[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 947 Placed on Calendar Senate (PCS)]





                                                        Calendar No. 91

105th CONGRESS

  1st Session

                                 S. 947

_______________________________________________________________________

                                 A BILL

    To provide for reconciliation pursuant to section 104(a) of the 
       concurrent resolution on the budget for fiscal year 1998.

_______________________________________________________________________

                             June 20, 1997

                 Read twice and placed on the calendar





                                                        Calendar No. 91
105th CONGRESS
  1st Session
                                 S. 947

    To provide for reconciliation pursuant to section 104(a) of the 
       concurrent resolution on the budget for fiscal year 1998.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 20, 1997

Mr. Domenici, from the Committee on the Budget, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
    To provide for reconciliation pursuant to section 104(a) of the 
       concurrent resolution on the budget for fiscal year 1998.

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

SECTION 1. SHORT TITLE.

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

SEC. 2. TABLE OF TITLES.

    The table of titles for this Act is as follows:

                                                                   Page
Title I. Committee on Agriculture, Nutrition, and Forestry..          2
Title II. Committee on Banking, Housing, and Urban Affairs..         11
Title III. Committee on Commerce, Science, and                       92
                            Transportation.
Title IV. Committee on Energy and Natural Resources.........        129
Title V. Committee on Finance...............................        130
Title VI. Committee on Governmental Affairs.................       1027
Title VII. Committee on Labor and Human Resources...........       1049
Title VIII. Committee on Veterans' Affairs..................       1056

       TITLE I--COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SEC. 1001. HARDSHIP EXEMPTION.

    Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 2015(o)) is 
amended--
            (1) in paragraph (2)(D), by striking ``or (5)'' and 
        inserting ``(5), or (6)'';
            (2) by redesignating paragraph (6) as paragraph (7); and
            (3) by inserting after paragraph (5) the following:
            ``(6) 15-percent hardship exemption.--
                    ``(A) Definitions.--In this paragraph:
                            ``(i) Caseload.--The term `caseload' means 
                        the average monthly number of individuals 
                        receiving food stamps during the 12-month 
                        period ending the preceding June 30.
                            ``(ii) Covered individual.--The term 
                        `covered individual' means a food stamp 
                        recipient, or an individual denied eligibility 
                        for food stamp benefits solely due to paragraph 
                        (2), who--
                                    ``(I) is not eligible for an 
                                exception under paragraph (3);
                                    ``(II) does not reside in an area 
                                covered by a waiver granted under 
                                paragraph (4);
                                    ``(III) is not complying with 
                                subparagraph (A), (B), or (C) of 
                                paragraph (2);
                                    ``(IV) is not receiving food stamp 
                                benefits during the 3 months of 
                                eligibility provided under paragraph 
                                (2); and
                                    ``(V) is not receiving food stamp 
                                benefits under paragraph (5).
                    ``(B) General rule.--Subject to subparagraphs (C) 
                through (F), a State agency may provide a hardship 
                exemption from the requirements of paragraph (2) for 
                covered individuals.
                    ``(C) Fiscal year 1998.--Subject to subparagraph 
                (E), for fiscal year 1998, a State agency may provide a 
                number of hardship exemptions such that the average 
                monthly number of the exemptions in effect during the 
                fiscal year does not exceed 15 percent of the number of 
                covered individuals in the State in fiscal year 1998, 
                as estimated by the Secretary, based on the survey 
                conducted to carry out section 16(c) for fiscal year 
                1996 and such other factors as the Secretary considers 
                appropriate due to the timing and limitations of the 
                survey.
                    ``(D) Subsequent fiscal years.--Subject to 
                subparagraphs (E) and (F), for fiscal year 1999 and 
                each subsequent fiscal year, a State agency may provide 
                a number of hardship exemptions such that the average 
                monthly number of the exemptions in effect during the 
                fiscal year does not exceed 15 percent of the number of 
                covered individuals in the State, as estimated by the 
                Secretary under subparagraph (C), adjusted by the 
                Secretary to reflect changes in the State's caseload 
                and the Secretary's estimate of changes in the 
                proportion of food stamp recipients covered by waivers 
                granted under paragraph (4).
                    ``(E) Caseload adjustments.--The Secretary shall 
                adjust the number of individuals estimated for a State 
                under subparagraph (C) or (D) during a fiscal year if 
                the number of food stamp recipients in the State varies 
                from the caseload by more than 10 percent, as 
                determined by the Secretary.
                    ``(F) Exemption adjustments.--For fiscal year 1999 
                and each subsequent fiscal year, the Secretary shall 
                increase or decrease the number of individuals who may 
                be granted a hardship exemption by a State agency to 
                the extent that the average monthly number of hardship 
                exemptions in effect in the State for the preceding 
                fiscal year is greater or less than the average monthly 
                number of hardship exemptions estimated for the State 
                agency for such preceding fiscal year.
                    ``(G) Reporting requirement.--A State agency shall 
                submit such reports to the Secretary as the Secretary 
                determines are necessary to ensure compliance with this 
                paragraph.''.

SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

    Section 16(h) of the Food Stamp Act of 1977 (7 U.S.C. 2025(h)) is 
amended by striking paragraphs (1) and (2) and inserting the following:
            ``(1) In general.--
                    ``(A) Amounts.--To carry out employment and 
                training programs, the Secretary shall reserve for 
                allocation to State agencies, to remain available until 
                expended, from funds made available for each fiscal 
                year under section 18(a)(1) the amount of--
                            ``(i) for fiscal year 1996, $75,000,000;
                            ``(ii) for fiscal year 1997, $79,000,000;
                            ``(iii) for fiscal year 1998, $221,000,000;
                            ``(iv) for fiscal year 1999, $224,000,000;
                            ``(v) for fiscal year 2000, $226,000,000;
                            ``(vi) for fiscal year 2001, $228,000,000; 
                        and
                            ``(vii) for fiscal year 2002, $170,000,000.
                    ``(B) Allocation.--The Secretary shall allocate the 
                amounts reserved under subparagraph (A) among the State 
                agencies using a reasonable formula (as determined by 
                the Secretary) that reflects the proportion of food 
                stamp recipients who are not eligible for an exception 
                under section 6(o)(3) that reside in each State, as 
                estimated by the Secretary based on the survey 
                conducted to carry out subsection (c) for fiscal year 
                1996 and such other factors as the Secretary considers 
                appropriate due to the timing and limitations of the 
                survey (as adjusted by the Secretary each fiscal year 
                to reflect changes in each State's caseload (as defined 
                in section 6(o)(5)(A))).
                    ``(C) Reallocation.--If a State agency will not 
                expend all of the funds allocated to the State agency 
                for a fiscal year under subparagraph (B), the Secretary 
                shall reallocate the unexpended funds to other States 
                (during the fiscal year or the subsequent fiscal year) 
                as the Secretary considers appropriate and equitable.
                    ``(D) Minimum allocation.--Notwithstanding 
                subparagraph (B), the Secretary shall ensure that each 
                State agency operating an employment and training 
                program shall receive not less than $50,000 for each 
                fiscal year.
                    ``(E) Placements.--Of the amount of funds reserved 
                for a State agency for a fiscal year under 
                subparagraphs (A) through (D), the State agency shall 
                be eligible to receive for the fiscal year not more 
                than an amount equal to the sum of--
                            ``(i) the product obtained by multiplying--
                                    ``(I) the average monthly number of 
                                food stamp recipients who during the 
                                fiscal year--
                                            ``(aa) are not eligible for 
                                        an exception under section 
                                        6(o)(3); and
                                            ``(bb) are placed in and 
                                        comply with a program described 
                                        in subparagraph (B) or (C) of 
                                        section 6(o)(2), other than a 
                                        program described in 
                                        subparagraph (A) or (B) of 
                                        section 6(o)(1); by
                                    ``(II) an amount determined by the 
                                Secretary to reflect the reasonable 
                                cost of efficiently and 
economically providing services that meet the requirements of 
subparagraph (B) or (C) of section 6(o)(2) to food stamp recipients 
described in subclause (I) for the fiscal year, as periodically 
adjusted by the Secretary; and
                            ``(ii) the product obtained by 
                        multiplying--
                                    ``(I) the average monthly number of 
                                food stamp recipients in activities not 
                                described in clause (i)(I)(bb) who 
                                during the fiscal year are placed in 
                                and comply with an employment and 
                                training program; by
                                    ``(II) an amount determined by the 
                                Secretary to reflect the reasonable 
                                cost of efficiently and economically 
                                providing employment and training 
                                services to food stamp recipients 
                                described in subclause (I) for the 
                                fiscal year that is less than the 
                                amount determined under clause (i)(II), 
                                as periodically adjusted by the 
                                Secretary.
                    ``(F) Use of funds.--Of the amount of funds a State 
                agency receives under subparagraphs (A) through (E) for 
                a fiscal year, not less than 75 percent shall be used 
                by the State agency in the fiscal year to serve food 
                stamp recipients described in subparagraph 
                (E)(i)(I)(aa) who are placed in and comply with a 
                program described in subparagraph (E)(i)(I)(bb).
                    ``(G) Maintenance of effort.--To receive an amount 
                reserved under subparagraph (A), a State agency shall 
                maintain the expenditures of the State agency for 
                employment and training programs and workfare programs 
                for any fiscal year under paragraph (2), and 
                administrative expenses under section 20(g)(1), at a 
                level that is not less than 75 percent of the level of 
                the expenditures by the State agency to carry out the 
                programs for fiscal year 1996.
            ``(2) Additional payments to states.--If a State agency--
                    ``(A) incurs costs to place individuals in 
                employment and training programs, including the costs 
                for case management and casework to facilitate the 
                transition from economic dependency to self-sufficiency 
                through work; and
                    ``(B) does not use the funds provided under 
                paragraph (1)(A) to defray the costs incurred;
        the Secretary shall pay the State agency an amount equal to 50 
        percent of the costs incurred, subject to paragraph (3).''.

       TITLE II--COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

     Subtitle A--Mortgage Assignment and Annual Adjustment Factors

SEC. 2001. TABLE OF CONTENTS.

    The table of contents for this title is as follows:

       TITLE II--COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

     Subtitle A--Mortgage Assignment and Annual Adjustment Factors

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

Sec. 2100. Short title.
Part 1--FHA-Insured Multifamily Housing Mortgage and Housing Assistance 
                             Restructuring

Sec. 2101. Findings and purposes.
Sec. 2102. Definitions.
Sec. 2103. Authority of participating administrative entities.
Sec. 2104. Mortgage restructuring and rental assistance sufficiency 
                            plan.
Sec. 2105. Section 8 renewals and long-term affordability commitment by 
                            owner of project.
Sec. 2106. Prohibition on restructuring.
Sec. 2107. Restructuring tools.
Sec. 2108. Shared savings incentive.
Sec. 2109. Management standards.
Sec. 2110. Monitoring of compliance.
Sec. 2111. Review.
Sec. 2112. GAO audit and review.
Sec. 2113. Regulations.
Sec. 2114. Technical and conforming amendments.
Sec. 2115. Termination of authority.
                    Part 2--Miscellaneous Provisions

Sec. 2201. Rehabilitation grants for certain insured projects.
Sec. 2202. Minimum rent.
Sec. 2203. Repeal of Federal preferences.
                     Part 3--Enforcement Provisions

Sec. 2301.subpart a--fha single family and multifamily housing
Sec. 2311. Authorization to immediately suspend mortgagees.
Sec. 2312. Extension of equity skimming to other single family and 
                            multifamily housing programs.
Sec. 2313. Civil money penalties against mortgagees, lenders, and other 
                 subpart b--fha multifamily provisionsms.
Sec. 2320. Civil money penalties against general partners, officers, 
                            directors, and certain managing agents of 
                            multifamily projects.
Sec. 2321. Civil money penalties for noncompliance with section 8 HAP 
                            contracts.
Sec. 2322. Extension of double damages remedy.
Sec. 2323. Obstruction of Federal audits.

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

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

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

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

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

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

                 Subtitle B--Multifamily Housing Reform

SEC. 2100. SHORT TITLE.

    This subtitle may be cited as the ``Multifamily Assisted Housing 
Reform and Affordability Act of 1997''.

Part 1--FHA-Insured Multifamily Housing Mortgage and Housing Assistance 
                             Restructuring

SEC. 2101. FINDINGS AND PURPOSES.

    (a) Findings.--Congress finds that--
            (1) there exists throughout the Nation a need for decent, 
        safe, and affordable housing;
            (2) as of the date of enactment of this Act, it is 
        estimated that--
                    (A) the insured multifamily housing portfolio of 
                the Federal Housing Administration consists of 14,000 
                rental properties, with an aggregate unpaid principal 
                mortgage balance of $38,000,000,000; and
                    (B) approximately 10,000 of these properties 
                contain housing units that are assisted with project-
                based rental assistance under section 8 of the United 
                States Housing Act of 1937;
            (3) FHA-insured multifamily rental properties are a major 
        Federal investment, providing affordable rental housing to an 
        estimated 2,000,000 low- and very low-income families;
            (4) approximately 1,600,000 of these families live in 
        dwelling units that are assisted with project-based rental 
        assistance under section 8 of the United States Housing Act of 
        1937;
            (5) a substantial number of housing units receiving 
        project-based assistance have rents that are higher than the 
        rents of comparable, unassisted rental units in the same 
        housing rental market;
            (6) many of the contracts for project-based assistance will 
        expire during the several years following the date of enactment 
        of this Act;
            (7) it is estimated that--
                    (A) if no changes in the terms and conditions of 
                the contracts for project-based assistance are made 
                before fiscal year 2000, the cost of renewing all 
                expiring rental assistance contracts under section 8 of 
                the United States Housing Act of 1937 for both project-
                based and tenant-based rental assistance will increase 
                from approximately $3,600,000,000 in fiscal year 1997 
                to over $14,300,000,000 by fiscal year 2000 and some 
                $22,400,000,000 in fiscal year 2006;
                    (B) of those renewal amounts, the cost of renewing 
                project-based assistance will increase from 
                $1,200,000,000 in fiscal year 1997 to almost 
                $7,400,000,000 by fiscal year 2006; and
                    (C) without changes in the manner in which project-
                based rental assistance is provided, renewals of 
                expiring contracts for project-based rental assistance 
                will require an increasingly larger portion of the 
                discretionary budget authority of the Department of 
                Housing and Urban Development in each subsequent fiscal 
                year for the foreseeable future;
            (8) absent new budget authority for the renewal of expiring 
        rental contracts for project-based assistance, many of the FHA-
        insured multifamily housing projects that are assisted with 
        project-based assistance will likely default on their FHA-
        insured mortgage payments, resulting in substantial claims to 
        the FHA General Insurance Fund and Special Risk Insurance 
Funds;
            (9) more than 15 percent of federally assisted multifamily 
        housing projects are physically or financially distressed, 
        including a number which suffer from mismanagement;
            (10) due to Federal budget constraints, the downsizing of 
        the Department of Housing and Urban Development, and diminished 
        administrative capacity, the Department lacks the ability to 
        ensure the continued economic and physical well-being of the 
        stock of federally insured and assisted multifamily housing 
        projects; and
            (11) the economic, physical, and management problems facing 
        the stock of federally insured and assisted multifamily housing 
        projects will be best served by reforms that--
                    (A) reduce the cost of Federal rental assistance, 
                including project-based assistance, to these projects 
                by reducing the debt service and operating costs of 
                these projects while retaining the low-income 
                affordability and availability of this housing;
                    (B) address physical and economic distress of this 
                housing and the failure of some project managers and 
                owners of projects to comply with management and 
                ownership rules and requirements; and
                    (C) transfer and share many of the loan and 
                contract administration functions and responsibilities 
                of the Secretary with capable State, local, and other 
                entities.
    (b) Purposes.--The purposes of this part are--
            (1) to preserve low-income rental housing affordability and 
        availability while reducing the long-term costs of project-
        based assistance;
            (2) to reform the design and operation of Federal rental 
        housing assistance programs, administered by the Secretary, to 
        promote greater multifamily housing project operating and cost 
        efficiencies;
            (3) to encourage owners of eligible multifamily housing 
        projects to restructure their FHA-insured mortgages and 
        project-based assistance contracts in a manner that is 
        consistent with this part before the year in which the contract 
        expires;
            (4) to streamline and improve federally insured and 
        assisted multifamily housing project oversight and 
        administration;
            (5) to resolve the problems affecting financially and 
        physically troubled federally insured and assisted multifamily 
        housing projects through cooperation with residents, owners, 
        State and local governments, and other interested entities and 
        individuals; and
            (6) to grant additional enforcement tools to use against 
        those who violate agreements and program requirements, in order 
        to ensure that the public interest is safeguarded and that 
        Federal multifamily housing programs serve their intended 
        purposes.

SEC. 2102. DEFINITIONS.

    In this part:
            (1) Comparable properties.--The term ``comparable 
        properties'' means properties that are--
                    (A) similar to the eligible multifamily housing 
                project in neighborhood (including risk of crime), 
                location, access, street appeal, age, property size, 
                apartment mix, physical configuration, property and 
                unit amenities, and utilities;
                    (B) unregulated by contractual encumbrances or 
                local rent-control laws; and
                    (C) occupied predominantly by renters who receive 
                no rent supplements or rental assistance.
            (2) Eligible multifamily housing project.--The term 
        ``eligible multifamily housing project'' means a property 
        consisting of more than 4 dwelling units--
                    (A) with rents which, on an average per unit or per 
                room basis, exceed the fair market rent or the rent of 
                comparable properties in the same market area, as 
                determined by the Secretary;
                    (B) that is covered in whole or in part by a 
                contract for project-based assistance under--
                            (i) the new construction and substantial 
                        rehabilitation program under section 8(b)(2) of 
                        the United States Housing Act of 1937 (as in 
                        effect before October 1, 1983);
                            (ii) the property disposition program under 
                        section 8(b) of the United States Housing Act 
                        of 1937;
                            (iii) the moderate rehabilitation program 
                        under section 8(e)(2) of the United States 
                        Housing Act of 1937;
                            (iv) the loan management assistance program 
                        under section 8 of the United States Housing 
                        Act of 1937;
                            (v) section 23 of the United States Housing 
                        Act of 1937 (as in effect before January 1, 
                        1975);
                            (vi) the rent supplement program under 
                        section 101 of the Housing and Urban 
                        Development Act of 1965; or
                            (vii) section 8 of the United States 
                        Housing Act of 1937, following conversion from 
                        assistance under section 101 of the Housing and 
                        Urban Development Act of 1965; and
                    (C) financed by a mortgage insured or held by the 
                Secretary under the National Housing Act.
            (3) Expiring contract.--The term ``expiring contract'' 
        means a project-based assistance contract attached to an 
        eligible multifamily housing project which, under the terms of 
        the contract, will expire.
            (4) Expiration date.--The term ``expiration date'' means 
        the date on which an expiring contract expires.
            (5) Fair market rent.--The term ``fair market rent'' means 
        the fair market rental established under section 8(c) of the 
        United States Housing Act of 1937.
            (6) Low-income families.--The term ``low-income families'' 
        has the same meaning as provided under section 3(b)(2) of the 
        United States Housing Act of 1937.
            (7) Portfolio restructuring agreement.--The term 
        ``Portfolio restructuring agreement'' means the agreement 
        entered into between the Secretary and a participating 
        administrative entity, as provided under section 2103.
            (8) Participating administrative entity.--The term 
        ``participating administrative entity'' means a public agency, 
        including a State housing finance agency or local housing 
        agency, which meets the requirements under section 2103(b).
            (9) Project-based assistance.--The term ``project-based 
        assistance'' means rental assistance under section 8 of the 
        United States Housing Act of 1937 that is attached to a 
        multifamily housing project.
            (10) Renewal.--The term ``renewal'' means the replacement 
        of an expiring Federal rental contract with a new contract 
        under section 8 of the United States Housing Act of 1937, 
        consistent with the requirements of this part.
            (11) Secretary.--The term ``Secretary'' means the Secretary 
        of Housing and Urban Development.
            (12) State.--The term ``State'' has the same meaning as in 
        section 104 of the Cranston-Gonzalez National Affordable 
        Housing Act.
            (13) Tenant-based assistance.--The term ``tenant-based 
        assistance'' has the same meaning as in section 8(f) of the 
        United States Housing Act of 1937.
            (14) Unit of general local government.--The term ``unit of 
        general local government'' has the same meaning as in section 
        104 of the Cranston-Gonzalez National Affordable Housing Act.
            (15) Very low-income family.--The term ``very low-income 
        family'' has the same meaning as in section 3(b) of the United 
        States Housing Act of 1937.
            (16) Qualified mortgagee.--The term ``qualified mortgagee'' 
        means an entity approved by the Secretary that is capable of 
        servicing, as well as originating, FHA-insured mortgages, and 
        that--
                    (A) is not suspended or debarred by the Secretary;
                    (B) is not suspended or on probation imposed by the 
                Mortgagee Review Board;
                    (C) is not in default under any Government National 
                Mortgage Association obligation; and
                    (D) meets previous participation requirements.

SEC. 2103. AUTHORITY OF PARTICIPATING ADMINISTRATIVE ENTITIES.

    (a) Participating Administrative Entities.--
            (1) In general.--The Secretary shall enter into portfolio 
        restructuring agreements with participating administrative 
        entities for the implementation of mortgage restructuring and 
        rental assistance sufficiency plans to restructure FHA-insured 
        multifamily housing mortgages, in order to--
                    (A) reduce the costs of current and expiring 
                contracts for assistance under section 8 of the United 
                States Housing Act of 1937;
                    (B) address financially and physically troubled 
                projects; and
                    (C) correct management and ownership deficiencies.
            (2) Portfolio restructuring agreements.--Each portfolio 
        restructuring agreement entered into under this subsection 
        shall--
                    (A) be a cooperative agreement to establish the 
                obligations and requirements between the Secretary and 
                the participating administrative entity;
                    (B) identify the eligible multifamily housing 
                projects or groups of projects for which the 
                participating administrative entity is responsible for 
                assisting in developing and implementing approved 
                mortgage restructuring and rental assistance 
                sufficiency plans under section 2104;
                    (C) require the participating administrative entity 
                to review and certify to the accuracy and completeness 
                of a comprehensive needs assessment submitted by the 
                owner of an eligible multifamily housing project, in 
                accordance with the information and data requirements 
                of section 403 of the Housing and Community Development 
                Act of 1992, including such other data, information, 
                and requirements as the Secretary may require to be 
                included as part of the comprehensive needs assessment;
                    (D) identify the responsibilities of both the 
                participating administrative entity and the Secretary 
                in implementing a mortgage restructuring and rental 
                assistance sufficiency plan, including any actions 
                proposed to be taken under section 2106 or 2107;
                    (E) require each mortgage restructuring and rental 
                assistance sufficiency plan to be prepared in 
                accordance with the requirements of section 2104 for 
                each eligible multifamily housing project;
                    (F) indemnify the participating administrative 
                entity against lawsuits and penalties for actions taken 
                pursuant to the agreement, excluding actions involving 
                gross negligence or willful misconduct; and
                    (G) include compensation for all reasonable 
                expenses incurred by the participating administrative 
                entity necessary to perform its duties under this part, 
                including such incentives as may be authorized under 
                section 2108.
    (b) Selection of Participating Administrative Entity.--
            (1) Selection criteria.--The Secretary shall select a 
        participating administrative entity based on the following 
        criteria--
                    (A) is located in the State or local jurisdiction 
                in which the eligible multifamily housing project or 
                projects are located;
                    (B) has demonstrated expertise in the development 
                or management of low-income affordable rental housing;
                    (C) has a history of stable, financially sound, and 
                responsible administrative performance;
                    (D) has demonstrated financial strength in terms of 
                asset quality, capital adequacy, and liquidity; and
                    (E) is otherwise qualified, as determined by the 
                Secretary, to carry out the requirements of this part.
            (2) Selection of mortgage risk-sharing entities and fiscal 
        year 1997 multifamily demonstration authority.--Any State 
        housing finance agency or local housing agency that is 
        designated as a qualified participating entity under section 
        542 of the Housing and Community Development Act of 1992 or 
        under section 212 of Public Law 104-204, shall automatically 
        qualify as a participating administrative entity under this 
        section.
            (3) Alternative administrators.--With respect to any 
        eligible multifamily housing project that is located in a State 
        or local jurisdiction in which the Secretary determines that a 
        participating administrative entity is not located, is 
        unavailable, or does not qualify, the Secretary shall either--
                    (A) carry out the requirements of this part with 
                respect to that eligible multifamily housing project; 
                or
                    (B) contract with other qualified entities that 
                meet the requirements of subsection (b), with the 
                exception of subsection (b)(1)(A), the authority to 
                carry out all or a portion of the requirements of this 
                part with respect to that eligible multifamily housing 
                project.
            (4) Preference for public housing finance agencies as 
        participating administrative entities.--In selecting 
        participating administrative entities under this subsection, 
        the Secretary shall give preference to State housing finance 
        agencies and local housing agencies.
            (5) State and local portfolio requirements.--
                    (A) In general.--If the housing finance agency of a 
                State is selected as the participating administrative 
                entity, that agency shall be responsible for all 
                eligible multifamily housing projects in that State, 
                except that a local housing agency selected as a 
                participating administrative entity shall be 
                responsible for all eligible multifamily housing 
                projects in the jurisdiction of the agency.
                    (B) Right of first refusal.--A participating State 
                housing finance agency or local housing agency shall 
                have the right of first refusal to assume 
                responsibility for any properties it has financed.
                    (C) Delegation.--A participating administrative 
                entity may delegate or transfer responsibilities and 
                functions under this part to one or more interested and 
                qualified public entities.
                    (D) Waiver.--A State housing finance agency or 
                local housing agency may request a waiver from the 
                Secretary from the requirements of subparagraph (A) for 
                good cause.

SEC. 2104. MORTGAGE RESTRUCTURING AND RENTAL ASSISTANCE SUFFICIENCY 
              PLAN.

    (a) In General.--
            (1) Development of procedures and requirements.--The 
        Secretary shall develop procedures and requirements for the 
        submission of a mortgage restructuring and rental assistance 
        sufficiency plan for each eligible multifamily housing project 
        with an expiring contract.
            (2) Terms and conditions.--Each mortgage restructuring and 
        rental assistance sufficiency plan submitted under this 
        subsection shall be developed at the initiative of an owner of 
        an eligible multifamily housing project, in cooperation with 
        the qualified mortgagee servicing the loan, with a 
        participating administrative entity, under such terms and 
        conditions as the Secretary shall require.
            (3) Consolidation.--Mortgage restructuring and rental 
        assistance sufficiency plans submitted under this subsection 
        may be consolidated as part of an overall strategy for more 
        than one property.
    (b) Notice Requirements.--The Secretary shall establish notice 
procedures and hearing requirements for tenants and owners concerning 
the dates for the expiration of project-based assistance contracts for 
any eligible multifamily housing project.
    (c) Extension of Contract Term.--Subject to agreement by a project 
owner, the Secretary may extend the term of any expiring contract or 
provide a section 8 contract with rent levels set in accordance with 
subsection (g) for a period sufficient to facilitate the implementation 
of a mortgage restructuring and rental assistance sufficiency plan, as 
determined by the Secretary.
    (d) Tenant Rent Protection.--If the owner of a project with an 
expiring Federal rental assistance contract does not agree to extend 
the contract, not less than 12 months prior to terminating the 
contract, the project owner shall provide written notice to the 
Secretary and the tenants and the Secretary shall make tenant-based 
assistance available to tenants residing in units assisted under the 
expiring contract at the time of expiration.
    (e) Mortgage Restructuring and Rental Assistance Sufficiency 
Plan.--Each mortgage restructuring and rental assistance sufficiency 
plan shall--
            (1) except as otherwise provided, restructure the project-
        based assistance rents for the eligible multifamily housing 
        project in a manner consistent with subsection (g);
            (2) allow for rent adjustments by applying an operating 
        cost adjustment factor established under guidelines established 
        by the Secretary;
            (3) require the owner or purchaser of an eligible 
        multifamily housing project with an expiring contract to submit 
        to the participating administrative entity a comprehensive 
        needs assessment, in accordance with the information and data 
        requirements of section 403 of the Housing and Community 
        Development Act of 1992, including such other data, 
        information, and requirements as the Secretary may require to 
        be included as part of the comprehensive needs assessment;
            (4) require the owner or purchaser of the project to 
        provide or contract for competent management of the project;
            (5) require the owner or purchaser of the project to take 
        such actions as may be necessary to rehabilitate, maintain 
        adequate reserves, and to maintain the project in decent and 
        safe condition, based on housing quality standards established 
        by--
                    (A) the Secretary; or
                    (B) local housing codes or codes adopted by public 
                housing agencies that--
                            (i) meet or exceed housing quality 
                        standards established by the Secretary; and
                            (ii) do not severely restrict housing 
                        choice;
            (6) require the owner or purchaser of the project to 
        maintain affordability and use restrictions for the remaining 
        term of the existing mortgage and, if applicable, the remaining 
        term of the second mortgage, as the participating 
        administrative entity determines to be appropriate and 
        consistent with the rent levels established under subsection 
        (g), which restrictions shall be consistent with the long-term 
        physical and financial viability character of the project as 
        affordable housing;
            (7) meet subsidy layering requirements under guidelines 
        established by the Secretary;
            (8) require the owner or purchaser of the project to meet 
        such other requirements as the Secretary determines to be 
        appropriate; and
            (9) prohibit the owner from refusing to lease any available 
        dwelling unit to a recipient of tenant-based assistance under 
        section 8 of the United States Housing Act of 1937.
    (f) Tenant and Community Participation and Capacity Building.--
            (1) Procedures.--
                    (A) In general.--The Secretary shall establish 
                procedures to provide an opportunity for tenants of the 
                project and other affected parties, including local 
                government and the community in which the project is 
                located, to participate effectively in the 
                restructuring process established by this part.
                    (B) Criteria.--These procedures shall include--
                            (i) the rights to timely and adequate 
                        written notice of the proposed decisions of the 
                        owner or the Secretary or participating 
                        administrative entity;
                            (ii) timely access to all relevant 
                        information (except for information determined 
                        to be proprietary under standards established 
                        by the Secretary);
                            (iii) an adequate period to analyze this 
                        information and provide comments to the 
                        Secretary or participating administrative 
                        entity (which comments shall be taken into 
                        consideration by the participating 
                        administrative entity); and
                            (iv) if requested, a meeting with a 
                        representative of the participating 
                        administrative entity and other affected 
                        parties.
            (2) Procedures required.--The procedures established under 
        paragraph (1) shall permit tenant, local government, and 
        community participation in at least the following decisions or 
        plans specified in this part:
                    (A) The Portfolio Restructuring Agreement.
                    (B) Any proposed expiration of the section 8 
                contract.
                    (C) The project's eligibility for restructuring 
                pursuant to section 2106 and the mortgage restructuring 
                and rental assistance sufficiency plan pursuant to 
                section 2104.
                    (D) Physical inspections.
                    (E) Capital needs and management assessments, 
                whether before or after restructuring.
                    (F) Any proposed transfer of the project.
            (3) Funding.--
                    (A) In general.--The Secretary may provide not more 
                than $10,000,000 annually in funding to tenant groups, 
                nonprofit organizations, and public entities for 
                building the capacity of tenant organizations, for 
                technical assistance in furthering any of the purposes 
                of this part (including transfer of developments to new 
                owners) and for tenant services, from those amounts 
                made available under appropriations Acts for 
                implementing this part.
                    (B) Allocation.--The Secretary may allocate any 
                funds made available under subparagraph (A) through 
                existing technical assistance programs pursuant to any 
                other Federal law, including the Low-Income Housing 
                Preservation and Resident Homeownership Act of 1990 and 
                the Multifamily Property Disposition Reform Act of 
                1994.
                    (C) Prohibition.--None of the funds made available 
                under subparagraph (A) may be used directly or 
                indirectly to pay for any personal service, 
                advertisement, telegram, telephone, letter, printed or 
                written matter, or other device, intended or designed 
                to influence in any manner a Member of Congress, to 
                favor or oppose, by vote or otherwise, any legislation 
                or appropriation by Congress, whether before or after 
                the introduction of any bill or resolution proposing 
                such legislation or appropriation.
    (g) Rent Levels.--
            (1) In general.--Except as provided in paragraph (2), each 
        mortgage restructuring and rental assistance sufficiency plan 
        pursuant to the terms, conditions, and requirements of this 
        part shall establish for units assisted with project-based 
        assistance in eligible multifamily housing projects adjusted 
        rent levels that--
                    (A) are equivalent to rents derived from comparable 
                properties, if--
                            (i) the participating administrative entity 
                        makes the rent determination not later than 120 
                        days after the owner submits a mortgage 
                        restructuring and rental assistance sufficiency 
                        plan; and
                            (ii) the market rent determination is based 
                        on not less than 2 comparable properties; or
                    (B) if those rents cannot be determined, are equal 
                to 90 percent of the fair market rents for the relevant 
                market area.
            (2) Exceptions.--
                    (A) In general.--A contract under this section may 
                include rent levels that exceed the rent level 
                described in paragraph (1) at rent levels that do not 
                exceed 120 percent of the local fair market rent if the 
                participating administrative entity--
                            (i) determines, that the housing needs of 
                        the tenants and the community cannot be 
                        adequately addressed through implementation of 
                        the rent limitation required to be established 
                        through a mortgage restructuring and rental 
                        assistance sufficiency plan under paragraph 
                        (1); and
                            (ii) follows the procedures under paragraph 
                        (3).
                    (B) Exception rents.--In any fiscal year, a 
                participating administrative entity may approve 
                exception rents on not more than 20 percent of all 
                units in the geographic jurisdiction of the entity with 
                expiring contracts in that fiscal year, except that the 
                Secretary may waive this ceiling upon a finding of 
                special need in the geographic area served by the 
                participating administrative entity.
            (3) Rent levels for exception projects.--For purposes of 
        this section, a project eligible for an exception rent shall 
        receive a rent calculation on the actual and projected costs of 
        operating the project, at a level that provides income 
        sufficient to support a budget-based rent that consists of--
                    (A) the debt service of the project;
                    (B) the operating expenses of the project, as 
                determined by the participating administrative entity, 
                including--
                            (i) contributions to adequate reserves;
                            (ii) the costs of maintenance and necessary 
                        rehabilitation; and
                            (iii) other eligible costs permitted under 
                        section 8 of the United States Housing Act of 
                        1937;
                    (C) an adequate allowance for potential operating 
                losses due to vacancies and failure to collect rents, 
                as determined by the participating administrative 
                entity;
                    (D) an allowance for a reasonable rate of return to 
                the owner or purchaser of the project, as determined by 
                the participating administrative entity, which may be 
                established to provide incentives for owners or 
                purchasers to meet benchmarks of quality for management 
                and housing quality; and
                    (E) other expenses determined by the participating 
                administrative entity to be necessary for the operation 
                of the project.
    (h) Exemptions From Restructuring.--Subject to section 2106, the 
Secretary shall renew project-based assistance contracts at existing 
rents, or at a level that provides income sufficient to support a 
budget-based rent (including a budget-based rent adjustment if 
justified by reasonable and expected operating expenses), if--
            (1) the project was financed through obligations such that 
        the implementation of a mortgage restructuring and rental 
        assistance sufficiency plan under this section is inconsistent 
        with applicable law or agreements governing such financing;
            (2) in the determination of the Secretary or the 
        participating administrative entity, the restructuring would 
        not result in significant section 8 savings to the Secretary; 
        or
            (3) the project has an expiring contract under section 8 of 
        the United States Housing Act of 1937 but does not qualify as 
        an eligible multifamily housing project pursuant to section 
        2102(2) of this part.

