanding a 
                program for identifying individuals in hospital or 
                acute care facilities who are in need of individualized 
                long-term care provided in home and community-based 
                settings rather than nursing homes or other 
                institutional settings and undertaking the planning and 
                management of individualized care plans to facilitate 
                discharge into such settings;
                    ``(C) assurances that nongovernmental case 
                management agencies funded under grants awarded under 
                this section are not direct providers of home and 
                community-based services;
                    ``(D) satisfactory assurances that adequate home 
                and community-based long term care services are 
                available, or will be made available, within the 
                community to be served so that individuals being 
                discharged from hospitals or acute care facilities 
                under the proposed program can be served in such home 
                and community-based settings, with flexible, 
                individualized care that reflects individual choice and 
                preference;
                    ``(E) a description of the manner in which the 
                program to be administered with amounts received under 
                the grant will be continued after the termination of 
                the grant for which such application is submitted; and
                    ``(F) a description of any waivers or approvals 
                necessary to expand the number of individuals served in 
                federally funded home and community-based long term 
                care programs in order to provide satisfactory 
assurances that adequate home and community-based long term care 
services are available in the community to be served.
            ``(3) Awarding of grants.--
                    ``(A) Preferences.--In awarding grants under 
                subsection (b), the Secretary shall give preference to 
                entities submitting applications that--
                            ``(i) demonstrate an ability to coordinate 
                        activities funded using amounts received under 
                        the grant with programs providing 
                        individualized home and community-based case 
                        management and services to individuals in need 
                        of long term care with hospital discharge 
                        planning programs; and
                            ``(ii) demonstrate that adequate home and 
                        community-based long term care management and 
                        services are available, or will be made 
                        available to individuals being served under the 
                        program funded with amounts received under 
                        subsection (b).
                    ``(B) Distribution.--In awarding grants under 
                subsection (b), the Secretary shall ensure that such 
                grants--
                            ``(i) are equitably distributed on a 
                        geographic basis;
                            ``(ii) include projects operating in urban 
                        areas and projects operating in rural areas; 
                        and
                            ``(iii) are awarded for the expansion of 
                        existing hospital linkage programs as well as 
                        the establishment of new programs.
                    ``(C) Expedited consideration.--The Secretary shall 
                provide for the expedited consideration of any waiver 
                application that is necessary under title XIX of the 
                Social Security Act (42 U.S.C. 1396 et seq.) to enable 
                an applicant for a grant under subsection (b) to 
                satisfy the assurance required under paragraph (1)(D).
            ``(4) Use of grants.--An entity that receives amounts under 
        a grant under subsection (b) may use such amounts for planning, 
        development and evaluation services and to provide 
        reimbursements for the costs of one or more case mangers to be 
        located in or assigned to selected hospitals who would--
                    ``(A) identify patients in need of individualized 
                care in home and community-based long-term care;
                    ``(B) assess and develop care plans in cooperation 
                with the hospital discharge planning staff; and
                    ``(C) arrange for the provision of community care 
                either immediately upon discharge from the hospital or 
                after any short term nursing-home stay that is needed 
                for recuperation or rehabilitation;
            ``(5) Direct services subject to reimbursements.--None of 
        the amounts provided under a grant under this section may be 
        used to provide direct services, other than case management, 
        for which reimbursements are otherwise available under title 
        XVIII or XIX of the Social Security Act (42 U.S.C. 1395 et seq. 
        and 1396 et seq.).
            ``(6) Limitations.--
                    ``(A) Term.--Grants awarded under this section 
                shall be for terms of less than 3 years.
                    ``(B) Amount.--Grants awarded to an entity under 
                this section shall not exceed $300,000 per year. The 
                Secretary may waive the limitation under this 
                subparagraph where an applicant demonstrates that the 
                number of hospitals or individuals to be served under 
                the grant justifies such increased amounts.
                    ``(C) Supplanting of funds.--Amounts awarded under 
                a grant under this section may not be used to supplant 
                existing State funds that are provided to support 
                hospital link programs.
    ``(d) Evaluation and Reports.--
            ``(1) By grantees.--An entity that receives a grant under 
        this section shall evaluate the effectiveness of the services 
        provided under the grant in facilitating the placement of 
        individuals being discharged from hospitals or acute care 
        facilities into home and community-based long term care 
        settings rather than nursing homes. Such entity shall prepare 
        and submit to the Secretary a report containing such 
        information and data concerning the activities funded under the 
        grant as the Secretary determines appropriate.
            ``(2) By secretary.--Not later than the end of the third 
        fiscal year for which funds are appropriated under subsection 
        (e), the Secretary shall prepare and submit to the appropriate 
        committees of Congress, a report concerning the results of the 
        evaluations and reports conducted and prepared under paragraph 
        (1).
    ``(e) Authorization of Appropriations.--There are authorized to be 
appropriated to carry out this section, $5,000,000 for each of the 
fiscal years 1998 through 2000.''.

      TITLE II--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

SEC. 201. 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. 202. 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. 203. 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 202 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. 204. 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. 205. 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. 206. COST CENTERS FOR NURSING FACILITY PAYMENT.

    (a) Payment Rates.--Consistent with the objectives described in 
section 202 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.
    (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 210 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 211 of this title.

SEC. 207. 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 208 of this title.

SEC. 208. 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 205 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 214 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. 209. 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 205(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 214 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. 210. PAYMENT FOR FEE-FOR-SERVICE ANCILLARY SERVICES.

    (a) In General.--The Secretary shall make payments for the 
ancillary services described in section 206(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. 211. REIMBURSEMENT OF SELECTED ANCILLARY SERVICES AND OTHER COSTS.

    (a) In General.--Reimbursement of selected ancillary services and 
other costs identified in section 206(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. 212. 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. 213. 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. 214. 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 208(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 
        209(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. 215. 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. 216. 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. 217. 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 III--ADDITIONAL MEDICARE PROVISIONS

SEC. 301. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

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

SEC. 302. PERMANENT EXTENSION OF CERTAIN SECONDARY PAYER PROVISIONS.

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

SEC. 303. FINANCING AND QUALITY MODERNIZATION AND REFORM.

    (a) Payments to Health Maintenance Organizations and Competitive 
Medical Plans.--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, 85 percent of the 
                average annual per capita cost under parts A and B of 
                this title for 1997;
                    ``(II) in the case of 1999, 85 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.
    ``(B) For purposes of subparagraph (A)(i)--
            ``(i) for 1998, the `area-specific percentage' is 75 
        percent and the `national percentage' is 25 percent,
            ``(ii) for 1999, the `area-specific percentage' is 60 
        percent and the `national percentage' is 40 percent,
            ``(iii) for 2000, the `area-specific percentage' is 40 
        percent and the `national percentage' is 60 percent,
            ``(iv) for 2001, the `area-specific percentage' is 25 
        percent and the `national percentage' is 75 percent, and
            ``(v) for 2002 and each subsequent year, the `area-specific 
        percentage' is 10 percent and the `national percentage' is 90 
        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 Long-Term Care Reform and Deficit Reduction 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.''.
    (b) Effective Date.--The amendment made by this section takes 
effect on October 1, 1997.
                                 <all>