SEC. 2105. SECTION 8 RENEWALS AND LONG-TERM AFFORDABILITY COMMITMENT BY 
              OWNER OF PROJECT.

    (a) Section 8 Renewals of Restructured Projects.--Subject to the 
availability of amounts provided in advance in appropriations Acts, the 
Secretary shall enter into contracts with participating administrative 
entities pursuant to which the participating administrative entity 
shall offer to renew or extend an expiring section 8 contract on an 
eligible multifamily housing project, and the owner of the project 
shall accept the offer, provided the initial renewal is in accordance 
with the terms and conditions specified in the mortgage restructuring 
and rental assistance sufficiency plan.
    (b) Required Commitment.--After the initial renewal of a section 8 
contract pursuant to this section, the owner shall accept each offer 
made pursuant to subsection (a) to renew the contract, for the 
remaining term of the existing mortgage and, if applicable, the 
remaining term of an existing second mortgage, if the offer to renew is 
on terms and conditions specified in the mortgage restructuring and 
rental assistance sufficiency plan.

SEC. 2106. PROHIBITION ON RESTRUCTURING.

    (a) Prohibition on Restructuring.--The Secretary shall not consider 
any mortgage restructuring and rental assistance sufficiency plan or 
request for contract renewal if the participating administrative entity 
determines that--
            (1) the owner or purchaser of the project has engaged in 
        material adverse financial or managerial actions or omissions 
        with regard to this project (or with regard to other similar 
        projects if the Secretary determines that those actions or 
        omissions constitute a pattern of mismanagement that would 
        warrant suspension or debarment by the Secretary), including--
                    (A) materially violating any Federal, State, or 
                local law or regulation with regard to this project or 
                any other federally assisted project, after receipt of 
                notice and an opportunity to cure;
                    (B) materially breaching a contract for assistance 
                under section 8 of the United States Housing Act of 
                1937, after receipt of notice and an opportunity to 
                cure;
                    (C) materially violating any applicable regulatory 
                or other agreement with the Secretary or a 
                participating administrative entity, after receipt of 
                notice and an opportunity to cure;
                    (D) repeatedly and materially violating any 
                Federal, State, or local law or regulation with regard 
                to the project or any other federally assisted project;
                    (E) repeatedly and materially breaching a contract 
                for assistance under section 8 of the United States 
                Housing Act of 1937;
                    (F) repeatedly and materially violating any 
                applicable regulatory or other agreement with the 
                Secretary or a participating administrative entity;
                    (G) repeatedly failing to make mortgage payments at 
                times when project income was sufficient to maintain 
                and operate the property;
                    (H) materially failing to maintain the property 
                according to housing quality standards after receipt of 
                notice and a reasonable opportunity to cure; or
                    (I) committing any actions or omissions that would 
                warrant suspension or debarment by the Secretary;
            (2) the owner or purchaser of the property materially 
        failed to follow the procedures and requirements of this part, 
        after receipt of notice and an opportunity to cure; or
            (3) the poor condition of the project cannot be remedied in 
        a cost effective manner, as determined by the participating 
        administrative entity.
    (b) Opportunity To Dispute Findings.--
            (1) In general.--During the 30-day period beginning on the 
        date on which the owner or purchaser of an eligible multifamily 
        housing project receives notice of a rejection under subsection 
        (a) or of a mortgage restructuring and rental assistance 
        sufficiency plan under section 2104, the Secretary or 
        participating administrative entity shall provide that owner or 
        purchaser with an opportunity to dispute the basis for the 
        rejection and an opportunity to cure.
            (2) Affirmation, modification, or reversal.--
                    (A) In general.--After providing an opportunity to 
                dispute under paragraph (1), the Secretary or the 
                participating administrative entity may affirm, modify, 
                or reverse any rejection under subsection (a) or 
                rejection of a mortgage restructuring and rental 
                assistance sufficiency plan under section 2104.
                    (B) Reasons for decision.--The Secretary or the 
                participating administrative entity, as applicable, 
                shall identify the reasons for any final decision under 
                this paragraph.
                    (C) Review process.--The Secretary shall establish 
                an administrative review process to appeal any final 
                decision under this paragraph.
    (c) Final Determination.--Any final determination under this 
section shall not be subject to judicial review.
    (d) Displaced Tenants.--Subject to the availability of amounts 
provided in advance in appropriations Acts, for any low-income tenant 
that is residing in a project or receiving assistance under section 8 
of the United States Housing Act of 1937 at the time of rejection under 
this section, that tenant shall be provided with tenant-based 
assistance and reasonable moving expenses, as determined by the 
Secretary.
    (e) Transfer of Property.--For properties disqualified from the 
consideration of a mortgage restructuring and rental assistance 
sufficiency plan under this section because of actions by an owner or 
purchaser in accordance with paragraph (1) or (2) of subsection (a), 
the Secretary shall establish procedures to facilitate the voluntary 
sale or transfer of a property as part of a mortgage restructuring and 
rental assistance sufficiency plan, with a preference for tenant 
organizations and tenant-endorsed community-based nonprofit and public 
agency purchasers meeting such reasonable qualifications as may be 
established by the Secretary, which purchasers shall be eligible to 
receive project-based assistance under section 8 of the United States 
Housing Act of 1937.

SEC. 2107. RESTRUCTURING TOOLS.

    (a) Restructuring Tools.--In this part, and to the extent these 
actions are consistent with this section, an approved mortgage 
restructuring and rental assistance sufficiency plan may include one or 
more of the following:
            (1) Full or partial payment of claim.--Making a full 
        payment of claim or partial payment of claim under section 
        541(b) of the National Housing Act. Any payment under this 
        paragraph shall not require the approval of a mortgagee.
            (2) Refinancing of debt.--Refinancing of all or part of the 
        debt on a project, if the refinancing would result in 
        significant subsidy savings under section 8 of the United 
        States Housing Act of 1937.
            (3) Mortgage insurance.--Providing FHA multifamily mortgage 
        insurance, reinsurance or other credit enhancement 
        alternatives, including multifamily risk-sharing mortgage 
        programs, as provided under section 542 of the Housing and 
        Community Development Act of 1992. Any limitations on the 
        number of units available for mortgage insurance under section 
        542 shall not apply to eligible multifamily housing projects. 
        Any credit subsidy costs of providing mortgage insurance shall 
        be paid from the General Insurance Fund and the Special Risk 
        Insurance Fund.
            (4) Credit enhancement.--Any additional State or local 
        mortgage credit enhancements and risk-sharing arrangements may 
        be established with State or local housing finance agencies, 
        the Federal Housing Finance Board, the Federal National 
        Mortgage Association, and the Federal Home Loan Mortgage 
        Corporation, to a modified first mortgage.
            (5) Compensation of third parties.--Entering into 
        agreements, incurring costs, or making payments, as may be 
        reasonably necessary, to compensate the participation of 
        participating administrative entities and other parties in 
        undertaking actions authorized by this part. Upon request, 
        participating administrative entities shall be considered to be 
        contract administrators under section 8 of the United States 
        Housing Act of 1937 for purposes of any contracts entered into 
        as part of an approved mortgage restructuring and rental 
        assistance sufficiency plan. Subject to the availability of 
        amounts provided in advance in appropriations Acts for 
        administrative fees under section 8 of the United States 
        Housing Act of 1937, such fees shall be used to compensate 
        participating administrative entities for compliance monitoring 
        costs incurred under section 2110.
            (6) Residual receipts.--Applying any acquired residual 
        receipts to maintain the long-term affordability and physical 
        condition of the property or of other eligible multifamily 
        housing projects. The participating administrative entity may 
        expedite the acquisition of residual receipts by entering into 
        agreements with owners of housing covered by an expiring 
        contract to provide an owner with a share of the receipts, not 
        to exceed 10 percent.
            (7) Rehabilitation needs.--Assisting in addressing the 
        necessary rehabilitation needs of the project, except that 
        assistance under this paragraph shall not exceed the equivalent 
        of $5,000 per unit for those units covered with project-based 
        assistance. Rehabilitation may be paid from the provision of 
        grants from residual receipts or, as provided in appropriations 
        Acts, from budget authority provided for increases in the 
        budget authority for assistance contracts under section 8 of 
        the United States Housing Act of 1937, the rehabilitation grant 
        program established under section 2201 of this subtitle, or 
        through the debt restructuring transaction. Each owner that 
        receives rehabilitation assistance shall contribute not less 
        than 25 percent of the amount of rehabilitation assistance 
        received.
            (8) Mortgage restructuring.--Restructuring mortgages to 
        provide a structured first mortgage to cover rents at levels 
        that are established in section 2104(g) and a second mortgage 
        equal to the difference between the restructured first mortgage 
        and the mortgage balance of the eligible multifamily housing 
        project at the time of restructuring. The second mortgage shall 
        bear interest at a rate not to exceed the applicable Federal 
        rate for a term not to exceed 50 years. If the first mortgage 
        remains outstanding, payments of interest and principal on the 
        second mortgage shall be made from a portion of the excess 
        project income only after the payment of all reasonable and 
        necessary operating expenses (including deposits in a reserve 
        for replacement), debt service on the first mortgage, and such 
        other expenditures as may be approved by the Secretary. Such 
        portion shall be equal to not less than 75 percent of excess 
        project income. The participating administrative entity may 
        provide up to 25 percent of the excess project income to the 
        project owner if the participating administrative entity 
        determines that the project owner meets benchmarks of quality 
        for management and housing quality. During the period in which 
        the first mortgage remains outstanding, no payments of interest 
        or principal shall be required on the second mortgage. The 
        second mortgage shall be assumable by any subsequent purchaser 
        of any multifamily housing project, pursuant to guidelines 
        established by the Secretary. The participating administrative 
        entity may be authorized to modify the terms or forgive all or 
        part of the second mortgage upon acquisition by a tenant 
        organization or tenant-endorsed community-based nonprofit or 
        public agency, pursuant to guidelines established by the 
        Secretary. The principal and accrued interest due under the 
        second mortgage shall be fully payable upon disposition of the 
        property, unless the mortgage is assumed under the preceding 
        sentence. The owner shall begin repayment of the second 
        mortgage upon full payment of the first mortgage in equal 
        monthly installments in an amount equal to the monthly 
        principal and interest payments formerly paid under the first 
        mortgage. The principal and interest of a second mortgage shall 
        be immediately due and payable upon a finding by the Secretary 
        that an owner has failed to materially comply with this part or 
        any requirements of the United States Housing Act of 1937 as 
        those requirements apply to the applicable project, after 
        receipt of notice of such failure and a reasonable opportunity 
        to cure such failure. The second mortgage may be a direct 
        obligation of the Secretary or a loan financed through a 
        lender, other than the Secretary. If the second mortgage is a 
        direct obligation of the Secretary, the participating 
        administrative entity shall be authorized in the portfolio 
        restructuring agreement to act as the agent of the Secretary in 
        servicing such mortgage and enforcing the rights of the 
        Secretary thereunder. Any credit subsidy costs of providing a 
        second mortgage shall be paid from the General Insurance Fund 
        and the Special Risk Insurance Fund.
    (b) Role of FNMA and FHLMC.--Section 1335 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4565) 
is amended--
            (1) in paragraph (3), by striking ``and'' at the end;
            (2) paragraph (4), by striking the period at the end and 
        inserting ``; and'';
            (3) by striking ``To meet'' and inserting the following:
    ``(a) In General.--To meet''; and
            (4) by adding at the end the following:
            ``(5) assist in maintaining the affordability of assisted 
        units in eligible multifamily housing projects with expiring 
contracts, as defined under the Multifamily Assisted Housing Reform and 
Affordability Act of 1997.
    ``(b) Affordable Housing Goals.--Actions taken under subsection 
(a)(5) shall constitute part of the contribution of each entity in 
meeting their affordable housing goals under sections 1332, 1333, and 
1334 for any fiscal year, as determined by the Secretary.''.
    (c) Prohibition on Equity Sharing by the Secretary.--The Secretary 
is prohibited from participating in any equity agreement or profit-
sharing agreement in conjunction with any eligible multifamily housing 
project.

SEC. 2108. SHARED SAVINGS INCENTIVE.

    (a) In General.--At the time a participating administrative entity 
is designated, the Secretary shall negotiate an incentive agreement 
with the participating administrative entity, which agreement shall 
provide such entity with a share of any principal and interest payments 
on the second mortgage. The Secretary shall negotiate with 
participating administrative entities a savings incentive formula that 
provides for periodic payments over a period of not less than 5 years, 
which is allocated as incentives to participating administrative 
entities.
    (b) Use of Savings.--Notwithstanding any other provision of law, 
the incentive agreement under subsection (a) shall require any savings 
provided to a participating administrative entity under that agreement 
to be used only for providing decent, safe, and affordable housing for 
very low-income families and persons with a priority for eligible 
multifamily housing projects.

SEC. 2109. MANAGEMENT STANDARDS.

    Each participating administrative entity shall establish and 
implement management standards, including requirements governing 
conflicts of interest between owners, managers, contractors with an 
identity of interest, pursuant to guidelines established by the 
Secretary and consistent with industry standards.

SEC. 2110. MONITORING OF COMPLIANCE.

    (a) Compliance Agreements.--Pursuant to regulations issued by the 
Secretary after public notice and comment, each participating 
administrative entity, through binding contractual agreements with 
owners and otherwise, shall ensure long-term compliance with the 
provisions of this part. Each agreement shall, at a minimum, provide 
for--
            (1) enforcement of the provisions of this part; and
            (2) remedies for the breach of those provisions.
    (b) Periodic Monitoring.--
            (1) In general.--Not less than annually, each participating 
        administrative entity shall review the status of all 
        multifamily housing projects for which a mortgage restructuring 
        and rental assistance sufficiency plan has been implemented.
            (2) Inspections.--Each review under this subsection shall 
        include onsite inspection to determine compliance with housing 
        codes and other requirements as provided in this part and the 
        portfolio restructuring agreements.
    (c) Audit by the Secretary.--The Comptroller General of the United 
States, the Secretary, and the Inspector General of the Department of 
Housing and Urban Development may conduct an audit at any time of any 
multifamily housing project for which a mortgage restructuring and 
rental assistance sufficiency plan has been implemented.

SEC. 2111. REVIEW.

    (a) Annual Review.--In order to ensure compliance with this part, 
the Secretary shall conduct an annual review and report to Congress on 
actions taken under this part and the status of eligible multifamily 
housing projects.
    (b) Subsidy Layering Review.--The participating administrative 
entity shall certify, pursuant to guidelines issued by the Secretary, 
that the requirements of section 102(d) of the Department of Housing 
and Urban Development Reform Act of 1989 are satisfied so that the 
combination of assistance provided in connection with a property for 
which a mortgage is to be restructured shall not be any greater than is 
necessary to provide affordable housing.

SEC. 2112. GAO AUDIT AND REVIEW.

    (a) Initial Audit.--Not later than 18 months after the effective 
date of interim or final regulations promulgated under this part, the 
Comptroller General of the United States shall conduct an audit to 
evaluate a representative sample of all eligible multifamily housing 
projects and the implementation of all mortgage restructuring and 
rental assistance sufficiency plans.
    (b) Report.--
            (1) In general.--Not later than 18 months after the audit 
        conducted under subsection (a), the Comptroller General of the 
        United States shall submit to Congress a report on the status 
        of all eligible multifamily housing projects and the 
        implementation of all mortgage restructuring and rental 
        assistance sufficiency plans.
            (2) Contents.--The report submitted under paragraph (1) 
        shall include--
                    (A) a description of the initial audit conducted 
                under subsection (a); and
                    (B) recommendations for any legislative action to 
                increase the financial savings to the Federal 
                Government of the restructuring of eligible multifamily 
                housing projects balanced with the continued 
                availability of the maximum number of affordable low-
                income housing units.

SEC. 2113. REGULATIONS.

    (a) Rulemaking and Implementation.--The Secretary shall issue 
interim regulations necessary to implement this part not later than the 
expiration of the 6-month period beginning on the date of enactment of 
this Act. Not later than 1 year after the date of enactment of this 
subtitle, in accordance with the negotiated rulemaking procedures set 
forth in subchapter III of chapter 5 of title 5, United States Code, 
the Secretary shall implement final regulations implementing this part.
    (b) Repeal of FHA Multifamily Housing Demonstration Authority.--
            (1) In general.--Beginning upon the expiration of the 6-
        month period beginning on the date of enactment of this Act, 
        the Secretary may not exercise any authority or take any action 
        under section 210 of the Balanced Budget Down Payment Act, II.
            (2) Unused budget authority.--Any unused budget authority 
        under section 210(f) of the Balanced Budget Down Payment Act, 
        II, shall be available for taking actions under the 
        requirements established through regulations issued under 
        subsection (a).

SEC. 2114. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Calculation of Limit on Project-Based Assistance.--Section 8(d) 
of the United States Housing Act of 1937 (42 U.S.C. 1437f(d)) is 
amended by adding at the end the following:
            ``(5) Calculation of limit.--Any contract entered into 
        under section 2104 of the Multifamily Assisted Housing Reform 
        and Affordability Act of 1997 shall be excluded in computing 
        the limit on project-based assistance under this subsection.''.
    (b) Partial Payment of Claims on Multifamily Housing Projects.--
Section 541 of the National Housing Act (12 U.S.C. 1735f-19) is 
amended--
            (1) in subsection (a), in the subsection heading, by 
        striking ``Authority'' and inserting ``Defaulted Mortgages'';
            (2) by redesignating subsection (b) as subsection (c); and
            (3) by inserting after subsection (a) the following:
    ``(b) Existing Mortgages.--Notwithstanding any other provision of 
law, the Secretary, in connection with a mortgage restructuring under 
section 2104 of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997, may make a one time, nondefault partial 
payment of the claim under the mortgage insurance contract, which shall 
include a determination by the Secretary or the participating 
administrative entity, in accordance with the Multifamily Assisted 
Housing Reform and Affordability Act of 1997, of the market value of 
the project and a restructuring of the mortgage, under such terms and 
conditions as the Secretary may establish.''.
    (c) Reuse and Rescission of Certain Recaptured Budget Authority.--
Section 8(bb) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(b)(b)) is amended to read as follows:
    ``(bb) Reuse and Rescission of Certain Recaptured Budget 
Authority.--If a project-based assistance contract for an eligible 
multifamily housing project subject to actions authorized under title I 
is terminated or amended as part of restructuring under section 107, 
the Secretary shall recapture the budget authority not required for the 
terminated or amended contract and, without regard to section 218 of 
the Departments of Veterans Affairs and Housing and Urban Development, 
and Independent Agencies Appropriations Act of 1997, use such amounts 
as are necessary to provide housing assistance for the same number of 
families covered by such contract for the remaining term of such 
contract, under a contract providing for project-based or tenant-based 
assistance. The amount of budget authority saved as a result of the 
shift to project-based or tenant-based assistance shall be 
rescinded.''.

SEC. 2115. TERMINATION OF AUTHORITY.

    (a) In General.--Except as provided in subsection (b), this part is 
repealed effective October 1, 2001.
    (b) Exception.--The repeal under this section does not apply with 
respect to projects and programs for which binding commitments have 
been entered into before October 1, 2001.

                    Part 2--Miscellaneous Provisions

SEC. 2201. REHABILITATION GRANTS FOR CERTAIN INSURED PROJECTS.

    Section 236 of the National Housing Act (12 U.S.C. 1715z-1) is 
amended by adding at the end the following:
    ``(s) Grant Authority.--
            ``(1) In general.--The Secretary may make grants for the 
        capital costs of rehabilitation to owners of projects that meet 
        the eligibility and other criteria set forth in, and in 
        accordance with, this subsection.
            ``(2) Project eligibility.--A project may be eligible for 
        capital grant assistance under this subsection--
                    ``(A) if--
                            ``(i) the project was insured under section 
                        236 or section 221(d)(3) of the National 
                        Housing Act; and
                            ``(ii) the project was assisted by the loan 
                        management assistance program under section 8 
                        of the United States Housing Act of 1937 on the 
                        date of enactment of the Multifamily Assisted 
                        Housing Reform and Affordability Act of 1997;
                    ``(B) if the project owner agrees to maintain the 
                housing quality standards that were in effect 
                immediately prior to the extinguishment of the mortgage 
                insurance;
                    ``(C) if the Secretary determines that the owner or 
                purchaser of the project has not engaged in material 
                adverse financial or managerial actions or omissions 
                with regard to this project (or with regard to other 
                similar projects if the Secretary determines that those 
actions or omissions constitute a pattern of mismanagement that would 
warrant suspension or debarment by the Secretary), including--
                            ``(i) materially violating any Federal, 
                        State, or local law or regulation with regard 
                        to this project or any other federally assisted 
                        project, after receipt of notice and an 
                        opportunity to cure;
                            ``(ii) materially breaching a contract for 
                        assistance under section 8 of the United States 
                        Housing Act of 1937, after receipt of notice 
                        and an opportunity to cure;
                            ``(iii) materially violating any applicable 
                        regulatory or other agreement with the 
                        Secretary or a participating administrative 
                        entity, after receipt of notice and an 
                        opportunity to cure;
                            ``(iv) repeatedly failing to make mortgage 
                        payments at times when project income was 
                        sufficient to maintain and operate the 
                        property;
                            ``(v) materially failing to maintain the 
                        property according to housing quality standards 
                        after receipt of notice and a reasonable 
                        opportunity to cure; or
                            ``(vi) committing any act or omission that 
                        would warrant suspension or debarment by the 
                        Secretary; and
                    ``(D) if the project owner demonstrates to the 
                satisfaction of the Secretary--
                            ``(i) using information in a comprehensive 
                        needs assessment, that capital grant assistance 
                        is needed for rehabilitation of the project; 
                        and
                            ``(ii) that project income is not 
                        sufficient to support such rehabilitation.
            ``(3) Eligible purposes.--The Secretary may make grants to 
        the owners of eligible projects for the purposes of--
                    ``(A) payment into project replacement reserves;
                    ``(B) providing a fair return on equity investment;
                    ``(C) debt service payments on non-Federal 
                rehabilitation loans; and
                    ``(D) payment of nonrecurring maintenance and 
                capital improvements, under such terms and conditions 
                as are determined by the Secretary.
            ``(4) Grant agreement.--
                    ``(A) In general.--The Secretary shall provide in 
                any grant agreement under this subsection that the 
                grant shall be terminated if the project fails to meet 
                housing quality standards, as applicable on the date of 
                enactment of the Multifamily Housing Reform and 
                Affordability Act of 1997, or any successor standards 
                for the physical conditions of projects, as are 
                determined by the Secretary.
                    ``(B) Affordability and use clauses.--The Secretary 
                shall include in a grant agreement under this 
                subsection a requirement for the project owners to 
                maintain such affordability and use restrictions as the 
                Secretary determines to be appropriate.
                    ``(C) Other terms.--The Secretary may include in a 
                grant agreement under this subsection such other terms 
                and conditions as the Secretary determines to be 
                necessary.
            ``(5) Delegation.--
                    ``(A) In general.--In addition to the authorities 
                set forth in subsection (p), the Secretary may delegate 
                to State and local governments the responsibility for 
                the administration of grants under this subsection. Any 
                such government may carry out such delegated 
                responsibilities directly or under contracts.
                    ``(B) Administration costs.--In addition to other 
                eligible purposes, amounts of grants under this 
                subsection may be made available for costs of 
                administration under subparagraph (A).
            ``(6) Funding.--
                    ``(A) In general.--For purposes of carrying out 
                this subsection, the Secretary may make available 
                amounts that are unobligated amounts for contracts for 
                interest reduction payments--
                            ``(i) that were previously obligated for 
                        contracts for interest reduction payments under 
                        this section until insurance under this section 
                        was extinguished;
                            ``(ii) that become available as a result of 
                        the outstanding principal balance of a mortgage 
                        having been written down;
                            ``(iii) that are uncommitted balances 
                        within the limitation on maximum payments that 
                        may have been, before the date of enactment of 
                        the Multifamily Assisted Housing Reform and 
                        Affordability Act of 1997, permitted in any 
                        fiscal year; or
                            ``(iv) that become available from any other 
                        source.
                    ``(B) Liquidation authority.--The Secretary may 
                liquidate obligations entered into under this 
                subsection under section 1305(10) of title 31, United 
                States Code.
                    ``(C) Capital grants.--In making capital grants 
                under the terms of this subsection, using the amounts 
                that the Secretary has recaptured from contracts for 
                interest reduction payments, the Secretary shall ensure 
                that the rates and amounts of outlays do not at any one 
                time exceed the rates and amounts of outlays that would 
                have been experienced if the insurance had not been 
                extinguished or the principal amount had not been 
                written down, and the interest reduction payments that 
                the Secretary has recaptured had continued in 
                accordance with the terms in effect immediately prior 
                to such extinguishment or write-down.''.

SEC. 2202. MINIMUM RENT.

    Notwithstanding section 3(a) of the United States Housing Act of 
1937, the Secretary of Housing and Urban Development may provide that 
each family receiving project-based assistance under section 8 shall 
pay a minimum monthly rent in an amount not to exceed $25 per month.

SEC. 2203. REPEAL OF FEDERAL PREFERENCES.

    (a) Section 8 Existing and Moderate Rehabilitation.--Section 
8(d)(1)(A) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(d)(1)(A)) is amended to read as follows:
            ``(A) the selection of tenants shall be the function of the 
        owner, subject to the annual contributions contract between the 
        Secretary and the agency, except that with respect to the 
        certificate and moderate rehabilitation programs only, for the 
        purpose of selecting families to be assisted, the public 
        housing agency may establish, after public notice and an 
        opportunity for public comment, a written system of preferences 
        for selection that are not inconsistent with the comprehensive 
        housing affordability strategy for the jurisdiction in which 
        the project is located, in accordance with title I of the 
        Cranston-Gonzalez National Affordable Housing Act;''.
    (b) Section 8 New Construction and Substantial Rehabilitation.--
            (1) Repeal.--Section 545(c) of the Cranston-Gonzalez 
        National Affordable Housing Act (42 U.S.C. 1437f note) is 
        amended to read as follows:
    ``(c) [Reserved.]''.
            (2) Prohibition.--The provisions of section 8(e)(2) of the 
        United States Housing Act of 1937, as in existence on the day 
        before October 1, 1983, that require tenant selection 
        preferences shall not apply with respect to--
                    (A) housing constructed or substantially 
                rehabilitated pursuant to assistance provided under 
                section 8(b)(2) of the United States Housing Act of 
                1937, as in existence on the day before October 1, 
                1983; or
                    (B) projects financed under section 202 of the 
                Housing Act of 1959, as in existence on the day before 
                the date of enactment of the Cranston-Gonzalez National 
                Affordable Housing Act.
    (c) Rent Supplements.--Section 101(k) of the Housing and Urban 
Development Act of 1965 (12 U.S.C. 1701s(k)) is amended to read as 
follows:
    ``(k) [Reserved.]''.
    (d) Conforming Amendments.--
            (1) United states housing act of 1937.--The United States 
        Housing Act of 1937 (42 U.S.C. 1437 et seq.) is amended--
                    (A) in section 6(o), by striking ``preference rules 
                specified in'' and inserting ``written selection 
                criteria established pursuant to'';
                    (B) in section 8(d)(2)(A), by striking the last 
                sentence; and
                    (C) in section 8(d)(2)(H), by striking 
                ``Notwithstanding subsection (d)(1)(A)(i), an'' and 
                inserting ``An''.
            (2) Cranston-gonzalez national affordable housing act.--The 
        Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
        12704 et seq.) is amended--
                    (A) in section 455(a)(2)(D)(iii), by striking 
                ``would qualify for a preference under'' and inserting 
                ``meet the written selection criteria established 
                pursuant to''; and
                    (B) in section 522(f)(6)(B), by striking ``any 
                preferences for such assistance under section 
                8(d)(1)(A)(i)'' and inserting ``the written selection 
                criteria established pursuant to section 8(d)(1)(A)''.
            (3) Low-income housing preservation and resident 
        homeownership act of 1990.--The second sentence of section 
        226(b)(6)(B) of the Low-Income Housing Preservation and 
        Resident Homeownership Act of 1990 (12 U.S.C. 4116(b)(6)(B)) is 
        amended by striking ``requirement for giving preferences to 
        certain categories of eligible families under'' and inserting 
        ``written selection criteria established pursuant to''.
            (4) Housing and community development act of 1992.--Section 
        655 of the Housing and Community Development Act of 1992 (42 
        U.S.C. 13615) is amended by striking ``preferences for 
        occupancy'' and all that follows before the period at the end 
        and inserting ``selection criteria established by the owner to 
        elderly families according to such written selection criteria, 
        and to near-elderly families according to such written 
        selection criteria, respectively''.
            (5) References in other law.--Any reference in any Federal 
        law other than any provision of any law amended by paragraphs 
        (1) through (5) of this subsection or to the preferences for 
        assistance under section 8(d)(1)(A)(i) of the United States 
        Housing Act of 1937, as that section existed on the day before 
        the effective date of this part, shall be considered to refer 
        to the written selection criteria established pursuant to 
        section 8(d)(1)(A) of the United States Housing Act of 1937, as 
        amended by this subsection.

                     Part 3--Enforcement Provisions

SEC. 2301. IMPLEMENTATION.

    (a) Issuance of Necessary Regulations.--Notwithstanding section 
7(o) of the Department of Housing and Urban Development Act or part 10 
of title 24, Code of Federal Regulations (as in existence on the date 
of enactment of this Act), the Secretary shall issue such regulations 
as the Secretary determines to be necessary to implement this subtitle 
and the amendments made by this subtitle in accordance with section 552 
or 553 of title 5, United States Code, as determined by the Secretary.
    (b) Use of Existing Regulations.--In implementing any provision of 
this subtitle, the Secretary may, in the discretion of the Secretary, 
provide for the use of existing regulations to the extent appropriate, 
without rulemaking.

          Subpart A--FHA Single Family and Multifamily Housing

SEC. 2311. AUTHORIZATION TO IMMEDIATELY SUSPEND MORTGAGEES.

    Section 202(c)(3)(C) of the National Housing Act (12 U.S.C. 
1708(c)(3)(C)) is amended by inserting after the first sentence the 
following: ``Notwithstanding paragraph (4)(A), a suspension shall be 
effective upon issuance by the Board if the Board determines that there 
exists adequate evidence that immediate action is required to protect 
the financial interests of the Department or the public.''.

SEC. 2312. EXTENSION OF EQUITY SKIMMING TO OTHER SINGLE FAMILY AND 
              MULTIFAMILY HOUSING PROGRAMS.

    Section 254 of the National Housing Act (12 U.S.C. 1715z-19) is 
amended to read as follows:

``SEC. 254. EQUITY SKIMMING PENALTY.

    ``(a) In General.--Whoever, as an owner, agent, or manager, or who 
is otherwise in custody, control, or possession of a multifamily 
project or a 1- to 4-family residence that is security for a mortgage 
note that is described in subsection (b), willfully uses or authorizes 
the use of any part of the rents, assets, proceeds, income, or other 
funds derived from property covered by that mortgage note for any 
purpose other than to meet reasonable and necessary expenses that 
include expenses approved by the Secretary if such approval is 
required, in a period during which the mortgage note is in default or 
the project is in a nonsurplus cash position, as defined by the 
regulatory agreement covering the property, or the mortgagor has failed 
to comply with the provisions of such other form of regulatory control 
imposed by the Secretary, shall be fined not more than $500,000, 
imprisoned not more than 5 years, or both.
    ``(b) Mortgage Notes Described.--For purposes of subsection (a), a 
mortgage note is described in this subsection if it--
            ``(1) is insured, acquired, or held by the Secretary 
        pursuant to this Act;
            ``(2) is made pursuant to section 202 of the Housing Act of 
        1959 (including property still subject to section 202 program 
        requirements that existed before the date of enactment of the 
        Cranston-Gonzalez National Affordable Housing Act); or
            ``(3) is insured or held pursuant to section 542 of the 
        Housing and Community Development Act of 1992, but is not 
        reinsured under section 542 of the Housing and Community 
        Development Act of 1992.''.

SEC. 2313. CIVIL MONEY PENALTIES AGAINST MORTGAGEES, LENDERS, AND OTHER 
              PARTICIPANTS IN FHA PROGRAMS.

    (a) Change to Section Title.--Section 536 of the National Housing 
Act (12 U.S.C. 1735f-14) is amended by striking the section heading and 
the section designation and inserting the following:

``SEC. 536. CIVIL MONEY PENALTIES AGAINST MORTGAGEES, LENDERS, AND 
              OTHER PARTICIPANTS IN FHA PROGRAMS.''.

    (b) Expansion of Persons Eligible for Penalty.--Section 536(a) of 
the National Housing Act (12 U.S.C. 1735f-14(a)) is amended--
            (1) in paragraph (1), by striking the first sentence and 
        inserting the following: ``If a mortgagee approved under the 
        Act, a lender holding a contract of insurance under title I, or 
        a principal, officer, or employee of such mortgagee or lender, 
        or other person or entity participating in either an insured 
        mortgage or title I loan transaction under this Act or 
        providing assistance to the borrower in connection with any 
        such loan, including sellers of the real estate involved, 
        borrowers, closing agents, title companies, real estate agents, 
        mortgage brokers, appraisers, loan correspondents and dealers, 
        knowingly and materially violates any applicable provision of 
        subsection (b), the Secretary may impose a civil money penalty 
        on the mortgagee or lender, or such other person or entity, in 
        accordance with this section. The penalty under this paragraph 
        shall be in addition to any other available civil remedy or any 
        available criminal penalty, and may be imposed whether or not 
        the Secretary imposes other administrative sanctions.''; and
            (2) in paragraph (2)--
                    (A) in the first sentence, by inserting ``or such 
                other person or entity'' after ``lender''; and
                    (B) in the second sentence, by striking 
                ``provision'' and inserting ``the provisions''.
    (c) Additional Violations for Mortgagees, Lenders, and Other 
Participants in FHA Programs.--Section 536(b) of the National Housing 
Act (12 U.S.C. 1735f-14(b)) is amended--
            (1) by redesignating paragraph (2) as paragraph (3);
            (2) by inserting after paragraph (1) the following:
            ``(2) The Secretary may impose a civil money penalty under 
        subsection (a) for any knowing and material violation by a 
        principal, officer, or employee of a mortgagee or lender, or 
        other participants in either an insured mortgage or title I 
        loan transaction under this Act or provision of assistance to 
        the borrower in connection with any such loan, including 
        sellers of the real estate involved, borrowers, closing agents, 
        title companies, real estate agents, mortgage brokers, 
        appraisers, loan correspondents, and dealers for--
                    ``(A) submission to the Secretary of information 
                that was false, in connection with any mortgage insured 
                under this Act, or any loan that is covered by a 
                contract of insurance under title I of this Act;
                    ``(B) falsely certifying to the Secretary or 
                submitting to the Secretary a false certification by 
                another person or entity; or
                    ``(C) failure by a loan correspondent or dealer to 
                submit to the Secretary information which is required 
                by regulations or directives in connection with any 
                loan that is covered by a contract of insurance under 
                title I.''; and
            (3) in paragraph (3), as redesignated, by striking ``or 
        paragraph (1)(F)'' and inserting ``or (F), or paragraph (2) 
        (A), (B), or (C)''.
    (d) Conforming and Technical Amendments.--Section 536 of the 
National Housing Act (12 U.S.C. 1735f-14) is amended--
            (1) in subsection (c)(1)(B), by inserting after ``lender'' 
        the following: ``or such other person or entity'';
            (2) in subsection (d)(1)--
                    (A) by inserting ``or such other person or entity'' 
                after ``lender''; and
                    (B) by striking ``part 25'' and inserting ``parts 
                24 and 25''; and
            (3) in subsection (e), by inserting ``or such other person 
        or entity'' after ``lender'' each place that term appears.

                 Subpart B--FHA Multifamily Provisions

SEC. 2320. CIVIL MONEY PENALTIES AGAINST GENERAL PARTNERS, OFFICERS, 
              DIRECTORS, AND CERTAIN MANAGING AGENTS OF MULTIFAMILY 
              PROJECTS.

    (a) Civil Money Penalties Against Multifamily Mortgagors.--Section 
537 of the National Housing Act (12 U.S.C. 1735f-15) is amended--
            (1) in subsection (b)(1), by striking ``on that mortgagor'' 
        and inserting the following: ``on that mortgagor, on a general 
        partner of a partnership mortgagor, or on any officer or 
        director of a corporate mortgagor'';
            (2) in subsection (c)--
                    (A) by striking the subsection heading and 
                inserting the following:
    ``(c) Other Violations.--''; and
                    (B) in paragraph (1)--
                            (i) by striking ``Violations.--The 
                        Secretary may'' and all that follows through 
                        the colon and inserting the following:
                    ``(A) Liable parties.--The Secretary may also 
                impose a civil money penalty under this section on--
                            ``(i) any mortgagor of a property that 
                        includes five or more living units and that has 
                        a mortgage insured, coinsured, or held pursuant 
                        to this Act;
                            ``(ii) any general partner of a partnership 
                        mortgagor of such property;
                            ``(iii) any officer or director of a 
                        corporate mortgagor;
                            ``(iv) any agent employed to manage the 
                        property that has an identity of interest with 
                        the mortgagor, with the general partner of a 
                        partnership mortgagor, or with any officer or 
                        director of a corporate mortgagor of such 
                        property; or
                            ``(v) any member of a limited liability 
                        company that is the mortgagor of such property 
                        or is the general partner of a limited 
                        partnership mortgagor or is a partner of a 
                        general partnership mortgagor.
                    ``(B) Violations.--A penalty may be imposed under 
                this section upon any liable party under subparagraph 
                (A) that knowingly and materially takes any of the 
                following actions:'';
                            (ii) in subparagraph (B), as designated by 
                        clause (i), by redesignating the subparagraph 
                        designations (A) through (L) as clauses (i) 
                        through (xii), respectively;
                            (iii) by adding after clause (xii), as 
                        redesignated by clause (ii), the following:
                            ``(xiii) Failure to maintain the premises, 
                        accommodations, any living unit in the project, 
                        and the grounds and equipment appurtenant 
                        thereto in good repair and condition in 
                        accordance with regulations and requirements of 
                        the Secretary, except that nothing in this 
                        clause shall have the effect of altering the 
                        provisions of an existing regulatory agreement 
                        or federally insured mortgage on the property.
                            ``(xiv) Failure, by a mortgagor, a general 
                        partner of a partnership mortgagor, or an 
                        officer or director of a corporate mortgagor, 
                        to provide management for the project that is 
                        acceptable to the Secretary pursuant to 
                        regulations and requirements of the 
                        Secretary.''; and
                            (iv) in the last sentence, by deleting ``of 
                        such agreement'' and inserting ``of this 
                        subsection'';
            (3) in subsection (d)--
                    (A) in paragraph (1)(B), by inserting after 
                ``mortgagor'' the following: ``, general partner of a 
                partnership mortgagor, officer or director of a 
                corporate mortgagor, or identity of interest agent 
                employed to manage the property''; and
                    (B) by adding at the end the following:
            ``(5) Payment of penalty.--No payment of a civil money 
        penalty levied under this section shall be payable out of 
        project income.'';
            (4) in subsection (e)(1), by deleting ``a mortgagor'' and 
        inserting ``an entity or person'';
            (5) in subsection (f), by inserting after ``mortgagor'' 
        each place such term appears the following: ``, general partner 
        of a partnership mortgagor, officer or director of a corporate 
        mortgagor, or identity of interest agent employed to manage the 
        property'';
            (6) by striking the heading of subsection (f) and inserting 
        the following: ``Civil Money Penalties Against Multifamily 
        Mortgagors, General Partners of Partnership Mortgagors, 
        Officers and Directors of Corporate Mortgagors, and Certain 
        Managing Agents''; and
            (7) by adding at the end the following:
    ``(k) Identity of Interest Managing Agent.--In this section, the 
terms `agent employed to manage the property that has an identity of 
interest' and `identity of interest agent' mean an entity--
            ``(1) that has management responsibility for a project;
            ``(2) in which the ownership entity, including its general 
        partner or partners (if applicable) and its officers or 
        directors (if applicable), has an ownership interest; and
            ``(3) over which the ownership entity exerts effective 
        control.''.
    (b) Implementation.--
            (1) Public comment.--The Secretary shall implement the 
        amendments made by this section by regulation issued after 
        notice and opportunity for public comment. The notice shall 
        seek comments primarily as to the definitions of the terms 
        ``ownership interest in'' and ``effective control'', as those 
        terms are used in the definition of the terms ``agent employed 
        to manage the property that has an identity of interest'' and 
        ``identity of interest agent''.
            (2) Timing.--A proposed rule implementing the amendments 
        made by this section shall be published not later than 1 year 
        after the date of enactment of this Act.
    (c) Applicability of Amendments.--The amendments made by subsection 
(a) shall apply only with respect to--
            (1) violations that occur on or after the effective date of 
        the final regulations implementing the amendments made by this 
        section; and
            (2) in the case of a continuing violation (as determined by 
        the Secretary of Housing and Urban Development), any portion of 
        a violation that occurs on or after that date.

SEC. 2321. CIVIL MONEY PENALTIES FOR NONCOMPLIANCE WITH SECTION 8 HAP 
              CONTRACTS.

    (a) Basic Authority.--Title I of the United States Housing Act of 
1937 is amended--
            (1) by designating the second section designated as section 
        27 (as added by section 903(b) of Public Law 104-193 (110 Stat. 
        2348)) as section 28; and
            (2) by adding at the end the following:

``SEC. 29. CIVIL MONEY PENALTIES AGAINST SECTION 8 OWNERS.

    ``(a) In General.--
            ``(1) Effect on other remedies.--The penalties set forth in 
        this section shall be in addition to any other available civil 
        remedy or any available criminal penalty, and may be imposed 
        regardless of whether the Secretary imposes other 
        administrative sanctions.
            ``(2) Failure of secretary.--The Secretary may not impose 
        penalties under this section for a violation, if a material 
        cause of the violation is the failure of the Secretary, an 
        agent of the Secretary, or a public housing agency to comply 
        with an existing agreement.
    ``(b) Violations of Housing Assistance Payment Contracts for Which 
Penalty May Be Imposed.--
            ``(1) Liable parties.--The Secretary may impose a civil 
        money penalty under this section on--
                    ``(A) any owner of a property receiving project-
                based assistance under section 8;
                    ``(B) any general partner of a partnership owner of 
                that property; and
                    ``(C) any agent employed to manage the property 
                that has an identity of interest with the owner or the 
                general partner of a partnership owner of the property.
            ``(2) Violations.--A penalty may be imposed under this 
        section for a knowing and material breach of a housing 
        assistance payments contract, including the following--
                    ``(A) failure to provide decent, safe, and sanitary 
                housing pursuant to section 8; or
                    ``(B) knowing or willful submission of false, 
                fictitious, or fraudulent statements or requests for 
                housing assistance payments to the Secretary or to any 
                department or agency of the United States.
            ``(3) Amount of penalty.--The amount of a penalty imposed 
        for a violation under this subsection, as determined by the 
        Secretary, may not exceed $25,000 per violation.
    ``(c) Agency Procedures.--
            ``(1) Establishment.--The Secretary shall issue regulations 
        establishing standards and procedures governing the imposition 
        of civil money penalties under subsection (b). These standards 
        and procedures--
                    ``(A) shall provide for the Secretary or other 
                department official to make the determination to impose 
                the penalty;
                    ``(B) shall provide for the imposition of a penalty 
                only after the liable party has received notice and the 
                opportunity for a hearing on the record; and
                    ``(C) may provide for review by the Secretary of 
                any determination or order, or interlocutory ruling, 
                arising from a hearing and judicial review, as provided 
                under subsection (d).
            ``(2) Final orders.--
                    ``(A) In general.--If a hearing is not requested 
                before the expiration of the 15-day period beginning on 
                the date on which the notice of opportunity for hearing 
                is received, the imposition of a penalty under 
                subsection (b) shall constitute a final and 
                unappealable determination.
                    ``(B) Effect of review.--If the Secretary reviews 
                the determination or order, the Secretary may affirm, 
                modify, or reverse that determination or order.
                    ``(C) Failure to review.--If the Secretary does not 
                review that determination or order before the 
                expiration of the 90-day period beginning on the date 
                on which the determination or order is issued, the 
                determination or order shall be final.
            ``(3) Factors in determining amount of penalty.--In 
        determining the amount of a penalty under subsection (b), the 
        Secretary shall take into consideration--
                    ``(A) the gravity of the offense;
                    ``(B) any history of prior offenses by the violator 
                (including offenses occurring before the enactment of 
                this section);
                    ``(C) the ability of the violator to pay the 
                penalty;
                    ``(D) any injury to tenants;
                    ``(E) any injury to the public;
                    ``(F) any benefits received by the violator as a 
                result of the violation;
                    ``(G) deterrence of future violations; and
                    ``(H) such other factors as the Secretary may 
                establish by regulation.
            ``(4) Payment of penalty.--No payment of a civil money 
        penalty levied under this section shall be payable out of 
        project income.
    ``(d) Judicial Review of Agency Determination.--Judicial review of 
determinations made under this section shall be carried out in 
accordance with section 537(e) of the National Housing Act.
    ``(e) Remedies for Noncompliance.--
            ``(1) Judicial intervention.--
                    ``(A) In general.--If a person or entity fails to 
                comply with the determination or order of the Secretary 
                imposing a civil money penalty under subsection (b), 
                after the determination or order is no longer subject 
                to review as provided by subsections (c) and (d), the 
                Secretary may request the Attorney General of the 
                United States to bring an action in an appropriate 
                United States district court to obtain a monetary 
                judgment against that person or entity and such other 
                relief as may be available.
                    ``(B) Fees and expenses.--Any monetary judgment 
                awarded in an action brought under this paragraph may, 
                in the discretion of the court, include the attorney's 
                fees and other expenses incurred by the United States 
                in connection with the action.
            ``(2) Nonreviewability of determination or order.--In an 
        action under this subsection, the validity and appropriateness 
        of the determination or order of the Secretary imposing the 
        penalty shall not be subject to review.
    ``(f) Settlement by Secretary.--The Secretary may compromise, 
modify, or remit any civil money penalty which may be, or has been, 
imposed under this section.
    ``(g) Deposit of Penalties.--
            ``(1) In general.--Notwithstanding any other provision of 
        law, if the mortgage covering the property receiving assistance 
        under section 8 is insured or formerly insured by the 
        Secretary, the Secretary shall apply all civil money penalties 
        collected under this section to the appropriate insurance fund 
        or funds established under this Act, as determined by the 
        Secretary.
            ``(2) Exception.--Notwithstanding any other provision of 
        law, if the mortgage covering the property receiving assistance 
        under section 8 is neither insured nor formerly insured by the 
        Secretary, the Secretary shall make all civil money penalties 
        collected under this section available for use by the 
        appropriate office within the Department for administrative 
        costs related to enforcement of the requirements of the various 
        programs administered by the Secretary.
    ``(h) Definitions.--In this section--
            ``(1) the term `agent employed to manage the property that 
        has an identity of interest' means an entity--
                    ``(A) that has management responsibility for a 
                project;
                    ``(B) in which the ownership entity, including its 
                general partner or partners (if applicable), has an 
                ownership interest; and
                    ``(C) over which such ownership entity exerts 
                effective control; and
            ``(2) the term `knowing' means having actual knowledge of 
        or acting with deliberate ignorance of or reckless disregard 
        for the prohibitions under this section.''.
    (b) Applicability.--The amendments made by subsection (a) shall 
apply only with respect to--
            (1) violations that occur on or after the effective date of 
        final regulations implementing the amendments made by this 
        section; and
            (2) in the case of a continuing violation (as determined by 
        the Secretary of Housing and Urban Development), any portion of 
        a violation that occurs on or after such date.
    (c) Implementation.--
            (1) Regulations.--
                    (A) In general.--The Secretary shall implement the 
                amendments made by this section by regulation issued 
                after notice and opportunity for public comment.
                    (B) Comments sought.--The notice under subparagraph 
                (A) shall seek comments as to the definitions of the 
                terms ``ownership interest in'' and ``effective 
                control'', as such terms are used in the definition of 
                the term ``agent employed to manage such property that 
                has an identity of interest''.
            (2) Timing.--A proposed rule implementing the amendments 
        made by this section shall be published not later than 1 year 
        after the date of enactment of this Act.

SEC. 2322. EXTENSION OF DOUBLE DAMAGES REMEDY.

    Section 421 of the Housing and Community Development Act of 1987 
(12 U.S.C. 1715z-4a) is amended--
            (1) in subsection (a)(1)--
                    (A) in the first sentence, by striking ``Act; or 
                (B)'' and inserting the following: ``Act; (B) a 
                regulatory agreement that applies to a multifamily 
                project whose mortgage is insured or held by the 
                Secretary under section 202 of the Housing Act of 1959 
                (including property subject to section 202 of such Act 
                as it existed before enactment of the Cranston-Gonzalez 
                National Affordable Housing Act of 1990); (C) a 
                regulatory agreement or such other form of regulatory 
                control as may be imposed by the Secretary that applies 
                to mortgages insured or held by the Secretary under 
                section 542 of the Housing and Community Development 
                Act of 1992, but not reinsured under section 542 of the 
                Housing and Community Development Act of 1992; or 
                (D)''; and
                    (B) in the second sentence, by inserting after 
                ``agreement'' the following: ``, or such other form of 
                regulatory control as may be imposed by the 
                Secretary,'';
            (2) in subsection (a)(2), by inserting after ``Act,'' the 
        following: ``under section 202 of the Housing Act of 1959 
        (including section 202 of such Act as it existed before 
        enactment of the Cranston-Gonzalez National Affordable Housing 
        Act of 1990) and under section 542 of the Housing and Community 
        Development Act of 1992,'';
            (3) in subsection (b), by inserting after ``agreement'' the 
        following: ``, or such other form of regulatory control as may 
        be imposed by the Secretary,'';
            (4) in subsection (c)--
                    (A) in the first sentence, by inserting after 
                ``agreement'' the following: ``, or such other form of 
                regulatory control as may be imposed by the 
                Secretary,''; and
                    (B) in the second sentence, by inserting before the 
                period the following: ``or under the Housing Act of 
                1959, as appropriate''; and
            (5) in subsection (d), by inserting after ``agreement'' the 
        following: ``, or such other form of regulatory control as may 
        be imposed by the Secretary,''.

SEC. 2323. OBSTRUCTION OF FEDERAL AUDITS.

    Section 1516(a) of title 18, United States Code, is amended by 
inserting after ``under a contract or subcontract,'' the following: 
``or relating to any property that is security for a mortgage note that 
is insured, guaranteed, acquired, or held by the Secretary of Housing 
and Urban Development pursuant to any Act administered by the 
Secretary,''.

      TITLE III--COMMITTEE ON COMMERCE SCIENCE AND TRANSPORTATION

             Subtitle A--Spectrum Auctions and License Fees

SEC. 3001. SPECTRUM AUCTIONS.

    (a) Extension and Expansion of Auction Authority.--
            (1) In general.--Section 309(j) of the Communications Act 
        of 1934 (47 U.S.C. 309(j)) is amended--
                    (A) by striking paragraphs (1) and (2) and 
                inserting in lieu thereof the following:
            ``(1) General authority.--If mutually exclusive 
        applications are accepted for any initial license or 
        construction permit that will involve an exclusive use of the 
        electromagnetic spectrum, then, except as provided in paragraph 
        (2), the Commission shall grant the license or permit to a 
        qualified applicant through a system of competitive bidding 
        that meets the requirements of this subsection. The Commission, 
        subject to paragraphs (2) and (7) of this subsection, also 
        may--
                    ``(A) use auctions as a means to assign spectrum 
                when it determines that such an auction is consistent 
                with the public interest, convenience, and necessity, 
                and the purposes of this Act; and
                    ``(B) grant the licenses or permits for which the 
                spectrum is so assigned, by competitive bidding at a 
                later date than the date required by this section if--
                            ``(i) the Commission determines, in its 
                        discretion, that postponing the bidding to that 
                        later date will better attain the objectives of 
                        recovering for the public a fair portion of the 
                        value of the public spectrum resource and 
                        avoiding unjust enrichment; and
                            ``(ii) the bidding is conducted in time for 
                        the assignment of those licenses or permits by 
                        September 30, 2002.
            ``(2) Exceptions.--The competitive bidding authority 
        granted by this subsection shall not apply to a license or 
        construction permit the Commission issues--
                    ``(A) for public safety services, including private 
                internal radio services used by State and local 
                government and non-government entities that--
                            ``(i) protect the safety of life, health, 
                        or property; and
                            ``(ii) are not made commercially available 
                        to the public;
                    ``(B) for public telecommunications services, as 
                defined in section 397(14) of this Act, when the 
                license application is for channels reserved for 
                noncommercial use;
                    ``(C) for spectrum and associated orbits used in 
                the provision of any communications within a global 
                satellite system;
                    ``(D) for initial licenses or construction permits 
                for new digital television service given to existing 
                terrestrial broadcast licensees to replace their 
                current television licenses;
                    ``(E) for terrestrial radio and television 
                broadcasting when the Commission determines that an 
                alternative method of resolving mutually exclusive 
                applications serves the public interest substantially 
                better than competitive bidding; or
                    ``(F) for spectrum allocated for unlicensed use 
                pursuant to part 15 of the Commission's regulations (47 
                C.F.R. part 15), if the competitive bidding for 
                licenses would interfere with operation of end-user 
                products permitted under such regulations.'';
                    (B) by striking ``1998'' in paragraph (11) and 
                inserting ``2007''; and
                    (C) by inserting after paragraph (13) the 
                following:
            ``(14) Out-of-band effects.--The Commission and the 
        National Telecommunications and Information Administration 
        shall seek to create incentives to minimize the effects of out-
        of-band emissions to promote more efficient use of the 
        electromagnetic spectrum. The Commission and the National 
        Telecommunications and Information Administration also shall 
        encourage licensees to minimize the effects of interference.''.
            (2) Conforming amendment.--Subsection (i) of section 309 of 
        the Communications Act of 1934 is repealed.
    (b) Auction of 45 Megahertz Located at 1,710-1,755 Megahertz.--
            (1) In general.--The Commission shall assign by competitive 
        bidding 45 megahertz located at 1,710-1,755 megahertz no later 
        than December 31, 2001, for commercial use.
            (2) Federal government users.--Any Federal government 
        station that, on the date of enactment of this Act, is assigned 
        to use electromagnetic spectrum located in the 1,710-1,755 
        megahertz band shall retain that use until December 31, 2003, 
        unless exempted from relocation.
    (c) Commission to Make Additional Spectrum Available by Auction.--
            (1) In general.--The Federal Communications Commission 
        shall complete all actions necessary to permit the assignment, 
        by September 30, 2002, by competitive bidding pursuant to 
        section 309(j) of the Communications Act of 1934 (47 U.S.C. 
        309(j)), of licenses for the use of bands of frequencies 
        currently allocated by the Commission that--
                    (A) in the aggregate span not less than 100 
                megahertz;
                    (B) are located below 10 gigahertz, of which no 
                less than 40 megahertz shall be located below 3 
                gigahertz; and
                    (C) as of the date of enactment of this Act, have 
                not been--
                            (i) designated by Commission regulation for 
                        assignment pursuant to section 309(j);
                            (ii) identified by the Secretary of 
                        Commerce pursuant to section 113 of the 
                        National Telecommunications and Information 
                        Administration Organization Act (47 U.S.C. 
                        923); or
                            (iii) allocated for Federal Government use 
                        pursuant to section 305 of the Communications 
                        Act of 1934 (47 U.S.C. 305).
            (2) Criteria for reassignment.--In making available bands 
        of frequencies for competitive bidding pursuant to paragraph 
        (1), the Commission shall--
                    (A) seek to promote the most efficient use of the 
                electromagnetic spectrum;
                    (B) consider the cost to incumbent licensees of 
                relocating existing uses to other bands of frequencies 
                or other means of communication;
                    (C) consider the needs of public safety radio 
                services;
                    (D) comply with the requirements of international 
                agreements concerning spectrum allocations; and
                    (E) coordinate with the Secretary of Commerce when 
                there is any impact on Federal Government spectrum use.
            (3) Protection of space research uses.--Any license 
        assigned under paragraph (1) shall require the licensee to 
        avoid interference with communications in space research and 
        earth exploration satellite services authorized under notes 
        750A and US90 to section 2.106 of the regulations of the 
        Federal Communications Commission (47 C.F.R. 2.106), as those 
        regulations are in effect on the date of enactment of this Act.
            (4) Reallocation report.--The Commission shall submit a 
        report to the President, the Senate Committee on Commerce, 
        Science, and Transportation, and the House of Representatives 
        Committee on Commerce, containing its recommendations for 
        reallocating bands of frequencies for competitive bidding 
        pursuant to paragraph (1) and plans for relocation of displaced 
        users.
            (5) Notification to the secretary of commerce.--The 
        Commission shall attempt to accommodate incumbent licensees 
        displaced under this section by relocating them to other 
        frequencies available to the Commission. The Commission shall 
        notify the Secretary of Commerce whenever the Commission is not 
        able to provide for the effective relocation of an incumbent 
        licensee to a band of frequencies available to the Commission 
        for assignment. The notification shall include--
                    (A) specific information on the incumbent licensee;
                    (B) the bands the Commission considered for 
                relocation of the licensee; and
                    (C) the reasons the incumbent cannot be 
                accommodated in these bands.
            (6) Report to the secretary of commerce.--
                    (A) Technical report.--The Commission, in 
                consultation with the National Telecommunications and 
                Information Administration, shall submit a detailed 
                technical report to the Secretary of Commerce setting 
                forth--
                            (i) the reasons the incumbent licensees 
                        described in paragraph (5) could not be 
                        accommodated in existing non-government 
                        spectrum; and
                            (ii) the Commission's recommendations for 
                        relocating those incumbents.
                    (B) NTIA use of report.--The National 
                Telecommunications and Information Administration shall 
                review this report when assessing whether a commercial 
                licensee can be accommodated by being reassigned to a 
                frequency allocated for government use.
    (d) Identification and Reallocation of Frequencies.--
            (1) In general.--Section 113 of the National 
        Telecommunications and Information Administration Organization 
        Act (47 U.S.C. 901 et seq.) is amended by adding at the end 
        thereof the following:
    ``(f) Additional Reallocation Report.--If the Secretary receives a 
report from the Commission pursuant to section 3001(c)(6) of the 
Balanced Budget Act of 1997, the Secretary shall submit to the 
President, the Congress, and the Commission a report with the 
Secretary's recommendations.
    ``(g) Reimbursement of Federal Spectrum Users for Relocation 
Costs.--
            ``(1) In general.--
                    ``(A) Acceptance of compensation authorized.--In 
                order to expedite the efficient use of the 
                electromagnetic spectrum, and notwithstanding section 
                3302(b) of title 31, United States Code, any Federal 
                entity that operates a Federal Government station that 
                has been identified by NTIA for relocation may accept 
                payment, including in-kind compensation and shall be 
                reimbursed if required to relocate by the service 
                applicant, provider, licensee, or representative 
                entering the band as a result of a license assignment 
                by the Commission or otherwise authorized by Commission 
                rules.
                    ``(B) Duty to compensate ousted federal entity.--
                Any such service applicant, provider, licensee, or 
                representative shall compensate the Federal entity in 
                advance for relocating through monetary or in-kind 
                payment for the cost of relocating the Federal entity's 
                operations from one or more electromagnetic spectrum 
                frequencies to any other frequency or frequencies, or 
                to any other telecommunications transmission media.
                    ``(C) Compensable costs--Compensation shall 
                include, but not be limited to, the costs of any 
                modification, replacement, or reissuance of equipment, 
                facilities, operating manuals, regulations, or other 
                relocation expenses incurred by that entity.
                    ``(D) Disposition of payments.--Payments, other 
                than in-kind compensation, pursuant to this section 
                shall be deposited by electronic funds transfer in a 
                separate agency account or accounts which shall be used 
                to pay directly the costs of relocation, to repay or 
                make advances to appropriations or funds which do or 
                will initially bear all or part of such costs, or to 
                refund excess sums when necessary, and shall remain 
                available until expended.
                    ``(E) Application to certain other relocations.--
                The provisions of this paragraph also apply to any 
                Federal entity that operates a Federal Government 
                station assigned to use electromagnetic spectrum 
                identified for reallocation under subsection (a), if 
                before the date of enactment of the Balanced Budget Act 
of 1997 the Commission has not identified that spectrum for service or 
assigned licenses or otherwise authorized service for that spectrum.
            ``(2) Petitions for relocation.--Any person seeking to 
        relocate a Federal Government station that has been assigned a 
        frequency within a band allocated for mixed Federal and non-
        Federal use under this Act shall submit a petition for 
        relocation to NTIA. The NTIA shall limit or terminate the 
        Federal Government station's operating license within 6 months 
        after receiving the petition if the following requirements are 
        met:
                    ``(A) The proposed relocation is consistent with 
                obligations undertaken by the United States in 
                international agreements and with United States 
                national security and public safety interests.
                    ``(B) The person seeking relocation of the Federal 
                Government station has guaranteed to defray entirely, 
                through payment in advance, advance in-kind payment of 
                costs, or a combination of payment in advance and 
                advance in-kind payment, all relocation costs incurred 
                by the Federal entity, including, but not limited to, 
                all engineering, equipment, site acquisition and 
                construction, and regulatory fee costs.
                    ``(C) The person seeking relocation completes all 
                activities necessary for implementing the relocation, 
                including construction of replacement facilities (if 
                necessary and appropriate) and identifying and 
                obtaining on the Federal entity's behalf new 
                frequencies for use by the relocated Federal Government 
                station (if the station is not relocating to spectrum 
                reserved exclusively for Federal use).
                    ``(D) Any necessary replacement facilities, 
                equipment modifications, or other changes have been 
                implemented and tested by the Federal entity to ensure 
                that the Federal Government station is able to 
                accomplish successfully its purposes including 
                maintaining communication system performance.
                    ``(E) The Secretary has determined that the 
                proposed use of any spectrum frequency band to which a 
                Federal entity relocates its operations is suitable for 
                the technical characteristics of the band and 
                consistent with other uses of the band. In exercising 
                authority under this subparagraph, the Secretary shall 
                consult with the Secretary of Defense, the Secretary of 
                State, and other appropriate Federal officials.
            ``(3) Right to reclaim.--If within one year after the 
        relocation of a Federal Government station, the Federal entity 
        affected demonstrates to the Secretary and the Commission that 
        the new facilities or spectrum are not comparable to the 
        facilities or spectrum from which the Federal Government 
        station was relocated, the person who sought the relocation 
        shall take reasonable steps to remedy any defects or pay the 
        Federal entity for the costs of returning the Federal 
        Government station to the electromagnetic spectrum from which 
        the station was relocated.
    ``(h) Federal Action to Expedite Spectrum Transfer.--Any Federal 
Government station which operates on electromagnetic spectrum that has 
been identified for reallocation under this Act for mixed Federal and 
non-Federal use in any reallocation report under subsection (a), to the 
maximum extent practicable through the use of subsection (g) and any 
other applicable law, shall take prompt action to make electromagnetic 
spectrum available for use in a manner that maximizes efficient use of 
the electromagnetic spectrum.
    ``(i) Federal Spectrum Assignment Responsibility.--This section 
does not modify NTIA's authority under section 103(b)(2)(A) of this 
Act.
    ``(j) Definitions.--As used in this section--
            ``(1) the term `Federal entity' means any department, 
        agency, or instrumentality of the Federal Government that 
        utilizes a Government station license obtained under section 
        305 of the 1934 Act (47 U.S.C. 305);
            ``(2) the term `digital television services' means 
        television services provided using digital technology to 
        enhance audio quality and video resolution, as further defined 
        in the Memorandum Opinion, Report, and Order of the Commission 
        entitled `Advanced Television Systems and Their Impact Upon the 
        Existing Television Service,' MM Docket No. 87-268 and any 
        subsequent FCC proceedings dealing with digital television; and
            ``(3) the term `analog television licenses' means licenses 
        issued pursuant to 47 CFR 73.682 et seq.''.
            (2) Section 114(a) of that Act (47 U.S.C. 924(a)) is 
        amended by striking ``(a) or (d)(1)'' and inserting ``(a), 
        (d)(1), or (f)''.
    (e) Identification and Reallocation of Auctionable Frequencies.--
            (1) Second report required.--Section 113(a) of the National 
        Telecommunications and Information Administration Organization 
        Act (47 U.S.C. 923(a)) is amended by inserting ``and within 6 
        months after the date of enactment of the Balanced Budget Act 
        of 1997'' after ``Act of 1993''.
            (2) In general.--Section 113(b) of the National 
        Telecommunications and Information Administration Organization 
        Act (47 U.S.C. 923(b)) is amended--
                    (A) by striking the caption of paragraph (1) and 
                inserting ``Initial reallocation report.--'';
                    (B) by inserting ``in the initial report required 
                by subsection (a)'' after ``recommend for 
                reallocation'' in paragraph (1);
                    (C) by inserting ``or (3)'' after ``paragraph (1)'' 
                each place it appears in paragraph (2); and
                    (D) by adding at the end thereof the following:
            ``(3) Second reallocation report.--The Secretary shall make 
        available for reallocation a total of 20 megahertz in the 
        second report required by subsection (a), for use other than by 
        Federal Government stations under section 305 of the 1934 Act 
        (47 U.S.C. 305), that is located below 3 gigahertz and that 
        meets the criteria specified in paragraphs (1) through (5) of 
        subsection (a).''.
            (3) Allocation and assignment.--Section 115 of that Act (47 
        U.S.C. 925) is amended--
                    (A) by striking ``the report required by section 
                113(a)'' in subsection (b) and inserting ``the initial 
                reallocation report required by section 113(a)''; and
                    (B) by adding at the end thereof the following:
    ``(c) Allocation and Assignment of Frequencies Identified in the 
Second Allocation Report.--
            ``(1) Plan.--Within 12 months after it receives a report 
        from the Secretary under section 113(f) of this Act, the 
        Commission shall--
                    ``(A) submit a plan, prepared in coordination with 
                the Secretary of Commerce, to the President and to the 
                Senate Committee on Commerce, Science, and 
                Transportation and the House of Representatives 
                Committee on Commerce, for the allocation and 
                assignment under the 1934 Act of frequencies identified 
                in the report; and
                    ``(B) implement the plan.
            ``(2) Contents.--The plan prepared by the Commission under 
        paragraph (1) shall consist of a schedule of reallocation and 
        assignment of those frequencies in accordance with section 
        309(j) of the 1934 Act.''.

SEC. 3002. DIGITAL TELEVISION SERVICES.

    Section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)) 
is amended by adding at the end thereof the following:
            ``(15) Auction of recaptured broadcast television spectrum 
        and potential digital television license fees.--
                    ``(A) Limitations on terms of terrestrial 
                television broadcast licenses.--
                            ``(i) A television license that authorizes 
                        analog television services may not be renewed 
                        to authorize such services for a period that 
                        extends beyond December 31, 2006. The 
                        Commission shall extend or waive this date for 
                        any station in any television market unless 95 
                        percent of the television households have 
                        access to digital local television signals, 
                        either by direct off-air reception or by other 
                        means.
                            ``(ii) A commercial digital television 
                        license that is issued shall expire on 
                        September 30, 2003. A commercial digital 
                        television license shall be re-issued only 
                        subject to fulfillment of the licensee's 
                        obligations under subparagraph (C).
                            ``(iii) No later than December 31, 2001, 
                        and every 2 years thereafter, the Commission 
                        shall report to Congress on the status of 
                        digital television conversion in each 
                        television market. In preparing this report, 
                        the Commission shall consult with other 
                        departments and agencies of the Federal 
                        government. The report shall contain the 
                        following information:
                                    ``(I) Actual consumer purchases of 
                                analog and digital television 
                                receivers, including the price, 
                                availability, and use of conversion 
                                equipment to allow analog sets to 
                                receive a digital signal.
                                    ``(II) The percentage of television 
                                households in each market that has 
                                access to digital local television 
                                signals as defined in paragraph (a)(1), 
                                whether such access is attained by 
                                direct off-air reception or by some 
                                other means.
                                    ``(III) The cost to consumers of 
                                purchasing digital television receivers 
                                (or conversion equipment to prevent 
                                obsolescence of existing analog 
                                equipment) and other related changes in 
                                the marketplace, such as increases in 
                                the cost of cable converter boxes.
                    ``(B) Spectrum reversion and resale.--
                            ``(i) The Commission shall--
                                    ``(I) ensure that, as analog 
                                television licenses expire pursuant to 
                                subparagraph (A)(i), each broadcaster 
                                shall return electromagnetic spectrum 
                                according to the Commission's 
                                direction; and
                                    ``(II) reclaim and organize the 
                                electromagnetic spectrum in a manner to 
                                maximize the deployment of new and 
                                existing services.
                            ``(ii) Licensees for new services occupying 
                        electromagnetic spectrum previously used for 
                        the broadcast of analog television shall be 
                        selected by competitive bidding. The Commission 
                        shall start the competitive bidding process by 
                        July 1, 2001, with payment pursuant to the 
                        competitive bidding rules established by the 
                        Commission. The Commission shall report the 
                        total revenues from the competitive bidding by 
                        January 1, 2002.
                    ``(C) Digital buildout requirements.--The 
                Commission shall encourage broadcasters to transmit 
                programming in digital format in the 30 largest markets 
                by November 1, 1999.
                    ``(D) Definitions.--As used in this paragraph--
                            ``(i) the term `digital television 
                        services' means television services provided 
                        using digital technology to enhance audio 
                        quality and video resolution, as further 
                        defined in the Memorandum Opinion, Report, and 
                        Order of the Commission entitled `Advanced 
                        Television Systems and Their Impact Upon the 
                        Existing Television Service,' MM Docket No. 87-
                        268 and any subsequent Commission proceedings 
                        dealing with digital television; and
                            ``(ii) the term `analog television 
                        licenses' means licenses issued pursuant to 47 
                        CFR 73.682 et seq.''.

SEC. 3003. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY AND 
              COMMERCIAL LICENSES.

    (a) In General.--The Federal Communications Commission, not later 
than January 1, 1998, shall allocate from electromagnetic spectrum 
between 746 megahertz and 806 megahertz--
            (1) 24 megahertz of that spectrum for public safety 
        services according to terms and conditions established by the 
        Commission, in consultation with the Secretary of Commerce and 
        the Attorney General; and
            (2) 36 megahertz of that spectrum for commercial purposes 
        to be assigned by competitive bidding.
    (b) Assignment.--The Commission shall--
            (1) commence assignment of the licenses for public safety 
        created pursuant to subsection (a) no later than September 30, 
        1998; and
            (2) commence competitive bidding for the commercial 
        licenses created pursuant to subsection (a) no later than March 
        31, 1998.
    (c) Licensing of Unused Frequencies for Public Safety Radio 
Services.--
            (1) Use of unused channels for public safety.--It shall be 
        the policy of the Federal Communications Commission, 
        notwithstanding any other provision of this Act or any other 
        law, to waive whatever licensee eligibility and other 
        requirements (including bidding requirements) are applicable in 
        order to permit the use of unassigned frequencies for public 
        safety purposes by a State or local government agency upon a 
        showing that--
                    (A) no other existing satisfactory public safety 
                channel is immediately available to satisfy the 
                requested use;
                    (B) the proposed use is technically feasible 
                without causing harmful interference to existing 
                stations in the frequency band entitled to protection 
                from such interference under the rules of the 
                Commission; and
                    (C) use of the channel for public safety purposes 
                is consistent with other existing public safety channel 
                allocations in the geographic area of proposed use.
            (2) Applicability.--Paragraph (1) shall apply to any 
        application--
                    (A) is pending before the Commission on the date of 
                enactment of this Act;
                    (B) was not finally determined under section 402 or 
                405 of the Communications Act of 1934 (47 U.S.C. 402 or 
                405) on May 15, 1997; or
                    (C) is filed after May 15, 1997.
    (d) Protection of Broadcast TV Licensees During Digital 
Transition.--Public safety and commercial licenses granted pursuant to 
this subsection--
            (1) shall enjoy flexibility in use, subject to--
                    (A) interference limits set by the Commission at 
                the boundaries of the electromagnetic spectrum block 
                and service area; and
                    (B) any additional technical restrictions imposed 
                by the Commission to protect full-service analog and 
                digital television licenses during a transition to 
                digital television;
            (2) may aggregate multiple licenses to create larger 
        spectrum blocks and service areas;
            (3) may disaggregate or partition licenses to create 
        smaller spectrum blocks or service areas; and
            (4) may transfer a license to any other person qualified to 
        be a licensee.
    (e) Protection of Public Safety Licensees During Digital 
Transition.--The Commission shall establish rules insuring that public 
safety licensees using spectrum reallocated pursuant to subsection 
(a)(1) shall not be subject to harmful interference from television 
broadcast licensees.
    (f) Digital Television Allotment.--In assigning temporary 
transitional digital licenses, the Commission shall--
            (1) minimize the number of allotments between 746 and 806 
        megahertz and maximize the amount of spectrum available for 
        public safety and new services;
            (2) minimize the number of allotments between 698 and 746 
        megahertz in order to facilitate the recovery of spectrum at 
        the end of the transition;
            (3) consider minimizing the number of allotments between 54 
        and 72 megahertz to facilitate the recovery of spectrum at the 
        end of the transition; and
            (4) develop an allotment plan designed to recover 78 
        megahertz of spectrum to be assigned by competitive bidding, in 
        addition to the 60 megahertz identified in paragraph (a) of 
        this subsection.
    (g) Incumbent Broadcast Licensees.--Any person who holds an analog 
television license or a digital television license between 746 and 806 
megahertz--
            (1) may not operate at that frequency after the date on 
        which the digital television services transition period 
        terminates, as determined by the Commission; and
            (2) shall surrender immediately the license or permit to 
        construct pursuant to Commission rules.
    (h) Protection of Qualifying Low-Power Stations.--In making any 
allocation or assignment under subsection (a)(2), the Commission shall 
assure that each qualifying low-power television station is assigned a 
frequency below 746 megahertz to permit the continued operation of such 
station, if that allocation or reassignment causes no new or additional 
interference with primary licensees.
    (i) Definitions.--For purposes of this section--
            (1) Commission.--The term ``Commission'' means the Federal 
        Communications Commission.
            (2) Digital television (dtv) service.--The term ``digital 
        television (DTV) service'' means terrestrial broadcast services 
        provided using digital technology to enhance audio quality and 
        video resolution, as further defined in the Memorandum Opinion, 
        Report, and Order of the Commission entitled ``Advanced 
        Television Systems and Their Impact Upon the Existing 
        Television Service,'' MM Docket No. 87-268, or subsequent 
        findings of the Commission.
            (3) Digital television license.--The term ``digital 
        television license'' means a full-service license issued 
        pursuant to rules adopted for digital television service.
            (4) Analog television license.--The term ``analog 
        television license'' means a full-service license issued 
        pursuant to 47 CFR 73.682 et seq.
            (5) Public safety services.--The term ``public safety 
        services'' means services whose sole or principal purpose is to 
        protect the safety of life, health, or property.
            (6) Service area.--The term ``service area'' means the 
        geographic area over which a licensee may provide service and 
        is protected from interference.
            (7) Spectrum block.--The term ``spectrum block'' means the 
        range of frequencies over which the apparatus licensed by the 
        Commission is authorized to transmit signals.
            (8) Qualifying low-power television stations.--The term 
        ``qualifying low-power television station'' means--
                    (A) during the 90-day period immediately preceding 
                the date of enactment of this Act--
                            (i) the station broadcast a minimum of 18 
                        hours per day;
                            (ii) the station broadcast an average of at 
                        least 3 hours per week of programming that was 
                        produced within the primary service area of the 
                        station; and
                            (iii) the station was in compliance with 
                        the requirements applicable to low-power 
                        television stations;
                    (B) the station rebroadcasts the signal of a 
                broadcast television station the signal of which would 
                otherwise be unavailable to the community of license of 
                the rebroadcasting station; or
                    (B) the Commission determines that the public 
                interest, convenience, and necessity would be served by 
                treating the station as a qualifying low-power 
                television station for purposes of this section.

SEC. 3004. FLEXIBLE USE OF ELECTROMAGNETIC SPECTRUM.

    Section 303 of the Communications Act of 1934 (47 U.S.C. 303) is 
amended by adding at the end thereof the following:
    ``(y) Shall allocate electromagnetic spectrum so as to provide 
flexibility of use, except--
            ``(1) as required by international agreements relating to 
        global satellite systems or other telecommunication services to 
        which the United States is a party;
            ``(2) as required by public safety allocations;
            ``(3) to the extent that the Commission finds, after notice 
        and an opportunity for public comment, that such an allocation 
        would not be in the public interest;
            ``(4) to the extent that flexible use would retard 
        investment in communications services and systems, or 
        technology development thereby lessening the value of the 
        electromagnetic spectrum; or
            ``(5) to the extent that flexible use would result in 
        harmful interference among users.''.

SEC. 3005. PRIVATE WIRELESS SPECTRUM AVAILABILITY.

    (a) Spectrum Leasing Fees.--Title I of the Communications Act of 
1934 (47 U.S.C. 151 et seq.) is amended by adding at the end thereof 
the following:

``SEC. 12. SPECTRUM LEASE FEE PROGRAM.

    ``(a) Spectrum Lease Fees.--
            ``(1) In general.--Within 6 months after the date of 
        enactment of the Balanced Budget Act of 1997, the Commission 
        shall by rule--
                    ``(A) implement a system of spectrum lease fees 
                applicable to newly allocated frequency bands, as 
                described in section 5 of the Balanced Budget Act of 
                1997, assigned to systems (other than public safety 
                systems (as defined in section 2(2) of the Balanced 
                Budget Act of 1997)) in private wireless service;
                    ``(B) provide appropriate incentives for licensees 
                to confine their radio communication to the area of 
                operation actually required for that communication; and
                    ``(C) permit private land mobile frequency advisory 
                committees certified by the Commission to assist in the 
                computation, assessment, collection, and processing of 
                amounts received under the system of spectrum lease 
                fees.
            ``(2) Formula.--The Commission shall include as a part of 
        the rulemaking carried out under paragraph (1)--
                    ``(A) a formula to be used by private wireless 
                licensees and certified frequency advisory committees 
                to compute spectrum lease fees; and
                    ``(B) an explanation of the technical factors 
                included in the electromagnetic spectrum lease fee 
                formula, including the relative weight given to each 
                factor.
    ``(b) Fee Basis.--
            ``(1) Initial fees.--Fees assessed under the 
        electromagnetic spectrum lease fee system established under 
        subsection (a) shall be based on the approximate value of the 
        assigned frequencies to the licensees. In assessing the value 
        of the assigned frequencies to licensees under this subsection, 
        the Commission shall take into account all relevant factors, 
        including the amount of assigned bandwidth, the coverage area 
        of a system, the geographic location of the system, and the 
        degree of frequency sharing with other licensees in the same 
        area. These factors shall be incorporated in the formula 
        described in subsection (a)(2).
            ``(2) Adjustment of fees.--The Commission may adjust the 
        formula developed under subsection (a)(2) whenever it 
        determines that adjustment is necessary in order to calculate 
        the lease fees more accurately or fairly.
            ``(3) Fee cap.--The spectrum lease fees shall be set so 
        that, over a 10-year license term, the amount of revenues 
        generated will not exceed the revenues generated from the 
        auction of comparable spectrum. For purposes of this paragraph, 
        the `comparable spectrum' shall mean electromagnetic spectrum 
        located within 500 megahertz of that spectrum licensed in a 
        concluded auction for mobile radio communication licenses.
    ``(c) Application to Private Wireless Systems.--After the 
Commission has implemented the electromagnetic spectrum leasing fee 
system under subsection (a) and provided licensees access to new 
spectrum as defined in section 5(c)(2) of the Balanced Budget Act of 
1997, it shall assess the fees established for that system against all 
licensees authorized in any new frequency bands allocated for private 
wireless use.''.
    (b) Initiation of Program.--
            (1) In general.--The Commission shall allocate for use in 
        the electromagnetic spectrum lease fee program under section 12 
        of the Communications Act of 1934 (47 U.S.C. 162) not less than 
        12 megahertz of electromagnetic spectrum, previously 
        unallocated to private wireless, located between 150 megahertz 
        and 1000 megahertz on a nationwide basis.
            (2) Existing incumbents.--In allocating electromagnetic 
        spectrum under subsection (a), the Commission shall ensure that 
        existing incumbencies do not inhibit effective access to use of 
        newly allocated spectrum to the detriment of the 
        electromagnetic spectrum lease fee program.
            (3) Timeframe.--
                    (A) Allocation.--The Commission shall allocate 
                electromagnetic spectrum under subsection (b) within 6 
                months after the date of enactment of this Act.
                    (B) Access.--The Commission shall take such 
                reasonable action as may be necessary to ensure that 
                initial access to electromagnetic spectrum allocated 
                under subsection (a) commences not later than 12 months 
                after the date of enactment of this Act.
    (c) Delegation of Authority.--Section 5 of the Communications Act 
of 1934 (47 U.S.C. 155) is amended by adding at the end thereof the 
following:
    ``(f) Delegation to Certified Frequency Advisory Committees.--
            ``(1) In general.--The Commission may, by published rule or 
        order, utilize the services of certified private land mobile 
        frequency advisory committees to assist in the computation, 
        assessment, collection, and processing of funds generated 
        through the electromagnetic spectrum lease fee program under 
        section 12 of this Act. Except as provided in paragraph (3), a 
        decision or order made or taken pursuant to such delegation 
        shall have the same force and effect, and shall be made, 
        evidenced, and enforced in the same manner, as decisions or 
        orders of the Commission.
            ``(2) Processing and depositing of fees.--A frequency 
        advisory committee shall deposit any spectrum lease fees 
        collected by it under Commission authority with a banking agent 
        designated by the Commission in the same manner as it deposits 
        application filing fees collected under section 8 of this Act.
            ``(3) Review of actions.--A decision or order under 
        paragraph (1) is subject to review in the same manner, and to 
        the same extent, as decisions or orders under subsection (c)(1) 
        are subject to review under paragraphs (4) through (7) of 
        subsection (c).''.
    (d) Prohibition of Use of Competitive Bidding.--Section 309(j)(6) 
of the Communications Act of 1934 (47 U.S.C. 309(j)(6)) is amended--
            (1) by striking ``or'' at the end of subparagraph (G);
            (2) by striking the period at the end of subparagraph (H) 
        and inserting a semicolon and ``or''; and
            (3) by adding at the end thereof the following:
                    ``(I) preclude the Commission from considering the 
                public interest benefits of private wireless 
                communications systems and making allocations in 
                circumstances in which--
                            ``(i) the pre-defined geographic market 
                        areas required for competitive bidding 
                        processes are incompatible with the needs of 
                        radio services for site-specific system 
                        deployment;
                            ``(ii) the unique operating characteristics 
                        and requirements of Federal agency 
                        electromagnetic spectrum users demand, as a 
                        prerequisite for sharing of Federal spectrum, 
                        that non-government access to the 
                        electromagnetic spectrum be restricted to radio 
                        systems that are non subscriber-based;
                            ``(iii) licensee concern for operational 
                        safety, security, and productivity are of 
                        paramount importance and, as a consequence, 
                        there is no incentive, interest, or intent to 
                        use the assigned frequency for producing 
                        subscriber-based revenue; or
                            ``(iv) the Commission, in its discretion, 
                        deems competitive bidding processes to be 
                        incompatible with the public interest, 
                        convenience, and necessity.''.
    (e) Use of Proceeds From Spectrum Lease Fees.--
            (1) Establishment of account.--There is hereby established 
        on the books of the Treasury an account for the electromagnetic 
        spectrum license fees generated by the electromagnetic spectrum 
        license fee system established under section 12 of the 
        Communications Act of 1934 (47 U.S.C. 162). Except as provided 
        in paragraph (2), all proceeds from spectrum lease fees shall 
        be deposited in the Treasury in accordance with chapter 33 of 
        title 31, United States Code, and credited to the account 
        established by this subsection.
            (2) Administrative expenses.--Out of amounts received from 
        spectrum lease payments a fair and reasonable amount, as 
        determined by the Commission, may be retained by a certified 
        frequency advisory committee acting under section 5(f) of the 
        Communications Act of 1934 (47 U.S.C. 155(f)) to cover costs 
        incurred by it in administering the electromagnetic spectrum 
        lease fee program.
    (f) Definitions.--As used in this section--
            (1) Commission.--The term ``Commission'' means the Federal 
        Communications Commission.
            (2) Public safety.--The term ``public safety'' means fire, 
        police, or emergency medical service including critical care 
        medical telemetry, and such other services related to public 
        safety as the Commission may include within the definition of 
        public safety for purposes of this section.
            (3) Private wireless.--The term ``private wireless'' 
        encompasses all land mobile telecommunications systems operated 
        by or through industrial, business, transportation, 
        educational, philanthropic or ecclesiastical organizations 
        where these systems, the operation of which may be shared, are 
        for the licensees' internal use, rather than subscriber-based 
        Commercial Mobile Radio Services (CMRS) systems.
            (4) Spectrum lease fee.--The term ``spectrum lease fee'' 
        means a periodic payment for the use of a given amount of 
        electromagnetic spectrum in a given area in consideration of 
        which the user is granted a license for such use.

                 SUBTITLE B--MERCHANT MARINE PROVISIONS

SEC. 3501. EXTENSION OF VESSEL TONNAGE DUTIES.

    (a) Extension of Duties.--Section 36 of the Act of August 5, 1909 
(36 Stat. 111; 46 U.S.C. App. 121), is amended by inserting ``1999, 
2000, 2001, and 2002,'' after ``1998,'' each place it appears.
    (b) Conforming Amendment.--The Act of March 8, 1910 (36 Stat. 234; 
46 U.S.C. 132), is amended by striking ``and 1998,'' and inserting 
``1998, 1999, 2000, 2001, and 2002,''.

          TITLE IV--COMMITTEE ON ENERGY AND NATURAL RESOURCES

SEC. 4001. LEASE OF EXCESS STRATEGIC PETROLEUM RESERVE CAPACITY.

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

                   ``use of underutilized facilities

    ``Sec. 168. Notwithstanding section 649(b) of the Department of 
Energy Organization Act (42 U.S.C. 7259(b)), the Secretary is 
authorized to store in underutilized Strategic Petroleum Reserve 
facilities, by lease or otherwise, petroleum product owned by a foreign 
government or its representative: Provided, That funds resulting from 
the leasing or other use of a Reserve facility on or after October 1, 
2002, shall be available to the Secretary, without further 
appropriation, for the purchase of petroleum products for the Reserve: 
Provided further, That petroleum product stored under this section is 
not part of the Strategic Petroleum Reserve, is not subject to part C 
of this title, and notwithstanding any provision of this Act, may be 
exported from the United States.''.

                     TITLE V--COMMITTEE ON FINANCE

SEC. 5000. AMENDMENTS TO SOCIAL SECURITY ACT AND REFERENCES TO OBRA; 
              TABLE OF CONTENTS OF TITLE.

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

                     TITLE V--COMMITTEE ON FINANCE

Sec. 5000. Amendments to Social Security Act and references to OBRA; 
                            table of contents of title.
                          DIVISION 1--MEDICARE

                  Subtitle A--Medicare Choice Program

                 subchapter a--medicare choice program
Sec. 5001. Establishment of Medicare Choice program.
                   ``Part C--Medicare Choice Program

        ``Sec. 1851. Eligibility, election, and enrollment.
        ``Sec. 1852. Benefits and beneficiary protections.
        ``Sec. 1853. Payments to Medicare Choice organizations.
        ``Sec. 1854. Premiums.
        ``Sec. 1855. Organizational and financial requirements for 
                            Medicare Choice organizations; provider-
                            sponsored organizations.
        ``Sec. 1856. Establishment of standards.
        ``Sec. 1857. Contracts with Medicare Choice organizations.
        ``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 5002. Transitional rules for current medicare HMO program.
Sec.subchapter b--special rules for medicare choice medical savings 
                                accounts
Sec. 5006. Medicare Choice MSA.
  subchapter a--programs of all-inclusive care for the elderly (pace)
Sec. 5011. Coverage of PACE under the medicare program.
Sec. 5012. Effective date; transition.
Sec. 5013subchapter b--social health maintenance organizations
Sec. 5015. Social healsubchapter c--other programs (SHMOs).
Sec. 5018. Extension of certain medicare community nursing organization 
                            demonstration projects.
                         Chapter 3--Commissions

Sec. 5021. National Bipartisan Commission on the Future of Medicare.
Sec. 5022. Medicare Payment Advisory Commission.
                     Chapter 4--Medigap Protections

Sec. 5031. Medigap protections.
Sec. 5032. Addition of high deductible Medigap policy.
subchapter a--medicare choice competitive pricing demonstration project
Sec. 5041. Medicare Choice competitive pricing demonstration project.
Sec. 5042. Determination of annual Medicare Choice capitation rates.
Sec. 5043. Benefits ansubchapter b--other projects
Sec. 5045. Medicare enrollment demonstration project.
Sec. 5046. Medicare coordinated care demonstration project.
Sec. 5047. Establishment of medicare reimbursement demonstration 
                            projects.
    Chapter 6--Tax Treatment of Hospitals Participating in Provider-
                        sponsored Organizations

Sec. 5049. Tax treatment of hospitals which participate in provider-
                            sponsored organizations.
                   Subtitle B--Prevention Initiatives

Sec. 5101. Annual screening mammography for women over age 39.
Sec. 5102. Coverage of colorectal screening.
Sec. 5103. Diabetes screening tests.
Sec. 5104. Coverage of bone mass measurements.
                     Subtitle C--Rural Initiatives

Sec. 5151. Sole community hospitals.
Sec. 5152. Medicare-dependent, small rural hospital payment extension.
Sec. 5153. Medicare rural hospital flexibility program.
Sec. 5154. Prohibiting denial of request by rural referral centers for 
                            reclassification on basis of comparability 
                            of wages.
Sec. 5155. Rural health clinic services.
Sec. 5156. Medicare reimbursement for telehealth services.
Sec. 5157. Telemedicine, informatics, and education demonstration 
                            project.
    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

         Chapter 1--Revisions to Sanctions for Fraud and Abuse

Sec. 5201. Authority to refuse to enter into medicare agreements with 
                            individuals or entities convicted of 
                            felonies.
Sec. 5202. Exclusion of entity controlled by family member of a 
                            sanctioned individual.
Sec. 5203. Imposition of civil money penalties.
        Chapter 2--Improvements in Protecting Program Integrity

Sec. 5211. Disclosure of information, surety bonds, and accreditation.
Sec. 5212. Provision of certain identification numbers.
Sec. 5213. Application of certain provisions of the bankruptcy code.
Sec. 5214. Replacement of reasonable charge methodology by fee 
                            schedules.
Sec. 5215. Application of inherent reasonableness to all part B 
                            services other than physicians' services.
Sec. 5216. Requirement to furnish diagnostic information.
Sec. 5217. Report by GAO on operation of fraud and abuse control 
                            program.
Sec. 5218. Competitive bidding.
            Chapter 3--Clarifications and Technical Changes

Sec. 5221. Other fraud and abuse related provisions.
                Subtitle E--Prospective Payment Systems

                Chapter 1--Provisions Relating to Part A

Sec. 5301. Prospective payment for inpatient rehabilitation hospital 
                            services.
Sec. 5302. Study and report on payments for long-term care hospitals.
   subchapter a--payment for hospital outpatient department services
Sec. 5311. Elimination of formula-driven overpayments (FDO) for certain 
                            outpatient hospital services.
Sec. 5312. Extension of reductions in payments for costs of hospital 
                            outpatient services.
Sec. 5313. Prospective payment system for hospital outpatient 
                    subchapter b--ambulance services
Sec. 5321. Payments for ambulance services.
          subchapter a--payments to skilled nursing facilities
Sec. 5331. Basing updates to per diem limits effective for fiscal year 
                            1998 on cost limits effective for fiscal 
                            year 1997.
Sec. 5332. Psubchapter b--home health services and benefits services.
               Part I--Payments for Home Health Services

Sec. 5341. Recapturing savings resulting from temporary freeze on 
                            payment increases for home health services.
Sec. 5342. Interim payments for home health services.
Sec. 5343. Prospective payment for home health services.
Sec. 5344. Payment based on location where home health service is 
                            furnished.
                     Part II--Home Health Benefits

Sec. 5361. Modification of part A home health benefit for individuals 
                            enrolled under part B.
Sec. 5362. Imposition of $5 copayment for part B home health services.
Sec. 5363. Clarification of part-time or intermittent nursing care.
Sec. 5364. Study on definition of homebound.
Sec. 5365. Normative standards for home health claims denials.
Sec. 5366. Inclusion of cost of service in explanation of medicare 
                            benefits.
               Subtitle F--Provisions Relating to Part A

                  Chapter 1--Payment of PPS Hospitals

Sec. 5401. PPS hospital payment update.
Sec. 5402. Capital payments for PPS hospitals.
               Chapter 2--Payment of PPS Exempt Hospitals

Sec. 5421. Payment update.
Sec. 5422. Reductions to capital payments for certain PPS-exempt 
                            hospitals and units.
Sec. 5423. Cap on TEFRA limits.
Sec. 5424. Change in bonus and relief payments.
Sec. 5425. Target amounts for rehabilitation hospitals, long-term care 
                            hospitals, and psychiatric hospitals.
Sec. 5426. Treatment of certain long-term care hospitals located within 
                            other hospitals.
Sec. 5427. Elimination of exemptions; report on exceptions and 
                            adjustments.
Sec. 5428. Technical correction relating to subsection (d) hospitals.
Sec. 5429. Certain cancer hospitals.
             Chapsubchapter a--direct medical educationents
Sec. 5441. Limitation on number of residents and rolling average FTE 
                            count.
Sec. 5442. Permisubchapter b--indirect medical education
Sesubchapter c--graduate medical education payments for managed care 
                               enrollees
Sec. 5451. Direct and indirect medical education payments to hospitals 
                            for managed care enrollees.
Sec. 5452. Demonstration project on use of consortia.
                   Chapter 4--Other Hospital Payments

Sec. 5461. Disproportionate share payments to hospitals for managed 
                            care and Medicare Choice enrollees.
Sec. 5462. Reform of disproportionate share payments to hospitals 
                            serving vulnerable populations.
Sec. 5463. Medicare capital asset sales price equal to book value.
Sec. 5464. Elimination of IME and DSH payments attributable to outlier 
                            payments.
Sec. 5465. Treatment of transfer cases.
Sec. 5466. Reductions in payments for enrollee bad debt.
Sec. 5467. Floor on area wage index.
Sec. 5468. Increase base payment rate to Puerto Rico hospitals.
Sec. 5469. Permanent extension of hemophilia pass-through.
Sec. 5470. Coverage of services in religious nonmedical health care 
                            institutions under the medicare and 
                            medicaid programs.
                Chapter 5--Payments for Hospice Services

Sec. 5481. Payment for home hospice care based on location where care 
                            is furnished.
Sec. 5482. Hospice care benefits periods.
Sec. 5483. Other items and services included in hospice care.
Sec. 5484. Contracting with independent physicians or physician groups 
                            for hospice care services permitted.
Sec. 5485. Waiver of certain staffing requirements for hospice care 
                            programs in non-urbanized areas.
Sec. 5486. Limitation on liability of beneficiaries for certain hospice 
                            coverage denials.
Sec. 5487. Extending the period for physician certification of an 
                            individual's terminal illness.
Sec. 5488. Effective date.
             Subtitle G--Provisions Relating to Part B Only

   Chapter 1--Payments for Physicians and Other Health Care Providers

Sec. 5501. Establishment of single conversion factor for 1998.
Sec. 5502. Establishing update to conversion factor to match spending 
                            under sustainable growth rate.
Sec. 5503. Replacement of volume performance standard with sustainable 
                            growth rate.
Sec. 5504. Payment rules for anesthesia services.
Sec. 5505. Implementation of resource-based physician practice expense.
Sec. 5506. Increased medicare reimbursement for nurse practitioners and 
                            clinical nurse specialists.
Sec. 5507. Increased medicare reimbursement for physician assistants.
Sec. 5508. Chiropractic services coverage demonstration project.
                  Chapter 2--Other Payment Provisions

Sec. 5521. Reduction in updates to payment amounts for clinical 
                            diagnostic laboratory tests; study on 
                            laboratory services.
Sec. 5522. Improvements in administration of laboratory services 
                            benefit.
Sec. 5523. Payments for durable medical equipment.
Sec. 5524. Oxygen and oxygen equipment.
Sec. 5525. Updates for ambulatory surgical services.
Sec. 5526. Reimbursement for drugs and biologicals.
            Chapter 3--Part B Premium and Related Provisions

Sec. 5541. Part B premium.
Sec. 5542. Income-related reduction in medicare part B deductible to 
                            reflect recapture of part B subsidy.
            Subtitle H--Provisions Relating to Parts A and B

                 Chapter 1--Secondary Payor Provisions

Sec. 5601. Extension and expansion of existing requirements.
Sec. 5602. Improvements in recovery of payments.
                      Chapter 2--Other Provisions

Sec. 5611. Conforming age for eligibility under medicare to retirement 
                            age for social security benefits.
Sec. 5612. Increased certification period for certain organ procurement 
                            organizations.
    DIVISION 2--MEDICAID AND CHILDREN'S HEALTH INSURANCE INITIATIVES

                          Subtitle I--Medicaid

                   subchapter a--managed care reforms
Sec. 5701. State option for mandatory managed care.
             ``Part B--Provisions Relating to Managed Care

        ``Sec. 1941. Beneficiary choice; enrollment.
        ``Sec. 1942. Beneficiary access to services generally.
        ``Sec. 1943. Requirements for access to emergency care.
        ``Sec. 1944. Other beneficiary protections.
        ``Sec. 1945. Assuring quality care.
        ``Sec. 1946. Protections for providers.
        ``Sec. 1947. Assuring adequacy of payments to medicaid managed 
                            care organizations and entities.
        ``Sec. 1948. Fraud and abuse.
        ``Sec. 1949. Sanctions for noncompliance by managed care 
                            entities.
        ``Sec. 1950. Definitions; miscellaneous provisions.''
Sec. 5702. Primary care case management services as State option 
                            without need for waiver.
Sec. 5703. Addsubchapter b--management flexibility reformsed care.
Sec. 5711. Elimination of Boren amendment requirements for provider 
                            payment rates.
Sec. 5712. Medicaid payment rates for qualified medicare beneficiaries.
Secsubchapter c--reduction of disproportionate share hospital (dsh) 
                                payments
Sec. 5721. Disproportionate share hospital (DSH) payments.
              Chapter 2--Expansion of Medicaid Eligibility

Sec. 5731. State option to permit workers with disabilities to buy into 
                            medicaid.
Sec. 5732. 12-month continuous eligibility for children.
    Chapter 3--Programs of All-Inclusive Care for the Elderly (PACE)

Sec. 5741. Establishment of PACE program as medicaid State option.
Sec. 5742. Effective date; transition.
Sec. 5743. Study and reports.
           Chapter 4--Medicaid Management and Program Reforms

Sec. 5751. Elimination of requirement to pay for private insurance.
Sec. 5752. Elimination of obstetrical and pediatric payment rate 
                            requirements.
Sec. 5753. Physician qualification requirements.
Sec. 5754. Expanded cost-sharing requirements.
Sec. 5755. Penalty for fraudulent eligibility.
Sec. 5756. Elimination of waste, fraud, and abuse.
Sec. 5757. Study on EPSDT benefits.
Sec. 5758. Study on effectiveness of managed care entities in meeting 
                            the needs of enrollees with special health 
                            care needs.
                        Chapter 5--Miscellaneous

Sec. 5761. Increased FMAPs.
Sec. 5762. Increase in payment caps for territories.
Sec. 5763. Community-based mental health services.
Sec. 5764. Optional medicaid coverage of certain CDC-screened breast 
                            cancer patients.
Sec. 5765. Treatment of State taxes imposed on certain hospitals that 
                            provide free care.
Sec. 5766. Treatment of veterans pensions under medicaid.
Sec. 5767. Effective date.
          Subtitle J--Children's Health Insurance Initiatives

Sec. 5801. Establishment of children's health insurance initiatives.
            ``TITLE XXI--CHILD HEALTH INSURANCE INITIATIVES

        ``Sec. 2101. Purpose.
        ``Sec. 2102. Definitions.
        ``Sec. 2103. Appropriation.
        ``Sec. 2104. Program outline.
        ``Sec. 2105. Distribution of funds.
        ``Sec. 2106. Use of funds.
        ``Sec. 2107. State option for the purchase or provision of 
                            children's health insurance.
        ``Sec. 2108. Program integrity.
        ``Sec. 2109. Annual reports.''
            DIVISION 3--INCOME SECURITY AND OTHER PROVISIONS

 Subtitle K--Income Security, Welfare-to-Work Grant Program, and Other 
                               Provisions

                       Chapter 1--Income Security

Sec. 5811. SSI eligibility for aliens receiving SSI on August 22, 1996.
Sec. 5812. Extension of eligibility period for refugees and certain 
                            other qualified aliens from 5 to 7 years 
                            for SSI and medicaid.
Sec. 5813. SSI eligibility for permanent resident aliens who are 
                            members of an Indian tribe.
Sec. 5814. SSI eligibility for disabled legal aliens in the United 
                            States on August 22, 1996.
Sec. 5815. Exemption from restriction on supplemental security income 
                            program participation by certain recipients 
                            eligible on the basis of very old 
                            applications.
Sec. 5816. Reinstatement of eligibility for benefits.
Sec. 5817. Exemption for children who are legal aliens from 5-year ban 
                            on medicaid eligibility.
Sec. 5818. Effective date.
                Chapter 2--Welfare-to-Work Grant Program

Sec. 5821. Welfare-to-Work grants.
Sec. 5822. Enrollment flexibility.
Sec. 5823. Clarification of a State's ability to sanction an individual 
                            receiving assistance under TANF for 
                            noncompliance.
                  Chapter 3--Unemployment Compensation

Sec. 5831. Increase in Federal unemployment account ceiling.
Sec. 5832. Special distribution to States from unemployment trust fund.
Sec. 5833. Clarifying provision relating to base periods.
Sec. 5834. Treatment of certain services performed by inmates.
         DIVISION 4--EARNED INCOME CREDIT AND OTHER PROVISIONS

         Subtitle L--Earned Income Credit and Other Provisions

                    Chapter 1--Earned Income Credit

Sec. 5851. Restrictions on availability of earned income credit for 
                            taxpayers who improperly claimed credit in 
                            prior year.
                Chapter 2--Increase in Public Debt Limit

Sec. 5861. Increase in public debt limit.
                        Chapter 3--Miscellaneous

Sec. 5871. Sense of the Senate regarding the correction of cost-of-
                            living adjustments.
            Subtitle M--Welfare Reform Technical Corrections

Sec. 5900. Short title of subtitle.
   Chapter 1--Block Grants for Temporary Assistance to Needy Families

Sec. 5901. Amendment of the Social Security Act.
Sec. 5902. Eligible States; State plan.
Sec. 5903. Grants to States.
Sec. 5904. Use of grants.
Sec. 5905. Mandatory work requirements.
Sec. 5906. Prohibitions; requirements.
Sec. 5907. Penalties.
Sec. 5908. Data collection and reporting.
Sec. 5909. Direct funding and administration by Indian tribes.
Sec. 5910. Research, evaluations, and national studies.
Sec. 5911. Report on data processing.
Sec. 5912. Study on alternative outcomes measures.
Sec. 5913. Limitation on payments to the territories.
Sec. 5914. Conforming amendments to the Social Security Act.
Sec. 5915. Other conforming amendments.
Sec. 5916. Modifications to the job opportunities for certain low-
                            income individuals program.
Sec. 5917. Denial of assistance and benefits for drug-related 
                            convictions.
Sec. 5918. Transition rule.
Sec. 5919. Effective dates.
                Chapter 2--Supplemental Security Income

Sec. 5921. Conforming and technical amendments relating to eligibility 
                            restrictions.
Sec. 5922. Conforming and technical amendments relating to benefits for 
                            disabled children.
Sec. 5923. Additional technical amendments to title XVI.
Sec. 5924. Additional technical amendments relating to title XVI.
Sec. 5925. Effective dates.
                        Chapter 3--Child Support

Sec. 5935. State obligation to provide child support enforcement 
                            services.
Sec. 5936. Distribution of collected support.
Sec. 5937. Civil penalties relating to State directory of new hires.
Sec. 5938. Federal Parent Locator Service.
Sec. 5939. Access to registry data for research purposes.
Sec. 5940. Collection and use of social security numbers for use in 
                            child support enforcement.
Sec. 5941. Adoption of uniform State laws.
Sec. 5942. State laws providing expedited procedures.
Sec. 5943. Voluntary paternity acknowledgement.
Sec. 5944. Calculation of paternity establishment percentage.
Sec. 5945. Means available for provision of technical assistance and 
                            operation of Federal Parent Locator 
                            Service.
Sec. 5946. Authority to collect support from Federal employees.
Sec. 5947. Definition of support order.
Sec. 5948. State law authorizing suspension of licenses.
Sec. 5949. International support enforcement.
Sec. 5950. Child support enforcement for Indian tribes.
Sec. 5951. Continuation of rules for distribution of support in the 
                            case of a title IV-E child.
Sec. 5952. Good cause in foster care and food stamp cases.
Sec. 5953. Date of collection of support.
Sec. 5954. Administrative enforcement in interstate cases.
Sec. 5955. Work orders for arrearages.
Sec. 5956. Additional technical State plan amendments.
Sec. 5957. Federal case registry of child support orders.
Sec. 5958. Full faith and credit for child support orders.
Sec. 5959. Development costs of automated systems.
Sec. 5960. Additional technical amendments.
Sec. 5961. Effective date.
     Chapter subchapter a--eligibility for federal benefits Aliens
Sec. 5965. Alien eligibility for Federal benefits: limited application 
                            to medicare and benefits under the Railroad 
                            Retirement Act.
Sec. 5966. Exceptions to benefit limitations: corrections to reference 
                            concerning aliens whose deportation is 
                            withheld.
Sec. 5967. Veterans exception: application of minimum active duty 
                            service requirement; extension to 
                            unremarried surviving spouse; expanded 
                            definition of veteran.
Sec. 5968. Correction of reference concerning Cuban and Haitian 
                            entrants.
Sec. 5969. Notification concerning aliens not lawfully present: 
                            correction of terminology.
Sec. 5970. Freely associated States: contracts and licenses.
Sec. 5971. Congressional statement regarding benefits for Hmong and 
                    subchapter b--general provisionsans.
Sec. 5972. Determination of treatment of battered aliens as qualified 
                            aliens; inclusion of alien child of 
                            battered parent as qualified alien.
Sec. 5973. Verification of eligibility for benefits.
Sec. 5974. Qualifying quarters: disclosure of quarters of coverage 
                            information; correction to assure that 
                            crediting applies to all quarters earned by 
                            parents before child is 18.
Sec. 5975. Statutory construction: benefit eligibility limitations 
                            applicable only with respect to aliens 
    subchapter c--miscellaneous clerical and technical amendments; 
                             effective date
Sec. 5976. Correcting miscellaneous clerical and technical errors.
Sec. 5977. Effective date.
                      Chapter 5--Child Protection

Sec. 5981. Conforming and technical amendments relating to child 
                            protection.
Sec. 5982. Additional technical amendments relating to child 
                            protection.
Sec. 5983. Effective date.
                         Chapter 6--Child Care

Sec. 5985. Conforming and technical amendments relating to child care.
Sec. 5986. Additional conforming and technical amendments.
Sec. 5987. Repeals.
Sec. 5988. Effective dates.
  Chapter 7--ERISA Amendments Relating to Medical Child Support Orders

Sec. 5991. Amendments relating to section 303 of the Personal 
                            Responsibility and Work Opportunity 
                            Reconciliation Act of 1996.
Sec. 5992. Amendment relating to section 381 of the Personal 
                            Responsibility and Work Opportunity 
                            Reconciliation Act of 1996.
Sec. 5993. Amendments relating to section 382 of the Personal 
                            Responsibility and Work Opportunity 
                            Reconciliation Act of 1996.

                          DIVISION 1--MEDICARE

                  Subtitle A--Medicare Choice Program

                   CHAPTER 1--MEDICARE CHOICE PROGRAM

                 Subchapter A--Medicare Choice Program

SEC. 5001. ESTABLISHMENT OF MEDICARE CHOICE PROGRAM.

    Title XVIII is amended by redesignating part C as part D and by 
inserting after part B the following new part:

                   ``Part C--Medicare Choice Program

                ``eligibility, election, and enrollment

    ``Sec. 1851. (a) Choice of Medicare Benefits Through Medicare 
Choice Plans.--
            ``(1) In general.--Subject to the provisions of this 
        section, each Medicare Choice eligible individual (as defined 
        in paragraph (3)) is entitled to elect to receive benefits 
        under this title--
                    ``(A) through the traditional medicare fee-for-
                service program under parts A and B, or
                    ``(B) through enrollment in a Medicare Choice plan 
                under this part.
            ``(2) Types of medicare choice plans that may be 
        available.--A Medicare Choice plan may be any of the following 
        types of plans of health insurance:
                    ``(A) Fee-for-service plans.--A plan that 
                reimburses hospitals, physicians, and other providers 
                on the basis of a privately determined fee schedule or 
                other basis.
                    ``(B) Plans offered by preferred provider 
                organizations.--A Medicare Choice plan offered by a 
                preferred provider organization.
                    ``(C) Point of service plans.--A point of service 
                plan.
                    ``(D) Plans offered by provider-sponsored 
                organization.--A Medicare Choice plan offered by a 
                provider-sponsored organization, as defined in section 
                1855(e).
                    ``(E) Plans offered by health maintenance 
                organizations.--A Medicare Choice plan offered by a 
                health maintenance organization.
                    ``(F) Combination of msa plan and contributions to 
                medicare choice msa.--An MSA plan, as defined in 
                section 1859(b)(3), and a contribution into a Medicare 
                Choice medical savings account (MSA).
                    ``(G) Other health care plans.--Any other private 
                plan for the delivery of health care items and services 
                that is not described in a preceding subparagraph.
            ``(3) Medicare choice eligible individual.--
                    ``(A) In general.--In this title, subject to 
                subparagraph (B), the term `Medicare Choice eligible 
                individual' means an individual who is entitled to 
                benefits under part A and enrolled under part B.
                    ``(B) Special rule for end-stage renal disease.--
                Such term shall not include an individual medically 
                determined to have end-stage renal disease, except that 
                an individual who develops end-stage renal disease 
                while enrolled in a Medicare Choice plan may continue 
                to be enrolled in that plan.
    ``(b) Special Rules.--
            ``(1) Residence requirement.--
                    ``(A) In general.--Except as the Secretary may 
                otherwise provide, an individual is eligible to elect a 
                Medicare Choice plan offered by a Medicare Choice 
                organization only if the plan serves the geographic 
                area in which the individual resides.
                    ``(B) Continuation of enrollment permitted.--
                Pursuant to rules specified by the Secretary, the 
                Secretary shall provide that an individual may continue 
                enrollment in a plan, notwithstanding that the 
                individual no longer resides in the service area of the 
                plan, so long as the plan provides benefits for 
                enrollees located in the area in which the individual 
                resides.
            ``(2) Special rule for certain individuals covered under 
        fehbp or eligible for veterans or military health benefits, 
        veterans.--
                    ``(A) FEHBP.--An individual who is enrolled in a 
                health benefit plan under chapter 89 of title 5, United 
                States Code, is not eligible to enroll in an MSA plan 
                until such time as the Director of the Office of 
                Management and Budget certifies to the Secretary that 
                the Office of Personnel Management has adopted policies 
                which will ensure that the enrollment of such 
                individuals in such plans will not result in increased 
                expenditures for the Federal Government for health 
                benefit plans under such chapter.
                    ``(B) VA and dod.--The Secretary may apply rules 
                similar to the rules described in subparagraph (A) in 
                the case of individuals who are eligible for health 
                care benefits under chapter 55 of title 10, United 
                States Code, or under chapter 17 of title 38 of such 
                Code.
            ``(3) Limitation on eligibility of qualified medicare 
        beneficiaries and other medicaid beneficiaries to enroll in an 
        msa plan.--An individual who is a qualified medicare 
        beneficiary (as defined in section 1905(p)(1)), a qualified 
        disabled and working individual (described in section 1905(s)), 
        an individual described in section 1902(a)(10)(E)(iii), or 
        otherwise entitled to medicare cost-sharing under a State plan 
        under title XIX is not eligible to enroll in an MSA plan.
            ``(4) Coverage under msa plans on a demonstration basis.--
                    ``(A) In general.--An individual is not eligible to 
                enroll in an MSA plan under this part--
                            ``(i) on or after January 1, 2003, unless 
                        the enrollment is the continuation of such an 
enrollment in effect as of such date; or
                            ``(ii) as of any date if the number of such 
                        individuals so enrolled as of such date has 
                        reached 100,000.
                Under rules established by the Secretary, an individual 
                is not eligible to enroll (or continue enrollment) in 
                an MSA plan for a year unless the individual provides 
                assurances satisfactory to the Secretary that the 
                individual will reside in the United States for at 
                least 183 days during the year.
                    ``(B) Evaluation.--The Secretary shall regularly 
                evaluate the impact of permitting enrollment in MSA 
                plans under this part on selection (including adverse 
                selection), use of preventive care, access to care, and 
                the financial status of the Trust Funds under this 
                title.
                    ``(C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of individuals 
                enrolled in such plans and on the evaluation being 
                conducted under subparagraph (B). The Secretary shall 
                submit such a report, by not later than March 1, 2002, 
                on whether the time limitation under subparagraph 
                (A)(i) should be extended or removed and whether to 
                change the numerical limitation under subparagraph 
                (A)(ii).
    ``(c) Process for Exercising Choice.--
            ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed as provided in subsection (e) and shall become 
        effective as provided in subsection (f).
            ``(2) Coordination through medicare choice organizations.--
                    ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a Medicare Choice plan 
                offered by a Medicare Choice organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                    ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a Medicare Choice plan 
                offered by a Medicare Choice organization and who 
                wishes to terminate such election, to terminate such 
                election through the filing of an appropriate election 
                form with the organization.
            ``(3) Default.--
                    ``(A) Initial election.--
                            ``(i) In general.--Subject to clause (ii), 
                        an individual who fails to make an election 
                        during an initial election period under 
                        subsection (e)(1) is deemed to have chosen the 
                        traditional medicare fee-for-service program 
                        option.
                            ``(ii) Seamless continuation of coverage.--
                        The Secretary may establish procedures under 
                        which an individual who is enrolled in a health 
                        plan (other than Medicare Choice plan) offered 
                        by a Medicare Choice organization at the time 
                        of the initial election period and who fails to 
                        elect to receive coverage other than through 
                        the organization is deemed to have elected the 
                        Medicare Choice plan offered by the 
                        organization (or, if the organization offers 
                        more than one such plan, such plan or plans as 
                        the Secretary identifies under such 
                        procedures).
                    ``(B) Continuing periods.--An individual who has 
                made (or is deemed to have made) an election under this 
                section is considered to have continued to make such 
                election until such time as--
                            ``(i) the individual changes the election 
                        under this section, or
                            ``(ii) the Medicare Choice plan with 
                        respect to which such election is in effect is 
                        discontinued.
    ``(d) Providing Information To Promote Informed Choice.--
            ``(1) In general.--The Secretary shall provide for 
        activities under this subsection to broadly disseminate 
        information to medicare beneficiaries (and prospective medicare 
        beneficiaries) on the coverage options provided under this 
        section in order to promote an active, informed selection among 
        such options.
            ``(2) Provision of notice.--
                    ``(A) Open season notification.--At least 15 days 
                before the beginning of each annual, coordinated 
                election period (as defined in subsection (e)(3)(B)), 
                the Secretary shall mail to each Medicare Choice 
                eligible individual residing in an area the following:
                            ``(i) General information.--The general 
                        information described in paragraph (3).
                            ``(ii) List of plans and comparison of plan 
                        options.--A list identifying the Medicare 
                        Choice plans that are (or will be) available to 
                        residents of the area and information described 
                        in paragraph (4) concerning such plans. Such 
                        information shall be presented in a 
                        comparative, chart-like form.
                            ``(iii) Additional information.--Any other 
                        information that the Secretary determines will 
                        assist the individual in making the election 
                        under this section.
                The mailing of such information shall be coordinated 
                with the mailing of any annual notice under section 
                1804.
                    ``(B) Notification to newly medicare choice 
                eligible individuals.--To the extent practicable, the 
                Secretary shall, not later than 30 days before the 
                beginning of the initial Medicare Choice enrollment 
                period for an individual described in subsection 
                (e)(1)(A), mail to the individual the information 
                described in subparagraph (A).
                    ``(C) Form.--The information disseminated under 
                this paragraph shall be written and formatted using 
                language that is easily understandable by medicare 
                beneficiaries.
                    ``(D) Periodic updating.--The information described 
                in subparagraph (A) shall be updated on at least an 
                annual basis to reflect changes in the availability of 
                Medicare Choice plans and the benefits and net monthly 
                premiums for such plans.
            ``(3) General information.--General information under this 
        paragraph, with respect to coverage under this part during a 
        year, shall include the following:
                    ``(A) Benefits under traditional medicare fee-for-
                service program option.--A general description of the 
                benefits covered under the traditional medicare fee-
                for-service program under parts A and B, including--
                            ``(i) covered items and services,
                            ``(ii) beneficiary cost sharing, such as 
                        deductibles, coinsurance, and copayment 
                        amounts, and
                            ``(iii) any beneficiary liability for 
                        balance billing.
                    ``(B) Part b premium.--The part B premium rates 
                that will be charged for part B coverage.
                    ``(C) Election procedures.--Information and 
                instructions on how to exercise election options under 
                this section.
                    ``(D) Rights.--A general description of procedural 
                rights (including grievance and appeals procedures) of 
                beneficiaries under the traditional medicare fee-for-
                service program and the Medicare Choice program and the 
                right to be protected against discrimination based on 
                health status-related factors under section 1852(b).
                    ``(E) Information on medigap and medicare select.--
                A general description of the benefits, enrollment 
                rights, and other requirements applicable to medicare 
                supplemental policies under section 1882 and provisions 
                relating to medicare select policies described in 
                section 1882(t).
                    ``(F) Potential for contract termination.--The fact 
                that a Medicare Choice organization may terminate or 
                refuse to renew its contract under this part and the 
                effect the termination or nonrenewal of its contract 
                may have on individuals enrolled with the Medicare 
                Choice plan under this part.
            ``(4) Information comparing plan options.--Information 
        under this paragraph, with respect to a Medicare Choice plan 
        for a year, shall include the following:
                    ``(A) Benefits.--The benefits covered under the 
                plan, including--
                            ``(i) covered items and services beyond 
                        those provided under the traditional medicare 
                        fee-for-service program,
                            ``(ii) any beneficiary cost sharing,
                            ``(iii) any maximum limitations on out-of-
                        pocket expenses, and
                            ``(iv) in the case of an MSA plan, 
                        differences in cost sharing and balance billing 
                        under such a plan compared to under other 
                        Medicare Choice plans.
                    ``(B) Premiums.--The net monthly premium, if any, 
                for the plan.
                    ``(C) Service area.--The service area of the plan.
                    ``(D) Quality and performance.--To the extent 
                available, plan quality and performance indicators for 
                the benefits under the plan (and how they compare to 
                such indicators under the traditional medicare fee-for-
                service program under parts A and B in the area 
                involved), including--
                            ``(i) disenrollment rates for medicare 
                        enrollees electing to receive benefits through 
                        the plan for the previous 2 years (excluding 
                        disenrollment due to death or moving outside 
                        the plan's service area),
                            ``(ii) information on medicare enrollee 
                        satisfaction,
                            ``(iii) information on health outcomes,
                            ``(iv) the extent to which a medicare 
                        enrollee may select the health care provider of 
                        their choice, including health care providers 
                        within the plan's network and out-of-network 
                        health care providers (if the plan covers out-
                        of-network items and services), and
                            ``(v) an indication of medicare enrollee 
                        exposure to balance billing and the 
                        restrictions on coverage of items and services 
                        provided to such enrollee by an out-of-network 
                        health care provider.
                    ``(E) Supplemental benefits options.--Whether the 
                organization offering the plan offers optional 
                supplemental benefits and the terms and conditions 
                (including premiums) for such coverage.
                    ``(F) Physician compensation.--An overall summary 
                description as to the method of compensation of 
                participating physicians.
            ``(5) Maintaining a toll-free number and internet site.--
        The Secretary shall maintain a toll-free number for inquiries 
        regarding Medicare Choice options and the operation of this 
        part in all areas in which Medicare Choice plans are offered 
        and an Internet site through which individuals may 
        electronically obtain information on such options and Medicare 
        Choice plans.
            ``(6) Use of non-federal entities.--The Secretary may enter 
        into contracts with non-Federal entities to carry out 
        activities under this subsection.
            ``(7) Provision of information.--A Medicare Choice 
        organization shall provide the Secretary with such information 
        on the organization and each Medicare Choice plan it offers as 
        may be required for the preparation of the information referred 
        to in paragraph (2)(A).
            ``(8) Coordination with states.--The Secretary shall 
        coordinate with States to the maximum extent feasible in 
        developing and distributing information provided to 
        beneficiaries.
    ``(e) Coverage Election Periods.--
            ``(1) Initial choice upon eligibility to make election if 
        medicare choice plans available to individual.--If, at the time 
        an individual first becomes entitled to benefits under part A 
        and enrolled under part B, there is one or more Medicare Choice 
        plans offered in the area in which the individual resides, the 
        individual shall make the election under this section during a 
        period specified by the Secretary such that if the individual 
        elects a Medicare Choice plan during the period, coverage under 
the plan becomes effective as of the first date on which the individual 
may receive such coverage.
            ``(2) Open enrollment and disenrollment opportunities.--
        Subject to paragraph (5), a Medicare Choice eligible individual 
        may change the election under subsection (a)(1) at any time, 
        except that such individual may only enroll in a Medicare 
        Choice plan which has an open enrollment period in effect at 
        that time.
            ``(3) Annual, coordinated election period.--
                    ``(A) In general.--Subject to paragraph (5), a 
                Medicare Choice eligible individual may change an 
                election under subsection (a)(1) during an annual, 
                coordinated election period.
                    ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 1998), the month of November before 
                such year.
                    ``(C) Medicare choice health information fairs.--In 
                the month of November of each year (beginning with 
                1997), the Secretary shall provide for a nationally 
                coordinated educational and publicity campaign to 
                inform Medicare Choice eligible individuals about 
                Medicare Choice plans and the election process provided 
                under this section.
            ``(4) Special election periods.--A Medicare Choice 
        individual may make a new election under this section if--
                    ``(A) the organization's or plan's certification 
                under this part has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                plan;
                    ``(B) the individual is no longer eligible to elect 
                the plan because of a change in the individual's place 
                of residence or other change in circumstances 
                (specified by the Secretary, but not including 
                termination of the individual's enrollment on the basis 
                described in clause (i) or (ii) subsection (g)(3)(B));
                    ``(C) the individual demonstrates (in accordance 
                with guidelines established by the Secretary) that--
                            ``(i) the organization offering the plan 
                        substantially violated a material provision of 
                        the organization's contract under this part in 
                        relation to the individual (including the 
                        failure to provide an enrollee on a timely 
                        basis medically necessary care for which 
                        benefits are available under the plan or the 
                        failure to provide such covered care in 
                        accordance with applicable quality standards); 
                        or
                            ``(ii) the organization (or an agent or 
                        other entity acting on the organization's 
                        behalf) materially misrepresented the plan's 
                        provisions in marketing the plan to the 
                        individual; or
                    ``(D) the individual meets such other exceptional 
                conditions as the Secretary may provide.
            ``(5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an individual--
                    ``(A) may elect an MSA plan only during--
                            ``(i) an initial open enrollment period 
                        described in paragraph (1), or
                            ``(ii) an annual, coordinated election 
                        period described in paragraph (3)(B), and
                    ``(B) may not discontinue an election of an MSA 
                plan except during the periods described in 
                subparagraph (A) and under paragraph (4).
            ``(6) Open enrollment periods.--A Medicare Choice 
        organization--
                    ``(A) shall accept elections or changes to 
                elections described in paragraphs (1), (3), and (4) 
                during the periods prescribed in such paragraphs, and
                    ``(B) may accept other changes to elections at such 
                other times as the organization provides.
    ``(f) Effectiveness of Elections and Changes of Elections.--
            ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
            ``(2) During continuous open enrollment periods.--An 
        election or change of coverage made under subsection (e)(2) 
        shall take effect with the first day of the first calendar 
        month following the date on which the election is made.
            ``(3) Annual, coordinated election period.--An election or 
        change of coverage made during an annual, coordinated election 
        period (as defined in subsection (e)(3)(B)) in a year shall 
        take effect as of the first day of the following year unless 
        the individual elects to have it take effect on December 1 of 
        the election year.
            ``(4) Other periods.--An election or change of coverage 
        made during any other period under subsection (e)(4) shall take 
        effect in such manner as the Secretary provides in a manner 
        consistent (to the extent practicable) with protecting 
        continuity of health benefit coverage.
    ``(g) Guaranteed Issue and Renewal.--
            ``(1) In general.--Except as provided in this subsection, a 
        Medicare Choice organization shall provide that at any time 
        during which elections are accepted under this section with 
        respect to a Medicare Choice plan offered by the organization, 
        the organization will accept without restrictions individuals 
        who are eligible to make such election.
            ``(2) Priority.--If the Secretary determines that a 
        Medicare Choice organization, in relation to a Medicare Choice 
        plan it offers, has a capacity limit and the number of Medicare 
        Choice eligible individuals who elect the plan under this 
        section exceeds the capacity limit, the organization may limit 
        the election of individuals of the plan under this section but 
        only if priority in election is provided--
                    ``(A) first to such individuals as have elected the 
                plan at the time of the determination, and
                    ``(B) then to other such individuals in such a 
                manner that does not discriminate, on a basis described 
                in section 1852(b), among the individuals (who seek to 
                elect the plan).
        The preceding sentence shall not apply if it would result in 
        the enrollment of enrollees substantially nonrepresentative, as 
        determined in accordance with regulations of the Secretary, of 
        the medicare population in the service area of the plan.
            ``(3) Limitation on termination of election.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                Medicare Choice organization may not for any reason 
                terminate the election of any individual under this 
                section for a Medicare Choice plan it offers.
                    ``(B) Basis for termination of election.--A 
                Medicare Choice organization may terminate an 
                individual's election under this section with respect 
                to a Medicare Choice plan it offers if--
                            ``(i) any net monthly premiums required 
                        with respect to such plan are not paid on a 
                        timely basis (consistent with standards under 
                        section 1856 that provide for a grace period 
                        for late payment of net monthly premiums),
                            ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                            ``(iii) the plan is terminated with respect 
                        to all individuals under this part in the area 
                        in which the individual resides.
                    ``(C) Consequence of termination.--
                            ``(i) Terminations for cause.--Any 
                        individual whose election is terminated under 
                        clause (i) or (ii) of subparagraph (B) is 
                        deemed to have elected the traditional medicare 
                        fee-for-service program option described in 
                        subsection (a)(1)(A).
                            ``(ii) Termination based on plan 
                        termination or service area reduction.--Any 
                        individual whose election is terminated under 
                        subparagraph (B)(iii) shall have a special 
                        election period under subsection (e)(4)(A) in 
                        which to change coverage to coverage under 
                        another Medicare Choice plan. Such an 
                        individual who fails to make an election during 
                        such period is deemed to have chosen to change 
                        coverage to the traditional medicare fee-for-
                        service program option described in subsection 
                        (a)(1)(A).
                    ``(D) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1857, each Medicare Choice organization receiving an 
                election form under subsection (c)(3) shall transmit to 
                the Secretary (at such time and in such manner as the 
                Secretary may specify) a copy of such form or such 
                other information respecting the election as the 
                Secretary may specify.
    ``(h) Approval of Marketing Material and Application Forms.--
            ``(1) Submission.--No marketing material or application 
        form may be distributed by a Medicare Choice organization to 
        (or for the use of) Medicare Choice eligible individuals 
        unless--
                    ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material or form to the Secretary for review, and
                    ``(B) the Secretary has not disapproved the 
                distribution of such material or form.
            ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of any material or form 
        submitted and under such guidelines the Secretary shall 
        disapprove (or later require the correction of) such material 
        or form if the material or form is materially inaccurate or 
        misleading or otherwise makes a material misrepresentation.
            ``(3) Deemed approval (1-stop shopping).--In the case of 
        material or form that is submitted under paragraph (1)(A) to 
        the Secretary or a regional office of the Department of Health 
        and Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing material or form 
        under paragraph (1)(B) with respect to a Medicare Choice plan 
        in an area, the Secretary is deemed not to have disapproved 
        such distribution in all other areas covered by the plan and 
        organization except to the extent that such material or form is 
        specific only to an area involved.
            ``(4) Prohibition of certain marketing practices.--Each 
        Medicare Choice organization shall conform to fair marketing 
        standards, in relation to Medicare Choice plans offered under 
        this part, included in the standards established under section 
        1856.
    ``(i) Effect of Election of Medicare Choice Plan Option.--Subject 
to sections 1852(a)(5) and 1857(f)(2)--
            ``(1) payments under a contract with a Medicare Choice 
        organization under section 1853(a) with respect to an 
        individual electing a Medicare Choice plan offered by the 
        organization shall be instead of the amounts which (in the 
        absence of the contract) would otherwise be payable under parts 
        A and B for items and services furnished to the individual, and
            ``(2) subject to subsections (e) and (g) of section 1853, 
        only the Medicare Choice organization shall be entitled to 
        receive payments from the Secretary under this title for 
        services furnished to the individual.

                 ``benefits and beneficiary protections

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

              ``payments to medicare choice organizations

    ``Sec. 1853. (a) Payments to Organizations.--
            ``(1) Monthly payments.--
                    ``(A) In general.--Under a contract under section 
                1857 and subject to subsections (e) and (f), the 
                Secretary shall make monthly payments under this 
                section in advance to each Medicare Choice 
                organization, with respect to coverage of an individual 
under this part in a Medicare Choice payment area for a month, in an 
amount equal to \1/12\ of the annual Medicare Choice capitation rate 
(as calculated under subsection (c)) with respect to that individual 
for that area, adjusted for such risk factors as age, disability 
status, gender, institutional status, and such other factors as the 
Secretary determines to be appropriate, so as to ensure actuarial 
equivalence. The Secretary may add to, modify, or substitute for such 
factors, if such changes will improve the determination of actuarial 
equivalence.
                    ``(B) Special rule for end-stage renal disease.--
                The Secretary shall establish separate rates of payment 
                to a Medicare Choice organization with respect to 
                classes of individuals determined to have end-stage 
                renal disease and enrolled in a Medicare Choice plan of 
                the organization. Such rates of payment shall be 
                actuarially equivalent to rates paid to other enrollees 
                in the Medicare Choice payment area (or such other area 
                as specified by the Secretary). In accordance with 
                regulations, the Secretary shall provide for the 
                application of the seventh sentence of section 
                1881(b)(7) to payments under this section covering the 
                provision of renal dialysis treatment in the same 
                manner as such sentence applies to composite rate 
                payments described in such sentence.
            ``(2) Adjustment to reflect number of enrollees.--
                    ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                    ``(B) Special rule for certain enrollees.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a Medicare Choice organization 
                        under a plan operated, sponsored, or 
                        contributed to by the individual's employer or 
                        former employer (or the employer or former 
                        employer of the individual's spouse) and ending 
                        on the date on which the individual is enrolled 
                        in the organization under this part, except 
                        that for purposes of making such retroactive 
                        adjustments under this subparagraph, such 
                        period may not exceed 90 days.
                            ``(ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to any 
                        individual who does not certify that the 
                        organization provided the individual with the 
                        disclosure statement described in section 
                        1852(c) at the time the individual enrolled 
                        with the organization.
            ``(3) Establishment of risk adjustment factors.--
                    ``(A) In general.--The Secretary shall develop and 
                implement a method of risk adjustment of payment rates 
                under this section that accounts for variations in per 
                capita costs based on health status. Such method shall 
                not be implemented before the Secretary receives an 
                evaluation by an outside, independent actuary of the 
                actuarial soundness of such method.
                    ``(B) Data collection.--In order to carry out this 
                paragraph, the Secretary shall require Medicare Choice 
                organizations (and eligible organizations with risk-
                sharing contracts under section 1876) to submit, for 
                periods beginning on or after January 1, 1998, data 
                regarding inpatient hospital services and other 
                services and other information the Secretary deems 
                necessary.
            ``(4) Interim risk adjustment.--
                    ``(A) In general.--In the case of an applicable 
                enrollee in a Medicare Choice plan, the payment to the 
                Medicare Choice organization under this section shall 
                be reduced by an amount equal to the applicable 
                percentage of the amount of such payment (determined 
                without regard to this paragraph).
                    ``(B) Applicable enrollee.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `applicable 
                        enrollee' means, with respect to any month, a 
                        medicare eligible individual who--
                                    ``(I) is enrolled in a Medicare 
                                Choice plan, and
                                    ``(II) has not been enrolled in 
                                Medicare Choice plans and plans 
                                operated by eligible organizations with 
                                risk-sharing contracts under section 
                                1876 for an aggregate number of months 
                                greater than 60 (including the month 
                                for which the determination is being 
                                made).
                            ``(ii) Exception for beneficiaries 
                        maintaining enrollment in certain plans.--The 
                        term `applicable enrollee' shall not include 
                        any individual enrolled in a Medicare Choice 
                        plan offered by a Medicare Choice organization 
                        if such individual was enrolled in a health 
                        plan (other than a Medicare Choice plan) 
                        offered by such organization at the time of the 
                        individual's initial election period under 
                        section 1851(e)(1) and has been continuously 
                        enrolled in such Medicare Choice plan (or 
                        another Medicare Choice plan offered by such 
                        organization) since such election period.
                    ``(C) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage shall be 
                determined in accordance with the following table:

                                                             Applicable
``Months enrolled in HMOs:                                  percentage:
    1-12..........................................                   5 
    13-24.........................................                   4 
    25-36.........................................                   3 
    37-48.........................................                   2 
    49-60.........................................                   1.
                    ``(D) Exception for new plans.--This paragraph 
                shall not apply to applicable enrollees in a Medicare 
                Choice plan for any month if--
                            ``(i) such month occurs during the first 12 
                        months during which the plan enrolls Medicare 
                        Choice eligible individuals in the Medicare 
                        Choice payment area, and
                            ``(ii) the annual Medicare Choice 
                        capitation rate for such area for the calendar 
                        year preceding the calendar year in which such 
                        12-month period begins is less than the annual 
                        national Medicare Choice capitation rate (as 
                        determined under subsection (c)(4)) for such 
                        preceding calendar year.
                In the case of 1998, clause (ii) shall be applied by 
                using the adjusted average per capita cost under 
                section 1876 for 1997 rather than such capitation rate.
                    ``(E) Termination.--This paragraph shall not apply 
                to any month beginning on or after the first day of the 
                first month to which the method for risk adjustment 
                described in paragraph (3) applies.
    ``(b) Annual Announcement of Payment Rates.--
            ``(1) Annual announcement.--The Secretary shall annually 
        determine, and shall announce (in a manner intended to provide 
        notice to interested parties) not later than August 1 before 
        the calendar year concerned--
                    ``(A) the annual Medicare Choice capitation rate 
                for each Medicare Choice payment area for the year, and
                    ``(B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) for 
                payments for months in that year.
            ``(2) Advance notice of methodological changes.--At least 
        45 days before making the announcement under paragraph (1) for 
        a year, the Secretary shall provide for notice to Medicare 
        Choice organizations of proposed changes to be made in the 
        methodology from the methodology and assumptions used in the 
        previous announcement and shall provide such organizations an 
        opportunity to comment on such proposed changes.
            ``(3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include an 
        explanation of the assumptions and changes in methodology used 
        in the announcement in sufficient detail so that Medicare 
        Choice organizations can compute monthly adjusted Medicare 
        Choice capitation rates for individuals in each Medicare Choice 
        payment area which is in whole or in part within the service 
        area of such an organization.
    ``(c) Calculation of Annual Medicare Choice Capitation Rates.--
            ``(1) In general.--For purposes of this part, each annual 
        Medicare Choice capitation rate, for a Medicare Choice payment 
        area for a contract year consisting of a calendar year, is 
        equal to the largest of the amounts specified in the following 
        subparagraph (A), (B), or (C):
                    ``(A) Blended capitation rate.--The sum of--
                            ``(i) the area-specific percentage for the 
                        year (as specified under paragraph (2) for the 
                        year) of the annual area-specific Medicare 
Choice capitation rate for the year for the Medicare Choice payment 
area, as determined under paragraph (3), and
                            ``(ii) the national percentage (as 
                        specified under paragraph (2) for the year) of 
                        the annual national Medicare Choice capitation 
                        rate for the year, as determined under 
                        paragraph (4),
                multiplied by the payment adjustment factors described 
                in subparagraphs (A) and (B) of paragraph (5).
                    ``(B) Minimum amount.--Subject to paragraph (8)--
                            ``(i) For 1998, $4,200 (but not to exceed, 
                        in the case of an area outside the 50 States 
                        and the District of Columbia, 150 percent of 
                        the annual per capita rate of payment for 1997 
                        determined under section 1876(a)(1)(C) for the 
                        area).
                            ``(ii) For each subsequent year, 101 
                        percent of the amount in effect under this 
                        subparagraph for the previous year.
                    ``(C) Minimum percentage increase.--Subject to 
                paragraph (8)--
                            ``(i) For 1998, 101 percent of the annual 
                        per capita rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the Medicare 
                        Choice payment area.
                            ``(ii) For each subsequent year, 101 
                        percent of the annual Medicare Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.
            ``(2) Area-specific and national percentages.--For purposes 
        of paragraph (1)(A)--
                    ``(A) for 1998, the `area-specific percentage' is 
                90 percent and the `national percentage' is 10 percent,
                    ``(B) for 1999, the `area-specific percentage' is 
                80 percent and the `national percentage' is 20 percent,
                    ``(C) for 2000, the `area-specific percentage' is 
                70 percent and the `national percentage' is 30 percent,
                    ``(D) for 2001, the `area-specific percentage' is 
                60 percent and the `national percentage' is 40 percent, 
                and
                    ``(E) for a year after 2001, the `area-specific 
                percentage' is 50 percent and the `national percentage' 
                is 50 percent.
            ``(3) Annual area-specific medicare choice capitation 
        rate.--
                    ``(A) In general.--For purposes of paragraph 
                (1)(A), the annual area-specific Medicare Choice 
                capitation rate for a Medicare Choice payment area--
                            ``(i) for 1998 is the modified annual per 
                        capita rate of payment for 1997 determined 
                        under section 1876(a)(1)(C) for the area, 
                        increased by the national average per capita 
                        growth percentage for 1998 (as defined in 
                        paragraph (6)); or
                            ``(ii) for a subsequent year is the annual 
                        area-specific Medicare Choice capitation rate 
                        for the previous year determined under this 
                        paragraph for the area, increased by the 
                        national average per capita growth percentage 
                        for such subsequent year.
                    ``(B) Modified annual per capita rate of payment.--
                For purposes of subparagraph (A), the modified annual 
                per capita rate of payment for a Medicare Choice 
                payment area for 1997 shall be equal to the annual per 
                capita rate of payment for such area for such year 
                which would have been determined under section 
                1876(a)(1)(C) if 25 percent of any payments 
                attributable to sections 1886(d)(5)(B), 1886(h), and 
                1886(d)(5)(F) (relating to IME, GME, and DSH payments) 
                were not taken into account.
                    ``(C) Special rules for 1999, 2000, and 2001.--In 
                applying subparagraph (A)(ii) for 1999, 2000, and 2001, 
                the annual area-specific Medicare Choice capitation 
                rate for the preceding calendar year shall be the 
                amount which would have been determined if subparagraph 
                (B) had been applied by substituting the following 
                percentages for `25 percent':
                            ``(i) In 1999, 50 percent.
                            ``(ii) In 2000, 75 percent.
                            ``(iii) In 2001, 100 percent.
            ``(4) Annual national medicare choice capitation rate.--For 
        purposes of paragraph (1)(A), the annual national Medicare 
        Choice capitation rate for a Medicare Choice payment area for a 
        year is equal to--
                    ``(A) the sum (for all Medicare Choice payment 
                areas) of the product of--
                            ``(i) the annual area-specific Medicare 
                        Choice capitation rate for that year for the 
                        area under paragraph (3), and
                            ``(ii) the average number of medicare 
                        beneficiaries residing in that area in the 
                        year; divided by
                    ``(B) the sum of the amounts described in 
                subparagraph (A)(ii) for all Medicare Choice payment 
                areas for that year.
            ``(5) Payment adjustment budget neutrality factors.--For 
        purposes of paragraph (1)(A)--
                    ``(A) Blended rate payment adjustment factor.--For 
                each year, the Secretary shall compute a blended rate 
                payment adjustment factor such that, not taking into 
                account subparagraphs (B) and (C) of paragraph (1) and 
                the application of the payment adjustment factor 
                described in subparagraph (B) but taking into account 
                paragraph (7), the aggregate of the payments that would 
                be made under this part is equal to the aggregate 
                payments that would have been made under this part (not 
                taking into account such subparagraphs and such other 
                adjustment factor) if the area-specific percentage 
                under paragraph (1) for the year had been 100 percent 
                and the national percentage had been 0 percent.
                    ``(B) Floor-and-minimum-update payment adjustment 
                factor.--For each year, the Secretary shall compute a 
                floor-and-minimum-update payment adjustment factor so 
                that, taking into account the application of the 
                blended rate payment adjustment factor under 
                subparagraph (A) and subparagraphs (B) and (C) of 
                paragraph (1) and the application of the adjustment 
                factor under this subparagraph, the aggregate of the 
                payments under this part shall not exceed the aggregate 
                payments that would have been made under this part if 
                subparagraphs (B) and (C) of paragraph (1) did not 
                apply and if the floor-and-minimum-update payment 
                adjustment factor under this subparagraph was 1.
            ``(6) National average per capita growth percentage 
        defined.--In this part, the `national average per capita growth 
        percentage' for any year (beginning with 1998) is equal to the 
        sum of--
                    ``(A) the percentage increase in the gross domestic 
                product per capita for the 12-month period ending on 
                June 30 of the preceding year, plus
                    ``(B) 0.5 percentage points.
            ``(7) Treatment of areas with highly variable payment 
        rates.--In the case of a Medicare Choice payment area for which 
        the annual per capita rate of payment determined under section 
        1876(a)(1)(C) for 1997 varies by more than 20 percent from such 
        rate for 1996, for purposes of this subsection the Secretary 
        may substitute for such rate for 1997 a rate that is more 
        representative of the costs of the enrollees in the area.
            ``(8) Adjustments to minimum amounts and minimum percentage 
        increases.--
                    ``(A) In general.--After computing all amounts 
                under this subsection (without regard to this 
                paragraph) for any year, the Secretary shall--
                            ``(i) redetermine the amount under 
                        paragraph (1)(C) for such year by substituting 
                        `100 percent' for `101 percent' each place it 
                        appears, and
                            ``(ii) subject to subparagraph (B), 
                        increase the amount determined under paragraph 
                        (1)(B) for such year to the amount equal to 85 
                        percent of the annual national Medicare Choice 
                        capitation rate.
                    ``(B) Limitation on increase in minimum amount.--
                The Secretary shall not under subparagraph (A)(ii) 
                increase the minimum amount under paragraph (1)(B) to 
                an amount that is greater than the amount the Secretary 
                estimates will result in increased payments under such 
                paragraph equal to the decrease in payments by reason 
                of the redetermination under subparagraph (A)(i).
            ``(9) Study of local price indicators.--The Secretary and 
        the Medicare Payment Advisory Commission shall each conduct a 
        study with respect to appropriate measures for adjusting the 
        annual Medicare Choice capitation rates determined under this 
        section to reflect local price indicators, including the 
        medicare hospital wage index and the case-mix of a geographic 
        region. The Secretary and the Advisory Commission shall report 
        the results of such study to the appropriate committees of 
        Congress, including recommendations (if any) for legislation.
    ``(d) Medicare Choice Payment Area Defined.--
            ``(1) In general.--In this part, except as provided in 
        paragraph (3), the term `Medicare Choice payment area' means a 
        county, or equivalent area specified by the Secretary.
            ``(2) Rule for esrd beneficiaries.--In the case of 
        individuals who are determined to have end stage renal disease, 
        the Medicare Choice payment area shall be a State or such other 
        payment area as the Secretary specifies.
            ``(3) Geographic adjustment.--
                    ``(A) In general.--Upon written request of the 
                chief executive officer of a State for a contract year 
                (beginning after 1998) made at least 7 months before 
                the beginning of the year, the Secretary shall make a 
                geographic adjustment to a Medicare Choice payment area 
                in the State otherwise determined under paragraph (1)--
                            ``(i) to a single statewide Medicare Choice 
                        payment area,
                            ``(ii) to the metropolitan based system 
                        described in subparagraph (C), or
                            ``(iii) to consolidating into a single 
                        Medicare Choice payment area noncontiguous 
                        counties (or equivalent areas described in 
                        paragraph (1)) within a State.
                Such adjustment shall be effective for payments for 
                months beginning with January of the year following the 
                year in which the request is received.
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Secretary shall adjust the payment rates otherwise 
                established under this section for Medicare Choice 
                payment areas in the State in a manner so that the 
                aggregate of the payments under this section in the 
                State shall not exceed the aggregate payments that 
                would have been made under this section for Medicare 
                Choice payment areas in the State in the absence of the 
                adjustment under this paragraph.
                    ``(C) Metropolitan based system.--The metropolitan 
                based system described in this subparagraph is one in 
                which--
                            ``(i) all the portions of each metropolitan 
                        statistical area in the State or in the case of 
                        a consolidated metropolitan statistical area, 
                        all of the portions of each primary 
                        metropolitan statistical area within the 
                        consolidated area within the State, are treated 
                        as a single Medicare Choice payment area, and
                            ``(ii) all areas in the State that do not 
                        fall within a metropolitan statistical area are 
                        treated as a single Medicare Choice payment 
                        area.
                    ``(D) Areas.--In subparagraph (C), the terms 
                `metropolitan statistical area', `consolidated 
                metropolitan statistical area', and `primary 
                metropolitan statistical area' mean any area designated 
                as such by the Secretary of Commerce.
    ``(e) Special Rules for Individuals Electing MSA Plans.--
            ``(1) In general.--If the amount of the monthly premium for 
        an MSA plan for a Medicare Choice payment area for a year is 
        less than \1/12\ of the annual Medicare Choice capitation rate 
        applied under this section for the area and year involved, the 
        Secretary shall deposit an amount equal to 100 percent of such 
        difference in a Medicare Choice MSA established (and, if 
        applicable, designated) by the individual under paragraph (2).
            ``(2) Establishment and designation of medicare choice 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has elected 
        coverage under an MSA plan, no payment shall be made under 
        paragraph (1) on behalf of an individual for a month unless the 
        individual--
                    ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a Medicare Choice MSA (as defined in section 
                138(b)(2) of the Internal Revenue Code of 1986), and
                    ``(B) if the individual has established more than 
                one such Medicare Choice MSA, has designated one of 
                such accounts as the individual's Medicare Choice MSA 
                for purposes of this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
            ``(3) Lump-sum deposit of medical savings account 
        contribution.--In the case of an individual electing an MSA 
        plan effective beginning with a month in a year, the amount of 
        the contribution to the Medicare Choice MSA on behalf of the 
        individual for that month and all successive months in the year 
shall be deposited during that first month. In the case of a 
termination of such an election as of a month before the end of a year, 
the Secretary shall provide for a procedure for the recovery of 
deposits attributable to the remaining months in the year.
            ``(4) Special rule for applicable enrollee.--In the case of 
        an enrollee in a MSA plan for any month who is an applicable 
        enrollee for such month under section 1853(a)(4)(B), the amount 
        of the deposit under paragraph (1) for such month shall be 
        reduced by the applicable percentage (as defined in section 
        1853(a)(4)(C)) of the amount of such deposit (determined 
        without regard to this paragraph).
    ``(f) Payments From Trust Fund.--The payment to a Medicare Choice 
organization under this section for individuals enrolled under this 
part with the organization and payments to a Medicare Choice MSA under 
subsection (e)(1)(B) shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title. Monthly 
payments otherwise payable under this section for October 2001 shall be 
paid on the last business day of September 2001. Monthly payments 
otherwise payable under this section for October 2006 shall be paid on 
the first business day of October 2006.
    ``(g) Special Rule for Certain Inpatient Hospital Stays.--In the 
case of an individual who is receiving inpatient hospital services from 
a subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of 
the effective date of the individual's--
            ``(1) election under this part of a Medicare Choice plan 
        offered by a Medicare Choice organization--
                    ``(A) payment for such services until the date of 
                the individual's discharge shall be made under this 
                title through the Medicare Choice plan or the 
                traditional medicare fee-for-service program option 
                described in section 1851(a)(1)(A) (as the case may be) 
                elected before the election with such organization,
                    ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                    ``(C) the organization shall nonetheless be paid 
                the full amount otherwise payable to the organization 
                under this part; or
            ``(2) termination of election with respect to a Medicare 
        Choice organization under this part--
                    ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                    ``(B) payment for such services during the stay 
                shall not be made under section 1886(d) or by any 
                succeeding Medicare Choice organization, and
                    ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.

                               ``premiums

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

    ``organizational and financial requirements for medicare choice 
            organizations; provider-sponsored organizations

    ``Sec. 1855. (a) Organized and Licensed Under State Law.--
            ``(1) In general.--Subject to paragraphs (2) and (3), a 
        Medicare Choice organization shall be organized and licensed 
        under State law as a risk-bearing entity eligible to offer 
        health insurance or health benefits coverage in each State in 
        which it offers a Medicare Choice plan.
            ``(2) Special exception before 2001 for provider-sponsored 
        organizations.--
                    ``(A) In general.--In the case of a provider-
                sponsored organization that seeks to offer a Medicare 
                Choice plan in a State, the Secretary shall waive the 
                requirement of paragraph (1) that the organization be 
                licensed in that State for any year before 2001 if--
                            ``(i) the organization files an application 
                        for such waiver with the Secretary, and
                            ``(ii) the contract with the organization 
                        under section 1857 requires the organization to 
                        meet all requirements of State law which relate 
                        to the licensing of the organization (other 
                        than solvency requirements or a prohibition on 
                        licensure for such organization).
                    ``(B) Treatment of waiver.--
                            ``(i) In general.--In the case of a waiver 
                        granted under this paragraph for a provider-
                        sponsored organization--
                                    ``(I) the waiver shall be effective 
                                for the years specified in the waiver, 
                                except it may be renewed based on a 
                                subsequent application, and
                                    ``(II) subject to subparagraph 
                                (A)(ii), any provisions of State law 
                                which would otherwise prohibit the 
                                organization from providing coverage 
                                pursuant to a contract under this part 
                                shall be superseded.
                            ``(ii) Termination.--A waiver granted under 
                        this paragraph shall in no event extend beyond 
                        the earlier of--
                                    ``(I) December 31, 2000; or
                                    ``(II) the date on which the 
                                Secretary determines that the State has 
                                in effect solvency standards described 
                                in subsection (d)(1)(B).
                    ``(C) Prompt action on application.--The Secretary 
                shall grant or deny such a waiver application within 60 
                days after the date the Secretary determines that a 
                substantially complete application has been filed.
                    ``(D) Enforcement of state standards.--
                            ``(i) In general.--The Secretary shall 
                        enter into agreements with States subject to a 
                        waiver under this paragraph to ensure the 
                        adequate enforcement of standards incorporated 
                        into the contract under subparagraph (A)(ii). 
                        Such agreements shall provide methods by which 
                        States may notify the Secretary of any failure 
                        by an organization to comply with such 
                        standards.
                            ``(ii) Enforcement.--If the Secretary 
                        determines that an organization is not in 
                        compliance with the standards described in 
                        clause (i), the Secretary shall take 
                        appropriate actions under subsections (g) and 
                        (h) with respect to civil penalties and 
                        termination of the contract. The Secretary 
                        shall allow an organization 60 days to comply 
                        with the standards after notification of 
                        failure.
                    ``(E) Report.--The Secretary shall, not later than 
                December 31, 1998, report to Congress on the waiver 
                procedure in effect under this paragraph. Such report 
                shall include an analysis of State efforts to adopt 
                regulatory standards that take into account health plan 
                sponsors that provide services directly to enrollees 
                through affiliated providers.
            ``(3) Exception if required to offer more than medicare 
        choice plans.--Paragraph (1) shall not apply to a Medicare 
        Choice organization in a State if the State requires the 
        organization, as a condition of licensure, to offer any product 
        or plan other than a Medicare Choice plan.
            ``(4) Licensure does not substitute for or constitute 
        certification.--The fact that an organization is licensed in 
        accordance with paragraph (1) does not deem the organization to 
        meet other requirements imposed under this part.
    ``(b) Prepaid Payment.--A Medicare Choice organization shall be 
compensated (except for premiums, deductibles, coinsurance, and 
copayments) for the provision of health care services to enrolled 
members under the contract under this part by a payment which is paid 
on a periodic basis without regard to the date the health care services 
are provided and which is fixed without regard to the frequency, 
extent, or kind of health care service actually provided to a member.
    ``(c) Assumption of Full Financial Risk.--The Medicare Choice 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (except, at the election 
of the organization, hospice care) for which benefits are required to 
be provided under section 1852(a)(1), except that the organization--
            ``(1) may obtain insurance or make other arrangements for 
        the cost of providing to any enrolled member such services the 
        aggregate value of which for any year exceeds the applicable 
        amount determined under the last sentence of this subsection 
        for the year,
            ``(2) may obtain insurance or make other arrangements for 
        the cost of such services provided to its enrolled members 
        other than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
            ``(3) may obtain insurance or make other arrangements for 
        not more than 90 percent of the amount by which its costs for 
        any of its fiscal years exceed 115 percent of its income for 
such fiscal year, and
            ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
For purposes of paragraph (1), the applicable amount for 1998 is the 
amount established by the Secretary, and for 1999 and any succeeding 
year is the amount in effect for the previous year increased by the 
percentage change in the Consumer Price Index for all urban consumers 
(U.S. city average) for the 12-month period ending with June of the 
previous year.
    ``(d) Certification of Provision Against Risk of Insolvency for 
PSOs.--
            ``(1) In general.--Each Medicare Choice organization that 
        is a provider-sponsored organization shall--
                    ``(A) meet standards established under section 
                1856(a) relating to the financial solvency and capital 
                adequacy of the organization, or
                    ``(B) meet solvency standards established by the 
                State that are no less stringent than the standards 
                described in subparagraph (A).
            ``(2) Certification process for solvency standards for 
        psos.--The Secretary shall establish a process for the receipt 
        and approval of applications of a provider-sponsored 
        organization for certification (and periodic recertification) 
        of the organization as meeting such solvency standards. Under 
        such process, the Secretary shall act upon such an application 
        not later than 60 days after the date the application has been 
        received.
    ``(e) Provider-Sponsored Organization Defined.--
            ``(1) In general.--In this part, the term `provider-
        sponsored organization' means a public or private entity--
                    ``(A) that is established or organized and operated 
                by a local health care provider, or local group of 
                affiliated health care providers,
                    ``(B) that provides a substantial proportion (as 
                defined by the Secretary in accordance with paragraph 
                (2)) of the health care items and services under the 
                contract under this part directly through the provider 
                or affiliated group of providers, and
                    ``(C) with respect to which those affiliated 
                providers that share, directly or indirectly, 
                substantial financial risk with respect to the 
                provision of such items and services have at least a 
                majority financial interest in the entity.
            ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1)(B), the 
        Secretary--
                    ``(A) shall take into account the need for such an 
                organization to assume responsibility for providing--
                            ``(i) significantly more than the majority 
                        of the items and services under the contract 
                        under this section through its own affiliated 
                        providers; and
                            ``(ii) most of the remainder of the items 
                        and services under the contract through 
                        providers with which the organization has an 
                        agreement to provide such items and services,
                in order to assure financial stability and to address 
                the practical considerations involved in integrating 
                the delivery of a wide range of service providers;
                    ``(B) shall take into account the need for such an 
                organization to provide a limited proportion of the 
                items and services under the contract through providers 
                that are neither affiliated with nor have an agreement 
                with the organization; and
                    ``(C) may allow for variation in the definition of 
                substantial proportion among such organizations based 
                on relevant differences among the organizations, such 
                as their location in an urban or rural area.
            ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                    ``(A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common control 
                with the other,
                    ``(B) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986,
                    ``(C) each provider is a participant in a lawful 
                combination under which each provider shares 
substantial financial risk in connection with the organization's 
operations, or
                    ``(D) both providers are part of an affiliated 
                service group under section 414 of such Code.
            ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
            ``(5) Health care provider defined.--In this subsection, 
        the term `health care provider' means--
                    ``(A) any individual who is engaged in the delivery 
                of health care services in a State and who is required 
                by State law or regulation to be licensed or certified 
                by the State to engage in the delivery of such services 
                in the State, and
                    ``(B) any entity that is engaged in the delivery of 
                health care services in a State and that, if it is 
                required by State law or regulation to be licensed or 
                certified by the State to engage in the delivery of 
                such services in the State, is so licensed.
            ``(6) Regulations.--The Secretary shall issue regulations 
        to carry out this subsection.

                      ``establishment of standards

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

             ``contracts with medicare choice organizations

    ``Sec. 1857. (a) In General.--The Secretary shall not permit the 
election under section 1851 of a Medicare Choice plan offered by a 
Medicare Choice organization under this part, and no payment shall be 
made under section 1853 to an organization, unless the Secretary has 
entered into a contract under this section with the organization with 
respect to the offering of such plan. Such a contract with an 
organization may cover more than 1 Medicare Choice plan. Such contract 
shall provide that the organization agrees to comply with the 
applicable requirements and standards of this part and the terms and 
conditions of payment as provided for in this part.
    ``(b) Minimum Enrollment Requirements.--
            ``(1) In general.--Subject to paragraph (2), the Secretary 
        may not enter into a contract under this section with a 
        Medicare Choice organization unless the organization has at 
        least 1,500 individuals who are receiving health benefits 
        through the organization (500 such individuals if the 
        organization primarily serves individuals residing outside of 
        urbanized areas).
            ``(2) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 2 contract years 
        with respect to an organization.
            ``(3) Special rule for pso.--In the case of a Medicare 
        Choice organization which is a provider-sponsored organization, 
        paragraph (1) shall be applied by taking into account 
        individuals for whom the organization has assumed substantial 
        financial risk.
    ``(c) Contract Period and Effectiveness.--
            ``(1) Period.--Each contract under this section shall be 
        for a term of at least 1 year, as determined by the Secretary, 
        and may be made automatically renewable from term to term in 
        the absence of notice by either party of intention to terminate 
        at the end of the current term.
            ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract, or may impose the intermediate 
        sanctions described in an applicable paragraph of subsection 
        (g)(3) on the Medicare Choice organization, if the Secretary 
        determines that the organization--
                    ``(A) has failed substantially to carry out the 
                contract;
                    ``(B) is carrying out the contract in a manner 
                inconsistent with the efficient and effective 
                administration of this part; or
                    ``(C) no longer substantially meets the applicable 
                conditions of this part.
            ``(3) Effective date of contracts.--The effective date of 
        any contract executed pursuant to this section shall be 
        specified in the contract, except that in no case shall a 
        contract under this section which provides for coverage under 
        an MSA plan be effective before January 1999 with respect to 
        such coverage.
            ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a Medicare Choice organization if a 
        previous contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding 5-year period, except in circumstances which warrant 
        special consideration, as determined by the Secretary.
            ``(5) No contracting authority.--The authority vested in 
        the Secretary by this part may be performed without regard to 
        such provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
    ``(d) Protections Against Fraud and Beneficiary Protections.--
            ``(1) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person or 
        organization designated by the Secretary--
                    ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                    ``(B) shall have the right to audit and inspect any 
                books and records of the Medicare Choice organization 
                that pertain (i) to the ability of the organization to 
                bear the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
            ``(2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the organization to 
        provide (and pay for) written notice in advance of the 
        contract's termination, as well as a description of 
        alternatives for obtaining benefits under this title, to each 
        individual enrolled with the organization under this part.
            ``(3) Disclosure.--
                    ``(A) In general.--Each Medicare Choice 
                organization shall, in accordance with regulations of 
                the Secretary, report to the Secretary financial 
                information which shall include the following:
                            ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                            ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                            ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                    ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                    ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                    ``(III) any lending of money or 
                                other extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                    ``(B) Party in interest defined.--For the purposes 
                of this paragraph, the term `party in interest' means--
                            ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a Medicare Choice 
                        organization, any person who is directly or 
                        indirectly the beneficial owner of more than 5 
                        percent of the equity of the organization, any 
                        person who is the beneficial owner of a 
                        mortgage, deed of trust, note, or other 
                        interest secured by, and valuing more than 5 
                        percent of the organization, and, in the case 
                        of a Medicare Choice organization organized as 
                        a nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                            ``(ii) any entity in which a person 
                        described in clause (i)--
                                    ``(I) is an officer or director;
                                    ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                    ``(III) has directly or indirectly 
                                a beneficial interest of more than 5 
                                percent of the equity; or
                                    ``(IV) has a mortgage, deed of 
                                trust, note, or other interest valuing 
                                more than 5 percent of the assets of 
                                such entity;
                            ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                            ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                    ``(C) Access to information.--Each Medicare Choice 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
            ``(4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
    ``(e) Additional Contract Terms.--
            ``(1) In general.--The contract shall contain such other 
        terms and conditions not inconsistent with this part (including 
        requiring the organization to provide the Secretary with such 
        information) as the Secretary may find necessary and 
        appropriate.
            ``(2) Cost-sharing in enrollment-related costs.--The 
        contract with a Medicare Choice organization shall require the 
        payment to the Secretary for the organization's pro rata share 
        (as determined by the Secretary) of the estimated costs to be 
        incurred by the Secretary in carrying out section 1851 
        (relating to enrollment and dissemination of information). Such 
        payments are appropriated to defray the costs described in the 
        preceding sentence, to remain available until expended.
            ``(3) Notice to enrollees in case of decertification.--If a 
        contract with a Medicare Choice organization is terminated 
        under this section, the organization shall notify each enrollee 
        with the organization under this part of such termination.
    ``(f) Prompt Payment by Medicare Choice Organization.--
            ``(1) Requirement.--A contract under this part shall 
        require a Medicare Choice organization to provide prompt 
        payment (consistent with the provisions of sections 1816(c)(2) 
        and 1842(c)(2)) of claims submitted for services and supplies 
        furnished to individuals pursuant to the contract, if the 
        services or supplies are not furnished under a contract between 
the organization and the provider or supplier.
            ``(2) Secretary's option to bypass noncomplying 
        organization.--In the case of a Medicare Choice eligible 
        organization which the Secretary determines, after notice and 
        opportunity for a hearing, has failed to make payments of 
        amounts in compliance with paragraph (1), the Secretary may 
        provide for direct payment of the amounts owed to providers and 
        suppliers for covered services and supplies furnished to 
        individuals enrolled under this part under the contract. If the 
        Secretary provides for the direct payments, the Secretary shall 
        provide for an appropriate reduction in the amount of payments 
        otherwise made to the organization under this part to reflect 
        the amount of the Secretary's payments (and the Secretary's 
        costs in making the payments).
    ``(g) Intermediate Sanctions.--
            ``(1) In general.--If the Secretary determines that a 
        Medicare Choice organization with a contract under this 
        section--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                    ``(B) imposes net monthly premiums on individuals 
                enrolled under this part in excess of the net monthly 
                premiums permitted;
                    ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                    ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                    ``(E) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary under this part, or
                            ``(ii) to an individual or to any other 
                        entity under this part;
                    ``(F) fails to comply with the requirements of 
                section 1852(j)(3); or
                    ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
            ``(2) Remedies.--The remedies described in this paragraph 
        are--
                    ``(A) civil money penalties of not more than 
                $25,000 for each determination under paragraph (1) or, 
                with respect to a determination under subparagraph (D) 
                or (E)(i) of such paragraph, of not more than $100,000 
                for each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                    ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for 
                such determination has been corrected and is not likely 
                to recur, or
                    ``(C) suspension of payment to the organization 
                under this part for individuals enrolled after the date 
                the Secretary notifies the organization of a 
                determination under paragraph (1) and until the 
                Secretary is satisfied that the basis for such 
                determination has been corrected and is not likely to 
                recur.
            ``(3) Other intermediate sanctions.--In the case of a 
        Medicare Choice organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
described in paragraph (1), the Secretary may apply the following 
intermediate sanctions:
                    ``(A) Civil money penalties of not more than 
                $25,000 for each determination under subsection (c)(2) 
                if the deficiency that is the basis of the 
                determination has directly adversely affected (or has 
                the substantial likelihood of adversely affecting) an 
                individual covered under the organization's contract.
                    ``(B) Civil money penalties of not more than 
                $10,000 for each week beginning after the initiation of 
                procedures by the Secretary under subsection (g) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists.
                    ``(C) Suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                and until the Secretary is satisfied that the 
                deficiency that is the basis for the determination has 
                been corrected and is not likely to recur.
            ``(4) Civil money penalties.--The provisions of section 
        1128A (other than subsections (a) and (b)) shall apply to a 
        civil money penalty under subsection (f) or under paragraph (2) 
        or (3) of this subsection in the same manner as they apply to a 
        civil money penalty or proceeding under section 1128A(a).
    ``(h) Procedures for Termination.--
            ``(1) In general.--The Secretary may terminate a contract 
        with a Medicare Choice organization under this section in 
        accordance with formal investigation and compliance procedures 
        established by the Secretary under which--
                    ``(A) the Secretary provides the organization with 
                the reasonable opportunity to develop and implement a 
                corrective action plan to correct the deficiencies that 
                were the basis of the Secretary's determination under 
                subsection (c)(2);
                    ``(B) the Secretary shall impose more severe 
                sanctions on an organization that has a history of 
                deficiencies or that has not taken steps to correct 
                deficiencies the Secretary has brought to the 
                organization's attention;
                    ``(C) there are no unreasonable or unnecessary 
                delays between the finding of a deficiency and the 
                imposition of sanctions; and
                    ``(D) the Secretary provides the organization with 
                reasonable notice and opportunity for hearing 
                (including the right to appeal an initial decision) 
                before terminating the contract.
            ``(2) Exception for imminent and serious risk to health.--
        Paragraph (1) shall not apply if the Secretary determines that 
        a delay in termination, resulting from compliance with the 
        procedures specified in such paragraph prior to termination, 
        would pose an imminent and serious risk to the health of 
        individuals enrolled under this part with the organization.

                ``definitions; miscellaneous provisions

    ``Sec. 1859. (a) Definitions Relating to Medicare Choice 
Organizations.--In this part--
            ``(1) Medicare choice organization.--The term `Medicare 
        Choice organization' means a public or private entity that is 
        certified under section 1856 as meeting the requirements and 
        standards of this part for such an organization.
            ``(2) Provider-sponsored organization.--The term `provider-
        sponsored organization' is defined in section 1855(e)(1).
    ``(b) Definitions Relating to Medicare Choice Plans.--
            ``(1) Medicare choice plan.--The term `Medicare Choice 
        plan' means health benefits coverage offered under a policy, 
        contract, or plan by a Medicare Choice organization pursuant to 
        and in accordance with a contract under section 1857.
            ``(2) Medicare Choice unrestricted fee-for-service plan.--
        The term `Medicare Choice unrestricted fee-for-service plan' 
        means a Medicare Choice plan that provides for coverage of 
        benefits without restrictions relating to utilization and 
        without regard to whether the provider has a contract or other 
        arrangement with the organization offering the plan for the 
        provision of such benefits.
            ``(3) MSA plan.--
                    ``(A) In general.--The term `MSA plan' means a 
                Medicare Choice plan that--
                            ``(i) provides reimbursement for at least 
                        the items and services described in section 
                        1852(a)(1) in a year but only after the 
                        enrollee incurs countable expenses (as 
                        specified under the plan) equal to the amount 
                        of an annual deductible (described in 
                        subparagraph (B));
                            ``(ii) counts as such expenses (for 
                        purposes of such deductible) at least all 
                        amounts that would have been payable under 
                        parts A and B, and that would have been payable 
                        by the enrollee as deductibles, coinsurance, or 
                        copayments, if the enrollee had elected to 
receive benefits through the provisions of such parts;
                            ``(iii) subject to clause (iv), provides, 
                        after such deductible is met for a year and for 
                        all subsequent expenses for items and services 
                        referred to in clause (i) in the year, for a 
                        level of reimbursement that is not less than--
                                    ``(I) 100 percent of such expenses, 
                                or
                                    ``(II) 100 percent of the amounts 
                                that would have been paid (without 
                                regard to any deductibles or 
                                coinsurance) under parts A and B with 
                                respect to such expenses,
                        whichever is less; and
                            ``(iv) provides that the annual out-of-
                        pocket expenses required to be paid under the 
                        plan (other than for premiums) for covered 
                        benefits does not exceed the amount in effect 
                        under section 220(c)(2)(A)(iii)(I) of the 
                        Internal Revenue Code of 1986 for the year.
                    ``(B) Deductible.--The amount of annual deductible 
                under an MSA plan shall not be less than or more than 
                the amounts in excess under section 220(c)(2)(A)(i) of 
                the Internal Revenue Code of 1986 for the year.
    ``(c) Other References to Other Terms.--
            ``(1) Medicare choice eligible individual.--The term 
        `Medicare Choice eligible individual' is defined in section 
        1851(a)(3).
            ``(2) Medicare choice payment area.--The term `Medicare 
        Choice payment area' is defined in section 1853(d).
            ``(3) National average per capita growth percentage.--The 
        `national average per capita growth percentage' is defined in 
        section 1853(c)(6).
            ``(4) Monthly premium; net monthly premium.--The terms 
        `monthly premium' and `net monthly premium' are defined in 
        section 1854(a)(2).
    ``(d) Coordinated Acute and Long-Term Care Benefits Under a 
Medicare Choice Plan.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under a medicaid plan 
under title XIX with those provided under a Medicare Choice plan in a 
manner that assures continuity of a full-range of acute care and long-
term care services to poor elderly or disabled individuals eligible for 
benefits under this title and under such plan.
    ``(e) Restriction on Enrollment for Certain Medicare Choice 
Plans.--
            ``(1) In general.--In the case of a Medicare Choice 
        religious fraternal benefit society plan described in paragraph 
        (2), notwithstanding any other provision of this part to the 
        contrary and in accordance with regulations of the Secretary, 
        the society offering the plan may restrict the enrollment of 
        individuals under this part to individuals who are members of 
        the church, convention, or group described in paragraph (3)(B) 
        with which the society is affiliated.
            ``(2) Medicare choice religious fraternal benefit society 
        plan described.--For purposes of this subsection, a Medicare 
        Choice religious fraternal benefit society plan described in 
        this paragraph is a Medicare Choice plan described in section 
        1851(a)(2)(A) that--
                    ``(A) is offered by a religious fraternal benefit 
                society described in paragraph (3) only to members of 
                the church, convention, or group described in paragraph 
                (3)(B); and
                    ``(B) permits all such members to enroll under the 
                plan without regard to health status-related factors.
        Nothing in this subsection shall be construed as waiving any 
        plan requirements relating to financial solvency. In developing 
        solvency standards under section 1856, the Secretary shall take 
        into account open contract and assessment features 
        characteristic of fraternal insurance certificates.
            ``(3) Religious fraternal benefit society defined.--For 
        purposes of paragraph (2)(A), a `religious fraternal benefit 
        society' described in this section is an organization that--
                    ``(A) is exempt from Federal income taxation under 
                section 501(c)(8) of the Internal Revenue Code of 1986;
                    ``(B) is affiliated with, carries out the tenets 
                of, and shares a religious bond with, a church or 
                convention or association of churches or an affiliated 
                group of churches;
                    ``(C) offers, in addition to a Medicare Choice 
                religious fraternal benefit society plan, at least the 
                same level of health coverage to individuals not 
                entitled to benefits under this title who are members 
                of such church, convention, or group; and
                    ``(D) does not impose any limitation on membership 
                in the society based on any health status-related 
                factor.
            ``(4) Payment adjustment.--Under regulations of the 
        Secretary, in the case of individuals enrolled under this part 
        under a Medicare Choice religious fraternal benefit society 
        plan described in paragraph (2), the Secretary shall provide 
        for such adjustment to the payment amounts otherwise 
        established under section 1854 as may be appropriate to assure 
        an appropriate payment level, taking into account the actuarial 
        characteristics and experience of such individuals.''.

SEC. 5002. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

    (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 1876(f) 
(42 U.S.C. 1395mm(f)) is amended--
            (1) in paragraph (1)--
                    (A) by striking ``Each'' and inserting ``For 
                contract periods beginning before January 1, 1999, 
                each''; and
                    (B) by striking ``or under a State plan approved 
                under title XIX'';
            (2) in paragraph (2), by striking ``The Secretary'' and 
        inserting ``Subject to paragraph (4), the Secretary'', and
            (3) by adding at the end the following:
    ``(4) The Secretary may waive the requirement imposed by paragraph 
(1) if the Secretary determines that the plan meets all other 
beneficiary protections and quality standards under this section.''.
    (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended by 
adding at the end the following new subsection:
    ``(k)(1) Except as provided in paragraph (2) or (3), the Secretary 
shall not enter into, renew, or continue any risk-sharing contract 
under this section with an eligible organization for any contract year 
beginning on or after--
            ``(A) the date standards for Medicare Choice organizations 
        and plans are first established under section 1856 with respect 
        to Medicare Choice organizations that are insurers or health 
        maintenance organizations, or
            ``(B) in the case of such an organization with such a 
        contract in effect as of the date such standards were first 
        established, 1 year after such date.
    ``(2) The Secretary shall not enter into, renew, or continue any 
risk-sharing contract under this section with an eligible organization 
for any contract year beginning on or after January 1, 2000.
    ``(3) An individual who is enrolled in part B only and is enrolled 
in an eligible organization with a risk-sharing contract under this 
section on December 31, 1998, may continue enrollment in such 
organization in accordance with regulations issued by not later than 
July 1, 1998.
    ``(4) Notwithstanding subsection (a), the Secretary shall provide 
that payment amounts under risk-sharing contracts under this section 
for months in a year (beginning with January 1998) shall be computed--
            ``(A) with respect to individuals entitled to benefits 
        under both parts A and B, by substituting payment rates under 
        section 1853(a) for the payment rates otherwise established 
        under section 1876(a), and
            ``(B) with respect to individuals only entitled to benefits 
        under part B, by substituting an appropriate proportion of such 
        rates (reflecting the relative proportion of payments under 
        this title attributable to such part) for the payment rates 
        otherwise established under subsection (a).
For purposes of carrying out this paragraph for payments for months in 
1998, the Secretary shall compute, announce, and apply the payment 
rates under section 1853(a) (notwithstanding any deadlines specified in 
such section) in as timely a manner as possible and may (to the extent 
necessary) provide for retroactive adjustment in payments made under 
this section not in accordance with such rates.''.
    (c) Enrollment Transition Rule.--An individual who is enrolled on 
December 31, 1998, with an eligible organization under section 1876 of 
the Social Security Act (42 U.S.C. 1395mm) shall be considered to be 
enrolled with that organization on January 1, 1999, under part C of 
title XVIII of such Act if that organization has a contract under that 
part for providing services on January 1, 1999 (unless the individual 
has disenrolled effective on that date).
    (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
            (1) in paragraph (1)--
                    (A) by inserting ``1855(i),'' after ``1833(s),'', 
                and
                    (B) by inserting ``, Medicare Choice 
                organization,'' after ``provider of services''; and
            (2) in paragraph (2)(E), by inserting ``or a Medicare 
        Choice organization'' after ``section 1833(a)(1)(A)''.
    (e) Extension of Provider Requirement.--Section 1866(a)(1)(O) (42 
U.S.C. 1395cc(a)(1)(O)) is amended--
            (1) by striking ``in the case of hospitals and skilled 
        nursing facilities,'';
            (2) by striking ``inpatient hospital and extended care'';
            (3) by inserting ``with a Medicare Choice organization 
        under part C or'' after ``any individual enrolled''; and
            (4) by striking ``(in the case of hospitals) or limits (in 
        the case of skilled nursing facilities)''.
    (f) Additional Conforming Changes.--
            (1) Conforming references to previous part C.--Any 
        reference in law (in effect before the date of the enactment of 
        this Act) to part C of title XVIII of the Social Security Act 
        is deemed a reference to part D of such title (as in effect 
        after such date).
            (2) Secretarial submission of legislative proposal.--Not 
        later than 90 days after the date of the enactment of this Act, 
        the Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this chapter.
    (g) Immediate Effective Date for Certain Requirements for 
Demonstrations.--Section 1857(e)(2) of the Social Security Act 
(requiring contribution to certain costs related to the enrollment 
process comparative materials) applies to demonstrations with respect 
to which enrollment is effected or coordinated under section 1851 of 
such Act.
    (h) Use of Interim, Final Regulations.--In order to carry out the 
amendments made by this chapter in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
    (i) Transition Rule for PSO Enrollment.--In applying subsection 
(g)(1) of section 1876 of the Social Security Act (42 U.S.C. 1395mm) to 
a risk-sharing contract entered into with an eligible organization that 
is a provider-sponsored organization (as defined in section 1855(e)(1) 
of such Act, as inserted by section 5001) for a contract year beginning 
on or after January 1, 1998, there shall be substituted for the minimum 
number of enrollees provided under such section the minimum number of 
enrollees permitted under section 1857(b)(1) of such Act (as so 
inserted).

SEC. 5003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

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

    Subchapter B--Special Rules for Medicare Choice Medical Savings 
                                Accounts

SEC. 5006. MEDICARE CHOICE MSA.

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

``SEC. 138. MEDICARE CHOICE MSA.

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

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

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

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

SEC. 5011. COVERAGE OF PACE UNDER THE MEDICARE PROGRAM.

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

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

    ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in PACE 
Program; Definitions for PACE Program Related Terms.--
            ``(1) Benefits through enrollment in a pace program.--In 
        accordance with this section, in the case of an individual who 
        is entitled to benefits under part A or enrolled under part B 
        and who is a PACE program eligible individual (as defined in 
        paragraph (5)) with respect to a PACE program offered by a PACE 
        provider under a PACE program agreement--
                    ``(A) the individual may enroll in the program 
                under this section; and
                    ``(B) so long as the individual is so enrolled and 
                in accordance with regulations--
                            ``(i) the individual shall receive benefits 
                        under this title solely through such program; 
                        and
                            ``(ii) the PACE provider is entitled to 
                        payment under and in accordance with this 
                        section and such agreement for provision of 
                        such benefits.
            ``(2) PACE program defined.--For purposes of this section 
        and section 1932, the term `PACE program' means a program of 
        all-inclusive care for the elderly that meets the following 
        requirements:
                    ``(A) Operation.--The entity operating the program 
                is a PACE provider (as defined in paragraph (3)).
                    ``(B) Comprehensive benefits.--The program provides 
                comprehensive health care services to PACE program 
                eligible individuals in accordance with the PACE 
                program agreement and regulations under this section.
                    ``(C) Transition.--In the case of an individual who 
                is enrolled under the program under this section and 
                whose enrollment ceases for any reason (including that 
                the individual no longer qualifies as a PACE program 
eligible individual, the termination of a PACE program agreement, or 
otherwise), the program provides assistance to the individual in 
obtaining necessary transitional care through appropriate referrals and 
making the individual's medical records available to new providers.
            ``(3) PACE provider defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `PACE provider' means an entity that--
                            ``(i) subject to subparagraph (B), is (or 
                        is a distinct part of) a public entity or a 
                        private, nonprofit entity organized for 
                        charitable purposes under section 501(c)(3) of 
                        the Internal Revenue Code of 1986; and
                            ``(ii) has entered into a PACE program 
                        agreement with respect to its operation of a 
                        PACE program.
                    ``(B) Treatment of private, for-profit providers.--
                Clause (i) of subparagraph (A) shall not apply--
                            ``(i) to entities subject to a 
                        demonstration project waiver under subsection 
                        (h); and
                            ``(ii) after the date the report under 
                        section 5013(b) of the Balanced Budget Act of 
                        1997 is submitted, unless the Secretary 
                        determines that any of the findings described 
                        in subparagraph (A), (B), (C), or (D) of 
                        paragraph (2) of such section are true.
            ``(4) PACE program agreement defined.--For purposes of this 
        section, the term `PACE program agreement' means, with respect 
        to a PACE provider, an agreement, consistent with this section, 
        section 1932 (if applicable), and regulations promulgated to 
        carry out such sections, between the PACE provider and the 
        Secretary, or an agreement between the PACE provider and a 
        State administering agency for the operation of a PACE program 
        by the provider under such sections.
            ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program eligible 
        individual' means, with respect to a PACE program, an 
        individual who--
                    ``(A) is 55 years of age or older;
                    ``(B) subject to subsection (c)(4), is determined 
                under subsection (c) to require the level of care 
                required under the State medicaid plan for coverage of 
                nursing facility services;
                    ``(C) resides in the service area of the PACE 
                program; and
                    ``(D) meets such other eligibility conditions as 
                may be imposed under the PACE program agreement for the 
                program under subsection (e)(2)(A)(ii).
            ``(6) PACE protocol.--For purposes of this section, the 
        term `PACE protocol' means the Protocol for the Program of All-
        inclusive Care for the Elderly (PACE), as published by On Lok, 
        Inc., as of April 14, 1995, or any successor protocol that may 
        be agreed upon between the Secretary and On Lok, Inc.
            ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration waiver 
        program' means a demonstration program under either of the 
        following sections (as in effect before the date of their 
        repeal):
                    ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as extended by 
                section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            ``(8) State administering agency defined.--For purposes of 
        this section, the term `State administering agency' means, with 
        respect to the operation of a PACE program in a State, the 
        agency of that State (which may be the single agency 
        responsible for administration of the State plan under title 
        XIX in the State) responsible for administering PACE program 
        agreements under this section and section 1932 in the State.
            ``(9) Trial period defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `trial period' means, with respect to a PACE 
                program operated by a PACE provider under a PACE 
                program agreement, the first 3 contract years under 
                such agreement with respect to such program.
                    ``(B) Treatment of entities previously operating 
                pace demonstration waiver programs.--Each contract year 
                (including a year occurring before the effective date 
of this section) during which an entity has operated a PACE 
demonstration waiver program shall be counted under subparagraph (A) as 
a contract year during which the entity operated a PACE program as a 
PACE provider under a PACE program agreement.
            ``(10) Regulations.--For purposes of this section, the term 
        `regulations' refers to interim final or final regulations 
        promulgated under subsection (f) to carry out this section and 
        section 1932.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
            ``(1) In general.--Under a PACE program agreement, a PACE 
        provider shall--
                    ``(A) provide to PACE program eligible individuals, 
                regardless of source of payment and directly or under 
                contracts with other entities, at a minimum--
                            ``(i) all items and services covered under 
                        this title (for individuals enrolled under this 
                        section) and all items and services covered 
                        under title XIX, but without any limitation or 
                        condition as to amount, duration, or scope and 
                        without application of deductibles, copayments, 
                        coinsurance, or other cost-sharing that would 
                        otherwise apply under this title or such title, 
                        respectively; and
                            ``(ii) all additional items and services 
                        specified in regulations, based upon those 
                        required under the PACE protocol;
                    ``(B) provide such enrollees access to necessary 
                covered items and services 24 hours per day, every day 
                of the year;
                    ``(C) provide services to such enrollees through a 
                comprehensive, multidisciplinary health and social 
                services delivery system which integrates acute and 
                long-term care services pursuant to regulations; and
                    ``(D) specify the covered items and services that 
                will not be provided directly by the entity, and to 
                arrange for delivery of those items and services 
                through contracts meeting the requirements of 
                regulations.
            ``(2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to have in 
        effect at a minimum--
                    ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such plan, in 
                accordance with regulations; and
                    ``(B) written safeguards of the rights of enrolled 
                participants (including a patient bill of rights and 
                procedures for grievances and appeals) in accordance 
                with regulations and with other requirements of this 
                title and Federal and State law that are designed for 
                the protection of patients.
    ``(c) Eligibility Determinations.--
            ``(1) In general.--The determination of whether an 
        individual is a PACE program eligible individual--
                    ``(A) shall be made under and in accordance with 
                the PACE program agreement; and
                    ``(B) who is entitled to medical assistance under 
                title XIX, shall be made (or who is not so entitled, 
                may be made) by the State administering agency.
            ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined by the Secretary or the State administering agency, 
        in accordance with regulations, to be comparable to the health 
        status of individuals who have participated in the PACE 
        demonstration waiver programs. Such determination shall be 
        based upon information on health status and related indicators 
        (such as medical diagnoses and measures of activities of daily 
        living, instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible individuals.
            ``(3) Annual eligibility recertifications.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                determination described in subsection (a)(5)(B) for an 
                individual shall be reevaluated at least annually.
                    ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be waived 
                during a period in accordance with regulations in those 
                cases where the State administering agency determines 
                that there is no reasonable expectation of improvement 
                or significant change in an individual's condition 
                during the period because of the advanced age, severity 
                of the advanced age, severity of chronic condition, or 
degree of impairment of functional capacity of the individual involved.
            ``(4) Continuation of eligibility.--An individual who is a 
        PACE program eligible individual may be deemed to continue to 
        be such an individual notwithstanding a determination that the 
        individual no longer meets the requirement of subsection 
        (a)(5)(B) if, in accordance with regulations, in the absence of 
        continued coverage under a PACE program the individual 
        reasonably would be expected to meet such requirement within 
        the succeeding 6-month period.
            ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a PACE 
        program shall be pursuant to regulations and the PACE program 
        agreement and shall permit enrollees to voluntarily disenroll 
        without cause at any time. Such regulations and agreement shall 
        provide that the PACE program may not disenroll a PACE program 
        eligible individual on the ground that the individual has 
        engaged in noncompliant behavior if such behavior is related to 
        a mental or physical condition of the individual. For purposes 
        of the preceding sentence, the term `noncompliant behavior' 
        includes repeated noncompliance with medical advice and 
        repeated failure to appear for appointments.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
            ``(1) In general.--In the case of a PACE provider with a 
        PACE program agreement under this section, except as provided 
        in this subsection or by regulations, the Secretary shall make 
        prospective monthly payments of a capitation amount for each 
        PACE program eligible individual enrolled under the agreement 
        under this section in the same manner and from the same sources 
        as payments are made to an eligible organization under a risk-
        sharing contract under section 1876. Such payments shall be 
        subject to adjustment in the manner described in section 
        1876(a)(1)(E).
            ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a contract 
        year shall be an amount specified in the PACE program agreement 
        for the year. Such amount shall be based upon payment rates 
        established under section 1876 for risk-sharing contracts and 
        shall be adjusted to take into account the comparative frailty 
        of PACE enrollees and such other factors as the Secretary 
        determines to be appropriate. Such amount under such an 
        agreement shall be computed in a manner so that the total 
        payment level for all PACE program eligible individuals 
        enrolled under a program is less than the projected payment 
        under this title for a comparable population not enrolled under 
        a PACE program.
    ``(e) PACE Program Agreement.--
            ``(1) Requirement.--
                    ``(A) In general.--The Secretary, in close 
                cooperation with the State administering agency, shall 
                establish procedures for entering into, extending, and 
                terminating PACE program agreements for the operation 
                of PACE programs by entities that meet the requirements 
                for a PACE provider under this section, section 1932, 
                and regulations.
                    ``(B) Numerical limitation.--
                            ``(i) In general.--The Secretary shall not 
                        permit the number of PACE providers with which 
                        agreements are in effect under this section or 
                        under section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                    ``(I) 40 as of the date of the 
                                enactment of this section; or
                                    ``(II) as of each succeeding 
                                anniversary of such date, the numerical 
                                limitation under this subparagraph for 
                                the preceding year plus 20.
                        Subclause (II) shall apply without regard to 
                        the actual number of agreements in effect as of 
                        a previous anniversary date.
                            ``(ii) Treatment of certain private, for-
                        profit providers.--The numerical limitation in 
                        clause (i) shall not apply to a PACE provider 
                        that--
                                    ``(I) is operating under a 
                                demonstration project waiver under 
                                subsection (h); or
                                    ``(II) was operating under such a 
                                waiver and subsequently qualifies for 
                                PACE provider status pursuant to 
                                subsection (a)(3)(B)(ii).
            ``(2) Service area and eligibility.--
                    ``(A) In general.--A PACE program agreement for a 
                PACE program--
                            ``(i) shall designate the service area of 
                        the program;
                            ``(ii) may provide additional requirements 
                        for individuals to qualify as PACE program 
eligible individuals with respect to the program;
                            ``(iii) shall be effective for a contract 
                        year, but may be extended for additional 
                        contract years in the absence of a notice by a 
                        party to terminate and is subject to 
                        termination by the Secretary and the State 
                        administering agency at any time for cause (as 
                        provided under the agreement);
                            ``(iv) shall require a PACE provider to 
                        meet all applicable State and local laws and 
                        requirements; and
                            ``(v) shall have such additional terms and 
                        conditions as the parties may agree to, 
                        provided that such terms and conditions are 
                        consistent with this section and regulations.
                    ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement under 
                subparagraph (A)(i), the Secretary (in consultation 
                with the State administering agency) may exclude from 
                designation an area that is already covered under 
                another PACE program agreement, in order to avoid 
                unnecessary duplication of services and avoid impairing 
                the financial and service viability of an existing 
                program.
            ``(3) Data collection; development of outcome measures.--
                    ``(A) Data collection.--
                            ``(i) In general.--Under a PACE program 
                        agreement, the PACE provider shall--
                                    ``(I) collect data;
                                    ``(II) maintain, and afford the 
                                Secretary and the State administering 
                                agency access to, the records relating 
                                to the program, including pertinent 
                                financial, medical, and personnel 
                                records; and
                                    ``(III) make to the Secretary and 
                                the State administering agency reports 
                                that the Secretary finds (in 
                                consultation with State administering 
                                agencies) necessary to monitor the 
                                operation, cost, and effectiveness of 
                                the PACE program under this Act.
                            ``(ii) Requirements during trial period.--
                        During the first 3 years of operation of a PACE 
                        program (either under this section or under a 
                        PACE demonstration waiver program), the PACE 
                        provider shall provide such additional data as 
                        the Secretary specifies in regulations in order 
                        to perform the oversight required under 
                        paragraph (4)(A).
                    ``(B) Development of outcome measures.--Under a 
                PACE program agreement, the PACE provider, the 
                Secretary, and the State administering agency shall 
                jointly cooperate in the development and implementation 
                of health status and quality of life outcome measures 
                with respect to PACE program eligible individuals.
            ``(4) Oversight.--
                    ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE program 
                operated by a PACE provider, the Secretary (in 
                cooperation with the State administering agency) shall 
                conduct a comprehensive annual review of the operation 
                of the PACE program by the provider in order to assure 
                compliance with the requirements of this section and 
                regulations. Such a review shall include--
                            ``(i) an on-site visit to the program site;
                            ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                            ``(iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                            ``(iv) detailed analysis of the entity's 
                        substantial compliance with all significant 
                        requirements of this section and regulations; 
                        and
                            ``(v) any other elements the Secretary or 
                        State agency considers necessary or 
                        appropriate.
                    ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the State 
                administering agency) shall continue to conduct such 
                review of the operation of PACE providers and PACE 
                programs as may be appropriate, taking into account the 
                performance level of a provider and compliance of a 
                provider with all significant requirements of this 
                section and regulations.
                    ``(C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to the PACE 
                provider, along with any recommendations for changes to 
                the provider's program, and shall be made available to 
                the public upon request.
            ``(5) Termination of pace provider agreements.--
                    ``(A) In general.--Under regulations--
                            ``(i) the Secretary or a State 
                        administering agency may terminate a PACE 
                        program agreement for cause; and
                            ``(ii) a PACE provider may terminate an 
                        agreement after appropriate notice to the 
                        Secretary, the State agency, and enrollees.
                    ``(B) Causes for termination.--In accordance with 
                regulations establishing procedures for termination of 
                PACE program agreements, the Secretary or a State 
                administering agency may terminate a PACE program 
                agreement with a PACE provider for, among other 
                reasons, the fact that--
                            ``(i) the Secretary or State administering 
                        agency determines that--
                                    ``(I) there are significant 
                                deficiencies in the quality of care 
                                provided to enrolled participants; or
                                    ``(II) the provider has failed to 
                                comply substantially with conditions 
                                for a program or provider under this 
                                section or section 1932; and
                            ``(ii) the entity has failed to develop and 
                        successfully initiate, within 30 days of the 
                        receipt of written notice of such a 
                        determination, a plan to correct the 
                        deficiencies, or has failed to continue 
                        implementation of such a plan.
                    ``(C) Termination and transition procedures.--An 
                entity whose PACE provider agreement is terminated 
                under this paragraph shall implement the transition 
                procedures required under subsection (a)(2)(C).
            ``(6) Secretary's oversight; enforcement authority.--
                    ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with the State 
                administering agency) that a PACE provider is failing 
                substantially to comply with the requirements of this 
                section and regulations, the Secretary (and the State 
                administering agency) may take any or all of the 
                following actions:
                            ``(i) Condition the continuation of the 
                        PACE program agreement upon timely execution of 
                        a corrective action plan.
                            ``(ii) Withhold some or all further 
                        payments under the PACE program agreement under 
                        this section or section 1932 with respect to 
                        PACE program services furnished by such 
                        provider until the deficiencies have been 
                        corrected.
                            ``(iii) Terminate such agreement.
                    ``(B) Application of intermediate sanctions.--Under 
                regulations, the Secretary may provide for the 
                application against a PACE provider of remedies 
                described in section 1876(i)(6)(B) or 1903(m)(5)(B) in 
                the case of violations by the provider of the type 
                described in section 1876(i)(6)(A) or 1903(m)(5)(A), 
                respectively (in relation to agreements, enrollees, and 
                requirements under this section or section 1932, 
                respectively).
            ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of section 
        1876(i)(9) shall apply to termination and sanctions respecting 
        a PACE program agreement and PACE provider under this 
        subsection in the same manner as they apply to a termination 
        and sanctions with respect to a contract and an eligible 
        organization under section 1876.
            ``(8) Timely consideration of applications for pace program 
        provider status.--In considering an application for PACE 
        provider program status, the application shall be deemed 
        approved unless the Secretary, within 90 days after the date of 
        the submission of the application to the Secretary, either 
        denies such request in writing or informs the applicant in 
        writing with respect to any additional information that is 
        needed in order to make a final determination with respect to 
        the application. After the date the Secretary receives such 
        additional information, the application shall be deemed 
        approved unless the Secretary, within 90 days of such date, 
        denies such request.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall issue interim final 
        or final regulations to carry out this section and section 
        1932.
            ``(2) Use of pace protocol.--
                    ``(A) In general.--In issuing such regulations, the 
                Secretary shall, to the extent consistent with the 
                provisions of this section, incorporate the 
                requirements applied to PACE demonstration waiver 
                programs under the PACE protocol.
                    ``(B) Flexibility.--In order to provide for 
                reasonable flexibility in adapting the PACE service 
                delivery model to the needs of particular organizations 
                (such as those in rural areas or those that may 
                determine it appropriate to use nonstaff physicians 
                according to State licensing law requirements) under 
                this section and section 1932, the Secretary (in close 
                consultation with State administering agencies) may 
                modify or waive provisions of the PACE protocol so long 
                as any such modification or waiver is not inconsistent 
                with and would not impair the essential elements, 
                objectives, and requirements of this section, but may 
                not modify or waive any of the following provisions:
                            ``(i) The focus on frail elderly qualifying 
                        individuals who require the level of care 
                        provided in a nursing facility.
                            ``(ii) The delivery of comprehensive, 
                        integrated acute and long-term care services.
                            ``(iii) The interdisciplinary team approach 
                        to care management and service delivery.
                            ``(iv) Capitated, integrated financing that 
                        allows the provider to pool payments received 
                        from public and private programs and 
                        individuals.
                            ``(v) The assumption by the provider of 
                        full financial risk.
            ``(3) Application of certain additional beneficiary and 
        program protections.--
                    ``(A) In general.--In issuing such regulations and 
                subject to subparagraph (B), the Secretary may apply 
                with respect to PACE programs, providers, and 
                agreements such requirements of sections 1876 and 
                1903(m) relating to protection of beneficiaries and 
                program integrity as would apply to eligible 
                organizations under risk-sharing contracts under 
                section 1876 and to health maintenance organizations 
                under prepaid capitation agreements under section 
                1903(m).
                    ``(B) Considerations.--In issuing such regulations, 
                the Secretary shall--
                            ``(i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under sections 
                        1876 and 1903(m);
                            ``(ii) not include any requirement that 
                        conflicts with carrying out PACE programs under 
                        this section; and
                            ``(iii) not include any requirement 
                        restricting the proportion of enrollees who are 
                        eligible for benefits under this title or title 
                        XIX.
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) are waived and shall 
not apply:
            ``(1) Section 1812, insofar as it limits coverage of 
        institutional services.
            ``(2) Sections 1813, 1814, 1833, and 1886, insofar as such 
        sections relate to rules for payment for benefits.
            ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
        1835(a)(2)(A), insofar as they limit coverage of extended care 
        services or home health services.
            ``(4) Section 1861(i), insofar as it imposes a 3-day prior 
        hospitalization requirement for coverage of extended care 
        services.
            ``(5) Paragraphs (1) and (9) of section 1862(a), insofar as 
        they may prevent payment for PACE program services to 
        individuals enrolled under PACE programs.
    ``(h) Demonstration Project for For-Profit Entities.--
            ``(1) In general.--In order to demonstrate the operation of 
        a PACE program by a private, for-profit entity, the Secretary 
        (in close consultation with State administering agencies) shall 
        grant waivers from the requirement under subsection (a)(3) that 
        a PACE provider may not be a for-profit, private entity.
            ``(2) Similar terms and conditions.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms and 
                conditions for operation of a PACE program by a 
                provider under this subsection shall be the same as 
                those for PACE providers that are nonprofit, private 
                organizations.
                    ``(B) Numerical limitation.--The number of programs 
                for which waivers are granted under this subsection 
                shall not exceed 10. Programs with waivers granted 
                under this subsection shall not be counted against the 
                numerical limitation specified in subsection (e)(1)(B).
    ``(i) Miscellaneous Provisions.--Nothing in this section or section 
1932 shall be construed as preventing a PACE provider from entering 
into contracts with other governmental or nongovernmental payers for 
the care of PACE program eligible individuals who are not eligible for 
benefits under part A, or enrolled under part B, or eligible for 
medical assistance under title XIX.''.

SEC. 5012. EFFECTIVE DATE; TRANSITION.

    (a) Timely Issuance of Regulations; Effective Date.--The Secretary 
of Health and Human Services shall promulgate regulations to carry out 
this subtitle in a timely manner. Such regulations shall be designed so 
that entities may establish and operate PACE programs under sections 
1894 and 1932 of the Social Security Act (as added by sections 5011 and 
5751 of this Act) for periods beginning not later than 1 year after the 
date of the enactment of this Act.
    (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
            (1) Expansion in current number of demonstration 
        projects.--Section 9412(b) of the Omnibus Budget Reconciliation 
        Act of 1986, as amended by section 4118(g) of the Omnibus 
        Budget Reconciliation Act of 1987, is amended--
                    (A) in paragraph (1), by inserting before the 
                period at the end the following: ``, except that the 
                Secretary shall grant waivers of such requirements up 
                to the applicable numerical limitation specified in 
                section 1894(e)(1)(B) of the Social Security Act''; and
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by striking ``, 
                        including permitting the organization to assume 
                        progressively (over the initial 3-year period 
                        of the waiver) the full financial risk''; and
                            (ii) in subparagraph (C), by adding at the 
                        end the following: ``In granting further 
                        extensions, an organization shall not be 
                        required to provide for reporting of 
                        information which is only required because of 
                        the demonstration nature of the project.''.
            (2) Elimination of replication requirement.--Subparagraph 
        (B) of paragraph (2) of such section shall not apply to waivers 
        granted under such section after the date of the enactment of 
        this Act.
            (3) Timely consideration of applications.--In considering 
        an application for waivers under such section before the 
        effective date of repeals made under subsection (d), subject to 
        the numerical limitation under the amendment made by paragraph 
        (1), the application shall be deemed approved unless the 
        Secretary of Health and Human Services, within 90 days after 
        the date of its submission to the Secretary, either denies such 
        request in writing or informs the applicant in writing with 
        respect to any additional information which is needed in order 
        to make a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved unless 
        the Secretary, within 90 days of such date, denies such 
        request.
    (c) Priority and Special Consideration in Application.--During the 
3-year period beginning on the date of enactment of this Act:
            (1) Provider status.--The Secretary of Health and Human 
        Services shall give priority, in processing applications of 
        entities to qualify as PACE programs under section 1894 or 1932 
of the Social Security Act--
                    (A) first, to entities that are operating a PACE 
                demonstration waiver program (as defined in section 
                1894(a)(7) of such Act); and
                    (B) then entities that have applied to operate such 
                a program as of May 1, 1997.
            (2) New waivers.--The Secretary shall give priority, in the 
        awarding of additional waivers under section 9412(b) of the 
        Omnibus Budget Reconciliation Act of 1986--
                    (A) to any entities that have applied for such 
                waivers under such section as of May 1, 1997; and
                    (B) to any entity that, as of May 1, 1997, has 
                formally contracted with a State to provide services 
                for which payment is made on a capitated basis with an 
                understanding that the entity was seeking to become a 
                PACE provider.
            (3) Special consideration.--The Secretary shall give 
        special consideration, in the processing of applications 
        described in paragraph (1) and the awarding of waivers 
        described in paragraph (2), to an entity which as of May 1, 
        1997 through formal activities (such as entering into contracts 
        for feasibility studies) has indicated a specific intent to 
        become a PACE provider.
    (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
            (1) In general.--Subject to paragraph (2), the following 
        provisions of law are repealed:
                    (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21).
                    (B) Section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    (C) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            (2) Delay in application.--
                    (A) In general.--Subject to subparagraph (B), the 
                repeals made by paragraph (1) shall not apply to 
                waivers granted before the initial effective date of 
                regulations described in subsection (a).
                    (B) Application to approved waivers.--Such repeals 
                shall apply to waivers granted before such date only 
                after allowing such organizations a transition period 
                (of up to 24 months) in order to permit sufficient time 
                for an orderly transition from demonstration project 
                authority to general authority provided under the 
                amendments made by this subtitle.

SEC. 5013. STUDY AND REPORTS.

    (a) Study.--
            (1) In general.--The Secretary of Health and Human Services 
        (in close consultation with State administering agencies, as 
        defined in section 1894(a)(8) of the Social Security Act) shall 
        conduct a study of the quality and cost of providing PACE 
        program services under the medicare and medicaid programs under 
        the amendments made by this subtitle.
            (2) Study of private, for-profit providers.--Such study 
        shall specifically compare the costs, quality, and access to 
        services by entities that are private, for-profit entities 
        operating under demonstration projects waivers granted under 
        section 1894(h) of the Social Security Act with the costs, 
        quality, and access to services of other PACE providers.
    (b) Report.--
            (1) In general.--Not later than 4 years after the date of 
        enactment of this Act, the Secretary shall provide for a report 
        to Congress on the impact of such amendments on quality and 
cost of services. The Secretary shall include in such report such 
recommendations for changes in the operation of such amendments as the 
Secretary deems appropriate.
            (2) Treatment of private, for-profit providers.--The report 
        shall include specific findings on whether any of the following 
        findings is true:
                    (A) The number of covered lives enrolled with 
                entities operating under demonstration project waivers 
                under section 1894(h) of the Social Security Act is 
                fewer than 800 (or such lesser number as the Secretary 
                may find statistically sufficient to make 
                determinations respecting findings described in the 
                succeeding subparagraphs).
                    (B) The population enrolled with such entities is 
                less frail than the population enrolled with other PACE 
                providers.
                    (C) Access to or quality of care for individuals 
                enrolled with such entities is lower than such access 
                or quality for individuals enrolled with other PACE 
                providers.
                    (D) The application of such section has resulted in 
                an increase in expenditures under the medicare or 
                medicaid programs above the expenditures that would 
                have been made if such section did not apply.
    (c) Information Included in Annual Recommendations.--The Physician 
Payment Review Commission shall include in its annual recommendations 
under section 1845(b) of the Social Security Act (42 U.S.C. 1395w-1), 
and the Prospective Payment Review Commission shall include in its 
annual recommendations reported under section 1886(e)(3)(A) of such Act 
(42 U.S.C. 1395ww(e)(3)(A)), recommendations on the methodology and 
level of payments made to PACE providers under section 1894(d) of such 
Act and on the treatment of private, for-profit entities as PACE 
providers. References in the preceding sentence to the Physician 
Payment Review Commission and the Prospective Payment Review Commission 
shall be deemed to be references to the Medicare Payment Advisory 
Commission (MedPAC) established under section 5022(a) after the 
termination of the Physician Payment Review Commission and the 
Prospective Payment Review Commission provided for in section 
5022(c)(2).

         Subchapter B--Social Health Maintenance Organizations

SEC. 5015. SOCIAL HEALTH MAINTENANCE ORGANIZATIONS (SHMOS).

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

                      Subchapter C--Other Programs

SEC. 5018. EXTENSION OF CERTAIN MEDICARE COMMUNITY NURSING ORGANIZATION 
              DEMONSTRATION PROJECTS.

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

                         CHAPTER 3--COMMISSIONS

SEC. 5021. NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICARE.

    (a) Establishment.--There is established a commission to be known 
as the National Bipartisan Commission on the Future of Medicare (in 
this section referred to as the ``Commission'').
    (b) Findings.--Congress finds that--
            (1) the medicare program under title XVIII of the Social 
        Security Act (42 U.S.C. 1395 et seq.) provides essential health 
        care coverage to this Nation's senior citizens and to 
        individuals with disabilities;
            (2) the Federal Hospital Insurance Trust Fund established 
        under that Act has been spending more than it receives since 
        1995, and will be bankrupt in the year 2001;
            (3) the Federal Hospital Insurance Trust Fund faces even 
        greater solvency problems in the long run with the aging of the 
        baby boom generation and the continuing decline in the number 
        of workers paying into the medicare program for each medicare 
        beneficiary;
            (4) the trustees of the trust funds of the medicare program 
        have reported that growth in spending within the Federal 
        Supplementary Medical Insurance Trust Fund established under 
        that Act is unsustainable; and
            (5) expeditious action is needed in order to restore the 
        financial integrity of the medicare program and to maintain 
        this Nation's commitment to senior citizens and to individuals 
        with disabilities.
    (c) Duties of the Commission.--The Commission shall--
            (1) review and analyze the long-term financial condition of 
        the medicare program under title XVIII of the Social Security 
        Act (42 U.S.C. 1395 et seq.);
            (2) identify problems that threaten the financial integrity 
        of the Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund established under 
        that title (42 U.S.C. 1395i, 1395t);
            (3) analyze potential solutions to the problems identified 
        under paragraph (2) that will ensure both the financial 
        integrity of the medicare program and the provision of 
        appropriate benefits under such program, including the extent 
        to which current medicare update indexes do not accurately 
        reflect inflation;
            (4) make recommendations to restore the solvency of the 
        Federal Hospital Insurance Trust Fund and the financial 
        integrity of the Federal Supplementary Medical Insurance Trust 
        Fund through the year 2030, when the last of the baby boomers 
        reaches age 65;
            (5) make recommendations for establishing the appropriate 
        financial structure of the medicare program as a whole;
            (6) make recommendations for establishing the appropriate 
        balance of benefits covered and beneficiary contributions to 
        the medicare program;
            (7) make recommendations for the time periods during which 
        the recommendations described in paragraphs (4), (5), and (6) 
        should be implemented;
            (8) make recommendations regarding the financing of 
        graduate medical education (GME), including consideration of 
        alternative broad-based sources of funding for such education 
        and funding for institutions not currently eligible for such 
        GME support under the medicare program that conduct approved 
        graduate medical residency programs, such as children's 
        hospitals;
            (9) make recommendations on the feasibility of allowing 
        individuals between the age of 62 and the medicare eligibility 
        age to buy into the medicare program;
            (10) make recommendations on the impact of chronic disease 
        and disability trends on future costs and quality of services 
        under the current benefit, financing, and delivery system 
        structure of the medicare program; and
            (11) review and analyze such other matters as the 
        Commission deems appropriate.
    (d) Membership.--
            (1) Number and appointment.--The Commission shall be 
        composed of 15 members, of whom--
                    (A) three shall be appointed by the President;
                    (B) six shall be appointed by the Majority Leader 
                of the Senate, in consultation with the Minority Leader 
                of the Senate, of whom not more than 4 shall be of the 
                same political party; and
                    (C) six shall be appointed by the Speaker of the 
                House of Representatives, in consultation with the 
                Minority Leader of the House of Representatives, of 
                whom not more than 4 shall be of the same political 
                party.
            (2) Comptroller general.--The Comptroller General of the 
        United States shall advise the Commission on the methodology to 
        be used in identifying problems and analyzing potential 
        solutions in accordance with the duties of the Commission 
        described in subsection (c).
            (3) Terms of appointment.--The members shall serve on the 
        Commission for the life of the Commission.
            (4) Meetings.--The Commission shall locate its headquarters 
        in the District of Columbia, and shall meet at the call of the 
        Chairperson.
            (5) Quorum.--Ten members of the Commission shall constitute 
        a quorum, but a lesser number may hold hearings.
            (6) Chairperson.--The Speaker of the House of 
        Representatives, in consultation with the Majority Leader of 
        the Senate, shall designate 1 of the members appointed under 
        paragraph (1) as Chairperson of the Commission.
            (7) Vacancies.--A vacancy on the Commission shall be filled 
        in the same manner in which the original appointment was made 
        not later than 30 days after the Commission is given notice of 
        the vacancy.
            (8) Compensation.--Members of the Commission shall receive 
        no additional pay, allowances, or benefits by reason of their 
        service on the Commission.
            (9) Expenses.--Each member of the Commission shall receive 
        travel expenses and per diem in lieu of subsistence in 
        accordance with sections 5702 and 5703 of title 5, United 
        States Code.
    (e) Staff and Support Services.--
            (1) Executive director.--
                    (A) Appointment.--The Chairperson shall appoint an 
                executive director of the Commission.
                    (B) Compensation.--The executive director shall be 
                paid the rate of basic pay for level V of the Executive 
                Schedule.
            (2) Staff.--With the approval of the Commission, the 
        executive director may appoint such personnel as the executive 
        director considers appropriate.
            (3) Applicability of civil service laws.--The staff of the 
        Commission shall be appointed without regard to the provisions 
        of title 5, United States Code, governing appointments in the 
        competitive service, and shall be paid without regard to the 
        provisions of chapter 51 and subchapter III of chapter 53 of 
        such title (relating to classification and General Schedule pay 
        rates).
            (4) Experts and consultants.--With the approval of the 
        Commission, the executive director may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code.
            (5) Staff of federal agencies.--Upon the request of the 
        Commission, the head of any Federal agency may detail any of 
        the personnel of such agency to the Commission to assist in 
        carrying out the duties of the Commission.
            (6) Other resources.--The Commission shall have reasonable 
        access to materials, resources, statistical data, and other 
        information from the Library of Congress and agencies and 
        elected representatives of the executive and legislative 
        branches of the Federal Government. The Chairperson of the 
        Commission shall make requests for such access in writing when 
        necessary.
            (7) Physical facilities.--The Administrator of the General 
        Services Administration shall locate suitable office space for 
        the operation of the Commission. The facilities shall serve as 
        the headquarters of the Commission and shall include all 
        necessary equipment and incidentals required for the proper 
        functioning of the Commission.
    (f) Powers of Commission.--
            (1) Hearings.--The Commission may conduct public hearings 
        or forums at the discretion of the Commission, at any time and 
        place the Commission is able to secure facilities and 
        witnesses, for the purpose of carrying out the duties of the 
        Commission.
            (2) Gifts.--The Commission may accept, use, and dispose of 
        gifts or donations of services or property.
            (3) Mails.--The Commission may use the United States mails 
        in the same manner and under the same conditions as other 
        Federal agencies.
    (g) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Commission shall submit a report to the President and 
Congress which shall contain a detailed statement of the 
recommendations, findings, and conclusions of the Commission.
    (h) Termination.--The Commission shall terminate on the date which 
is 30 days after the date the Commission submits its report to the 
President and to Congress under subsection (g).
    (i) Funding.--There is authorized to be appropriated to the 
Commission such sums as are necessary to carry out the purposes of this 
section. Sums appropriated under this subsection shall be paid equally 
from the Federal Hospital Insurance Trust Fund and from the Federal 
Supplementary Medical Insurance Trust Fund under title XVIII of the 
Social Security Act (42 U.S.C. 1395i, 1395t).

SEC. 5022. MEDICARE PAYMENT ADVISORY COMMISSION.

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

                 ``medicare payment advisory commission

    ``Sec. 1805. (a) Establishment.--There is hereby established the 
Medicare Payment Advisory Commission (in this section referred to as 
the `Commission').
    ``(b) Duties.--
            ``(1) Review of payment policies and annual reports.--The 
        Commission shall--
                    ``(A) review payment policies under this title, 
                including the topics described in paragraph (2);
                    ``(B) make recommendations to Congress concerning 
                such payment policies;
                    ``(C) by not later than March 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing the results of such reviews and its 
                recommendations concerning such policies; and
                    ``(D) by not later than June 1 of each year 
                (beginning with 1998), submit a report to Congress 
                containing an examination of issues affecting the 
                medicare program, including the implications of changes 
                in health care delivery in the United States and in the 
                market for health care services on the medicare 
                program.
            ``(2) Specific topics to be reviewed.--
                    ``(A) Medicare choice program.--Specifically, the 
                Commission shall review, with respect to the Medicare 
                Choice program under part C, the following:
                            ``(i) The methodology for making payment to 
                        plans under such program, including the making 
                        of differential payments and the distribution 
                        of differential updates among different payment 
                        areas.
                            ``(ii) The mechanisms used to adjust 
                        payments for risk and the need to adjust such 
                        mechanisms to take into account health status 
                        of beneficiaries.
                            ``(iii) The implications of risk selection 
                        both among Medicare Choice organizations and 
                        between the Medicare Choice option and the 
                        traditional medicare fee-for-service option.
                            ``(iv) The development and implementation 
                        of mechanisms to assure the quality of care for 
                        those enrolled with Medicare Choice 
                        organizations.
                            ``(v) The impact of the Medicare Choice 
                        program on access to care for medicare 
                        beneficiaries.
                            ``(vi) Other major issues in implementation 
                        and further development of the Medicare Choice 
                        program.
                    ``(B) Traditional medicare fee-for-service 
                system.--Specifically, the Commission shall review 
                payment policies under parts A and B, including--
                            ``(i) the factors affecting expenditures 
                        for services in different sectors, including 
                        the process for updating hospital, skilled 
                        nursing facility, physician, and other fees,
                            ``(ii) payment methodologies, and
                            ``(iii) their relationship to access and 
                        quality of care for medicare beneficiaries.
                    ``(C) Interaction of medicare payment policies with 
                health care delivery generally.--Specifically, the 
Commission shall review the effect of payment policies under this title 
on the delivery of health care services other than under this title and 
assess the implications of changes in health care delivery in the 
United States and in the general market for health care services on the 
medicare program.
            ``(3) Comments on certain secretarial reports.--If the 
        Secretary submits to Congress (or a committee of Congress) a 
        report that is required by law and that relates to payment 
        policies under this title, the Secretary shall transmit a copy 
        of the report to the Commission. The Commission shall review 
        the report and, not later than 6 months after the date of 
        submittal of the Secretary's report to Congress, shall submit 
        to the appropriate committees of Congress written comments on 
        such report. Such comments may include such recommendations as 
        the Commission deems appropriate.
            ``(4) Agenda and additional reviews.--The Commission shall 
        consult periodically with the chairmen and ranking minority 
        members of the appropriate committees of Congress regarding the 
        Commission's agenda and progress towards achieving the agenda. 
        The Commission may conduct additional reviews, and submit 
        additional reports to the appropriate committees of Congress, 
        from time to time on such topics relating to the program under 
        this title as may be requested by such chairmen and members and 
        as the Commission deems appropriate.
            ``(5) Availability of reports.--The Commission shall 
        transmit to the Secretary a copy of each report submitted under 
        this subsection and shall make such reports available to the 
        public.
            ``(6) Appropriate committees of congress.--For purposes of 
        this section, the term `appropriate committees of Congress' 
        means the Committees on Ways and Means and Commerce of the 
        House of Representatives and the Committee on Finance of the 
        Senate.
    ``(c) Membership.--
            ``(1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by the Comptroller General.
            ``(2) Qualifications.--
                    ``(A) In general.--The membership of the Commission 
                shall include individuals with national recognition for 
                their expertise in health finance and economics, 
                actuarial science, health facility management, health 
                plans and integrated delivery systems, reimbursement of 
                health facilities, allopathic and osteopathic 
                physicians, and other providers of health services, and 
                other related fields, who provide a mix of different 
                professionals, broad geographic representation, and a 
                balance between urban and rural representatives.
                    ``(B) Inclusion.--The membership of the Commission 
                shall include (but not be limited to) physicians and 
                other health professionals, employers, third-party 
                payers, individuals skilled in the conduct and 
                interpretation of biomedical, health services, and 
                health economics research and expertise in outcomes and 
                effectiveness research and technology assessment. Such 
                membership shall also include representatives of 
                consumers and the elderly.
                    ``(C) Majority nonproviders.--Individuals who are 
                directly involved in the provision, or management of 
                the delivery, of items and services covered under this 
                title shall not constitute a majority of the membership 
                of the Commission.
                    ``(D) Ethical disclosure.--The Comptroller General 
                shall establish a system for public disclosure by 
                members of the Commission of financial and other 
                potential conflicts of interest relating to such 
                members.
            ``(3) Terms.--
                    ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                    ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
            ``(4) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and the member's regular place of 
business, a member may be allowed travel expenses, as authorized by the 
Chairman of the Commission. Physicians serving as personnel of the 
Commission may be provided a physician comparability allowance by the 
Commission in the same manner as Government physicians may be provided 
such an allowance by an agency under section 5948 of title 5, United 
States Code, and for such purpose subsection (i) of such section shall 
apply to the Commission in the same manner as it applies to the 
Tennessee Valley Authority. For purposes of pay (other than pay of 
members of the Commission) and employment benefits, rights, and 
privileges, all personnel of the Commission shall be treated as if they 
were employees of the United States Senate.
            ``(5) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
            ``(6) Meetings.--The Commission shall meet at the call of 
        the Chairman.
    ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
            ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
            ``(2) seek such assistance and support as may be required 
        in the performance of its duties from appropriate Federal 
        departments and agencies;
            ``(3) enter into contracts or make other arrangements, as 
        may be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
            ``(4) make advance, progress, and other payments which 
        relate to the work of the Commission;
            ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
            ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
    ``(e) Powers.--
            ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
            ``(2) Data collection.--In order to carry out its 
        functions, the Commission shall--
                    ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                    ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                    ``(C) adopt procedures allowing any interested 
                party to submit information for the Commission's use in 
                making reports and recommendations.
            ``(3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all deliberations, 
        records, and nonproprietary data of the Commission, immediately 
        upon request.
            ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the Comptroller General.
    ``(f) Authorization of Appropriations.--
            ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
            ``(2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out the 
        provisions of this section. Sixty percent of such appropriation 
        shall be payable from the Federal Hospital Insurance Trust 
        Fund, and 40 percent of such appropriation shall be payable 
        from the Federal Supplementary Medical Insurance Trust Fund.''.
    (b) Abolition of ProPAC and PPRC.--
            (1) ProPAC.--
                    (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                            (i) by striking paragraphs (2) and (6); and
                            (ii) in paragraph (3), by striking ``(A) 
                        The Commission'' and all that follows through 
                        ``(B)''.
                    (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Advisory Commission''.
            (2) PPRC.--
                    (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                    (B) Elimination of certain reports.--Section 1848 
                (42 U.S.C. 1395w-4) is amended--
                            (i) by striking subparagraph (F) of 
                        subsection (d)(2),
                            (ii) by striking subparagraph (B) of 
                        subsection (f)(1), and
                            (iii) in subsection (f)(3), by striking 
                        ``Physician Payment Review Commission,''.
                    (C) Conforming amendments.--Section 1848 (42 U.S.C. 
                1395w-4) is amended by striking ``Physician Payment 
                Review Commission'' and inserting ``Medicare Payment 
                Advisory Commission'' each place it appears in 
                subsections (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
    (c) Effective Date; Transition.--
            (1) In general.--The Comptroller General shall first 
        provide for appointment of members to the Medicare Payment 
        Advisory Commission (in this subsection referred to as 
        ``MedPAC'') by not later than September 30, 1997.
            (2) Transition.--As quickly as possible after the date a 
        majority of members of MedPAC are first appointed, the 
        Comptroller General, in consultation with the Prospective 
        Payment Assessment Commission (in this subsection referred to 
        as ``ProPAC'') and the Physician Payment Review Commission (in 
        this subsection referred to as ``PPRC''), shall provide for the 
        termination of the ProPAC and the PPRC. As of the date of 
        termination of the respective Commissions, the amendments made 
        by paragraphs (1) and (2), respectively, of subsection (b) 
        become effective. The Comptroller General, to the extent 
        feasible, shall provide for the transfer to the MedPAC of 
        assets and staff of the ProPAC and the PPRC, without any loss 
        of benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or the PPRC for any period 
        shall be available to the MedPAC for such period for like 
        purposes.
            (3) Continuing responsibility for reports.--The MedPAC 
        shall be responsible for the preparation and submission of 
        reports required by law to be submitted (and which have not 
        been submitted by the date of establishment of the MedPAC) by 
        the ProPAC and the PPRC, and, for this purpose, any reference 
        in law to either such Commission is deemed, after the 
        appointment of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

SEC. 5031. MEDIGAP PROTECTIONS.

    (a) Guaranteeing Issue Without Preexisting Conditions for 
Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
1395ss(s)) is amended--
            (1) in paragraph (3), by striking ``paragraphs (1) and 
        (2)'' and inserting ``this subsection'',
            (2) by redesignating paragraph (3) as paragraph (4), and
            (3) by inserting after paragraph (2) the following new 
        paragraph:
    ``(3)(A) The issuer of a medicare supplemental policy--
            ``(i) may not deny or condition the issuance or 
        effectiveness of a medicare supplemental policy described in 
        subparagraph (C) that is offered and is available for issuance 
        to new enrollees by such issuer;
            ``(ii) may not discriminate in the pricing of such policy, 
        because of health status, claims experience, receipt of health 
        care, or medical condition; and
            ``(iii) may not impose an exclusion of benefits based on a 
        pre-existing condition under such policy,
in the case of an individual described in subparagraph (B) who seeks to 
enroll under the policy not later than 63 days after the date of the 
termination of enrollment described in such subparagraph and who 
submits evidence of the date of termination or disenrollment along with 
the application for such medicare supplemental policy.
    ``(B) An individual described in this subparagraph is an individual 
described in any of the following clauses:
            ``(i) The individual is enrolled under an employee welfare 
        benefit plan that provides health benefits that supplement the 
        benefits under this title and the plan terminates or ceases to 
        provide all such supplemental health benefits to the 
        individual.
            ``(ii) The individual is enrolled with a Medicare Choice 
        organization under a Medicare Choice plan under part C, and 
        there are circumstances permitting discontinuance of the 
        individual's election of the plan under section 1851(e)(4).
            ``(iii) The individual is enrolled with an eligible 
        organization under a contract under section 1876, a similar 
        organization operating under demonstration project authority, 
        with an organization under an agreement under section 
        1833(a)(1)(A), or with an organization under a policy described 
        in subsection (t), and such enrollment ceases under the same 
        circumstances that would permit discontinuance of an 
        individual's election of coverage under section 1851(c)(4) and, 
        in the case of a policy described in subsection (t), there is 
        no provision under applicable State law for the continuation of 
        coverage under such policy.
            ``(iv) The individual is enrolled under a medicare 
        supplemental policy under this section and such enrollment 
        ceases because--
                    ``(I) of the bankruptcy or insolvency of the issuer 
                or because of other involuntary termination of coverage 
                or enrollment under such policy and there is no 
                provision under applicable State law for the 
                continuation of such coverage;
                    ``(II) the issuer of the policy substantially 
                violated a material provision of the policy; or
                    ``(III) the issuer (or an agent or other entity 
                acting on the issuer's behalf) materially 
                misrepresented the policy's provisions in marketing the 
                policy to the individual.
            ``(v) The individual--
                    ``(I) was enrolled under a medicare supplemental 
                policy under this section,
                    ``(II) subsequently terminates such enrollment and 
                enrolls, for the first time, with any Medicare Choice 
                organization under a Medicare Choice plan under part C, 
                any eligible organization under a contract under 
                section 1876, any similar organization operating under 
                demonstration project authority, any organization under 
                an agreement under section 1833(a)(1)(A), or any policy 
                described in subsection (t), and
                    ``(III) the subsequent enrollment under subclause 
                (II) is terminated by the enrollee during the first 12 
                months of such enrollment.
            ``(vi) The individual, upon first becoming eligible for 
        medicare at age 65, enrolls in a Medicare Choice plan and 
        within 12 months of such enrollment, disenrolls from such plan.
    ``(C)(i) Subject to clauses (ii), a medicare supplemental policy 
described in this subparagraph is a policy the benefits under which are 
comparable or lessor in relation to the benefits under the plan, 
policy, or contract described in the applicable clause of subparagraph 
(B).
    ``(ii) Only for purposes of an individual described in subparagraph 
(B)(vi), a medicare supplemental policy described in this subparagraph 
shall include any medicare supplemental policy.
    ``(D) At the time of an event described in subparagraph (B) because 
of which an individual ceases enrollment or loses coverage or benefits 
under a contract or agreement, policy, or plan, the organization that 
offers the contract or agreement, the insurer offering the policy, or 
the administrator of the plan, respectively, shall notify the 
individual of the rights of the individual, and obligations of issuers 
of medicare supplemental policies, under subparagraph (A).''.
    (b) Limitation on Imposition of Preexisting Condition Exclusion 
During Initial Open Enrollment Period.--Section 1882(s)(2) (42 U.S.C. 
1395ss(s)(2)) is amended--
            (1) in subparagraph (B), by striking ``subparagraph (C)'' 
        and inserting ``subparagraphs (C) and (D)'', and
            (2) by adding at the end the following new subparagraph:
    ``(D) In the case of a policy issued during the 6-month period 
described in subparagraph (A) to an individual who is 65 years of age 
or older as of the date of issuance and who as of the date of the 
application for enrollment has a continuous period of creditable 
coverage (as defined in section 2701(c) of the Public Health Service 
Act) of--
            ``(i) at least 6 months, the policy may not exclude 
        benefits based on a pre-existing condition; or
            ``(ii) less than 6 months, if the policy excludes benefits 
        based on a preexisting condition, the policy shall reduce the 
        period of any preexisting condition exclusion by the aggregate 
        of the periods of creditable coverage (if any, as so defined) 
        applicable to the individual as of the enrollment date.
The Secretary shall specify the manner of the reduction under clause 
(ii), based upon the rules used by the Secretary in carrying out 
section 2701(a)(3) of such Act.''.
    (c) Extending 6-Month Initial Enrollment Period to Non-Elderly 
Medicare Beneficiaries.--Section 1882(s)(2)(A)(ii) of (42 U.S.C. 
1395ss(s)(2)(A)) is amended by striking ``is submitted'' and all that 
follows and inserting the following: ``is submitted--
            ``(I) before the end of the 6-month period beginning with 
        the first month as of the first day on which the individual is 
        65 years of age or older and is enrolled for benefits under 
        part B; and
            ``(II) at the time the individual first becomes eligible 
        for benefits under part A pursuant to section 226(b) and is 
        enrolled for benefits under part B, before the end of the 6-
        month period beginning with the first month as of the first day 
        on which the individual is so eligible and so enrolled.''.
    (d) Effective Dates.--
            (1) Guaranteed issue.--The amendment made by subsection (a) 
        shall take effect on July 1, 1998.
            (2) Limit on preexisting condition exclusions.--The 
        amendment made by subsection (b) shall apply to policies issued 
        on or after July 1, 1998.
            (3) Non-elderly medicare beneficiaries.--The amendment made 
        by subsection (c) shall apply to policies issued on or after 
        July 1, 1998.
    (e) Transition Provisions.--
            (1) In general.--If the Secretary of Health and Human 
        Services identifies a State as requiring a change to its 
        statutes or regulations to conform its regulatory program to 
        the changes made by this section, the State regulatory program 
        shall not be considered to be out of compliance with the 
        requirements of section 1882 of the Social Security Act due 
        solely to failure to make such change until the date specified 
        in paragraph (4).
            (2) NAIC standards.--If, within 9 months after the date of 
        the enactment of this Act, the National Association of 
        Insurance Commissioners (in this subsection referred to as the 
        ``NAIC'') modifies its NAIC Model regulation relating to 
        section 1882 of the Social Security Act (referred to in such 
        section as the 1991 NAIC Model Regulation, as modified pursuant 
        to section 171(m)(2) of the Social Security Act Amendments of 
        1994 (Public Law 103-432) and as modified pursuant to section 
        1882(d)(3)(A)(vi)(IV) of the Social Security Act, as added by 
        section 271(a) of the Health Insurance Portability and 
        Accountability Act of 1996 (Public Law 104-191) to conform to 
        the amendments made by this section, such revised regulation 
        incorporating the modifications shall be considered to be the 
        applicable NAIC model regulation (including the revised NAIC 
        model regulation and the 1991 NAIC Model Regulation) for the 
        purposes of such section.
            (3) Secretary standards.--If the NAIC does not make the 
        modifications described in paragraph (2) within the period 
        specified in such paragraph, the Secretary of Health and Human 
        Services shall make the modifications described in such 
        paragraph and such revised regulation incorporating the 
        modifications shall be considered to be the appropriate 
        Regulation for the purposes of such section.
            (4) Date specified.--
                    (A) In general.--Subject to subparagraph (B), the 
                date specified in this paragraph for a State is the 
                earlier of--
                            (i) the date the State changes its statutes 
                        or regulations to conform its regulatory 
                        program to the changes made by this section, or
                            (ii) 1 year after the date the NAIC or the 
                        Secretary first makes the modifications under 
                        paragraph (2) or (3), respectively.
                    (B) Additional legislative action required.--In the 
                case of a State which the Secretary identifies as--
                            (i) requiring State legislation (other than 
                        legislation appropriating funds) to conform its 
                        regulatory program to the changes made in this 
                        section, but
                            (ii) having a legislature which is not 
                        scheduled to meet in 1999 in a legislative 
                        session in which such legislation may be 
                        considered,
                the date specified in this paragraph is the first day 
                of the first calendar quarter beginning after the close 
                of the first legislative session of the State 
                legislature that begins on or after July 1, 1999. For 
                purposes of the previous sentence, in the case of a 
                State that has a 2-year legislative session, each year 
                of such session shall be deemed to be a separate 
                regular session of the State legislature.

SEC. 5032. ADDITION OF HIGH DEDUCTIBLE MEDIGAP POLICY.

    (a) In General.--Section 1882(p) (42 U.S.C. 1395ss(p)) is amended 
by adding at the end the following:
            ``(11)(A) On and after the date specified in subparagraph 
        (C)--
                    ``(i) each State with an approved regulatory 
                program, and
                    ``(ii) in the case of a State without an approved 
                regulatory program, the Secretary,
        shall, in addition to the 10 policies allowed under paragraph 
        (2)(C), allow at least 1 other policy described in subparagraph 
        (B).
            ``(B)(i) A policy is described in this subparagraph if it 
        consists of--
                    ``(I) one of the 10 benefit packages described in 
                paragraph (2)(C), and
                    ``(II) a high deductible feature.
            ``(ii) For purposes of clause (i), a high deductible 
        feature is one which requires the beneficiary of the policy to 
        pay annual out-of-pocket expenses (other than premiums) of 
        $1,500 before the policy begins payment of benefits.
            ``(C)(i) Subject to clause (ii), the date described in this 
        subparagraph is one year after the date of the enactment of 
        this paragraph.
            ``(ii) In the case of a State which the Secretary 
        identifies as--
                    ``(I) requiring State legislation (other than 
                legislation appropriating funds) in order to meet the 
                requirements of this paragraph, but
                    ``(II) having a legislature which is not scheduled 
                to meet in 1997 in a legislative session in which such 
                legislation may be considered,
        the date specified in this subparagraph is the first day of the 
        first calendar quarter beginning after the close of the first 
        legislative session of the State legislature that begins on or 
        after January 1, 1998. For purposes of the previous sentence, 
        in the case of a State that has a 2-year legislative session, 
        each year of such session shall be deemed to be a separate 
        regular session of the State legislature.''.
    (b) Conforming Amendment.--Section 1882(p)(2)(C) (42 U.S.C. 
1395ss(p)(2)(C)) is amended by inserting ``or (11)'' after ``paragraph 
(4)(B)''.

                       CHAPTER 5--DEMONSTRATIONS

Subchapter A--Medicare Choice Competitive Pricing Demonstration Project

SEC. 5041. MEDICARE CHOICE COMPETITIVE PRICING DEMONSTRATION PROJECT.

    (a) Establishment.--The Secretary of Health and Human Services (in 
this subchapter referred to as the ``Secretary'') shall, beginning 
January 1, 1999, conduct demonstration projects in applicable areas (in 
this section referred to as the ``project'') for the purpose of--
            (1) applying a pricing methodology for payments to Medicare 
        Choice organizations under part C of title XVIII of the Social 
        Security Act (as amended by section 5001 of this Act) that uses 
        the competitive market approach described in section 5042;
            (2) applying a benefit structure and beneficiary premium 
        structure described in section 5043; and
            (3) evaluating the effects of the methodology and 
        structures described in the preceding paragraphs on medicare 
        fee-for-service spending under parts A and B of the Social 
        Security Act in the project area.
    (b) Applicable Area Defined.--
            (1) In general.--In subsection (a), the term ``applicable 
        area'' means, as determined by the Secretary--
                    (A) 10 urban areas with respect to which less than 
                25 percent of medicare beneficiaries are enrolled with 
                an eligible organization under section 1876 of the 
                Social Security Act (42 U.S.C. 1395mm); and
                    (B) 3 rural areas not described in paragraph (1).
            (2) Treatment as medicare choice payment area.--For 
        purposes of this subchapter and part C of title XVIII of the 
        Social Security Act, any applicable area shall be treated as a 
        Medicare Choice payment area (hereinafter referred to as the 
        ``applicable Medicare Choice payment area'').
    (c) Technical Advisory Group.--Upon the selection of an area for 
inclusion in the project, the Secretary shall appoint a technical 
advisory group, composed of representatives of Medicare Choice 
organizations, medicare beneficiaries, employers, and other persons in 
the area affected by the project who have technical expertise relative 
to the design and implementation of the project to advise the Secretary 
concerning how the project will be implemented in the area.
    (d) Evaluation.--
            (1) In general.--Not later than December 31, 2001, the 
        Secretary shall submit to the President a report regarding the 
        demonstration projects conducted under this section.
            (2) Contents of report.--The report described in paragraph 
        (1) shall include the following:
                    (A) A description of the demonstration projects 
                conducted under this section.
                    (B) An evaluation of the effectiveness of the 
                demonstration projects conducted under this section and 
                any legislative recommendations determined appropriate 
                by the Secretary.
                    (C) Any other information regarding the 
                demonstration projects conducted under this section 
                that the Secretary determines to be appropriate.
                    (D) An evaluation as to whether the method of 
                payment under section 5042 which was used in the 
                demonstration projects for payment to Medicare Choice 
                plans should be extended to the entire medicare 
                population and if such evaluation determines that such 
                method should not be extended, legislative 
                recommendations to modify such method so that it may be 
                applied to the entire medicare population.
            (3) Submission to congress.--The President shall submit the 
        report under paragraph (2) to the Congress and if the President 
        determines appropriate, any legislative recommendations for 
        extending the project to the entire medicare population.
    (e) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of titles XI, XVIII, and XIX of the Social Security 
Act (42 U.S.C. 1301 et seq., 1395 et seq., 1396 et seq.) to such extent 
and for such period as the Secretary determines is necessary to conduct 
demonstration projects.

SEC. 5042. DETERMINATION OF ANNUAL MEDICARE CHOICE CAPITATION RATES.

    (a) In General.--In the case of an applicable Medicare Choice 
payment area within which a project is being conducted under section 
5041, the annual Medicare Choice capitation rate under part C of title 
XVIII of the Social Security Act for Medicare Choice plans within such 
area shall be the standardized payment amount determined under this 
section rather than the amount determined under section 1853 of such 
Act.
    (b) Determination of Standardized Payment Amount.--
            (1) Submission and charging of premiums.--
                    (A) In general.--Not later than June 1 of each 
                calendar year, each Medicare Choice organization 
                offering one or more Medicare Choice plans in an 
                applicable Medicare Choice payment area shall file with 
                the Secretary, in a form and manner and at a time 
                specified by the Secretary, a bid which contains the 
                amount of the monthly premium for coverage under each 
                such Medicare Choice plan.
                    (B) Uniform premium.--The premiums charged by a 
                Medicare Choice plan sponsor under this part may not 
                vary among individuals who reside in the same 
                applicable Medicare Choice payment area.
                    (C) Terms and conditions of imposing premiums.--
                Each Medicare Choice organization shall permit the 
                payment of premiums on a monthly basis.
            (2) Announcement of standardized payment amount.--
                    (A) Authority to negotiate.--After bids are 
                submitted under paragraph (1), the Secretary may 
                negotiate with Medicare Choice organizations in order 
                to modify such bids if the Secretary determined that 
                the bids do not provide enough revenues to ensure the 
                plan's actuarial soundness, are too high relative to 
                the applicable Medicare Choice payment area, foster 
                adverse selection, or otherwise require renegotiation 
                under this paragraph.
                    (B) In general.--Not later than July 31 of each 
                calendar year (beginning with 1998), the Secretary 
                shall determine, and announce in a manner intended to 
                provide notice to interested parties, a standardized 
                payment amount determined in accordance with this 
                paragraph for the following calendar year for each 
                applicable Medicare Choice payment area.
            (3) Calculation of payment amounts.--
                    (A) In general.--The standardized payment amount 
                for a calendar year after 1998 for any applicable 
                Medicare Choice payment area shall be equal to the 
                maximum premium determined for such area under 
                subparagraph (B).
                    (B) Maximum premium.--The maximum premium for any 
                applicable Medicare Choice payment area shall be equal 
                to the amount determined under subparagraph (C) for the 
                payment area, but in no case shall such amount be 
                greater than the sum of--
                          (i) the average per capita amount, as 
                        determined by the Secretary as appropriate for 
                        the population eligible to enroll in Medicare 
                        Choice plans in such payment area, for such 
                        calendar year that the Secretary would have 
expended for an individual in such payment area enrolled under the 
medicare fee-for-service program under parts A and B, plus
                            (ii) the amount equal to the actuarial 
                        value of deductibles, coinsurance, and 
                        copayments charged an individual for services 
                        provided under the medicare fee-for-service 
                        program (as determined by the Secretary).
                    (C) Determination of amount.--
                            (i) In general.--The Secretary shall 
                        determine for each applicable Medicare Choice 
                        payment area for each calendar year an amount 
                        equal to the average of the bids (weighted 
                        based on capacity) submitted to the Secretary 
                        under paragraph (1)(A) for that payment area.
                            (ii) Disregard certain plans.--In 
                        determining the amount under clause (i), the 
                        Secretary may disregard any plan that the 
                        Secretary determines would unreasonably distort 
                        the amount determined under such subparagraph.
            (4) Adjustments for payments to plan sponsors.--
                    (A) In general.--For purposes of determining the 
                amount of payment under part C of title XVIII of the 
                Social Security Act to a Medicare Choice organization 
                with respect to any Medicare Choice eligible individual 
                enrolled in a Medicare Choice plan of the sponsor, the 
                standardized payment amount for the applicable Medicare 
                Choice payment area and the premium charged by the plan 
                sponsor shall be adjusted with respect to such 
                individual for such risk factors as age, disability 
                status, gender, institutional status, health 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 classes, if such changes will improve the 
                determination of actuarial equivalence.
                    (B) Recommendations.--
                            (i) In general.--In addition to any other 
                        duties required by law, the Physician Payment 
                        Review Commission and the Prospective Payment 
                        Assessment Commission (or their successors) 
                        shall each develop recommendations on--
                                    (I) the risk factors that the 
                                Secretary should use in adjusting the 
                                standardized payment amount and premium 
                                under subparagraph (A), and
                                    (II) the methodology that the 
                                Secretary should use in determining the 
                                risk factors to be used in adjusting 
                                the standardized payment amount and 
                                premium under subparagraph (A).
                            (ii) Time.--The recommendations described 
                        in clause (i) shall be developed not later than 
                        January 1, 1999.
                            (iii) Annual report.--The Physician Payment 
                        Review Commission and the Prospective Payment 
                        Assessment Commission (or their successors) 
                        shall include the recommendations described in 
                        clause (i) in their respective annual reports 
                        to Congress.
    (c) Payments to Plan Sponsors.--
            (1) Monthly payments.--
                    (A) In general.--Subject to paragraph (4), for each 
                individual enrolled with a plan under this subchapter, 
                the Secretary shall make monthly payments in advance to 
                the Medicare Choice organization of the Medicare Choice 
                plan with which the individual is enrolled in an amount 
                equal to \1/12\ of the amount determined under 
                paragraph (2).
                    (B) Retroactive adjustments.--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.
            (2) Amount of payment to medicare choice plans.--The amount 
        determined under this paragraph with respect to any individual 
        shall be equal to the sum of--
                    (A) the lesser of--
                            (i) the standardized payment amount for the 
                        applicable Medicare Choice payment area, as 
                        adjusted for such individual under subsection 
                        (a)(4), or
                            (ii) the premium charged by the plan for 
                        such individual, as adjusted for such 
                        individual under section (a)(4), minus
                    (B) the amount such individual paid to the plan 
                pursuant to section 5043 (relating to 10 percent of the 
                premium).
            (3) Payments from trust funds.--The payment to a Medicare 
        Choice organization or to a Medicare Choice account under this 
        section for a medicare-eligible individual shall be made from 
        the Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund in such proportion 
        as the Secretary determines reflects the relative weight that 
        benefits under parts A and B are representative of the 
        actuarial value of the total benefits under this part.
            (4) Limitation on amounts an out-of-plan physician or other 
        entity may collect.--A physician or other entity (other than a 
        provider of services) that does not have a contract 
        establishing payment amounts for services furnished to an 
        individual enrolled under this subchapter with a Medicare 
        Choice organization shall accept as payment in full for 
        services that are furnished to such an individual the amounts 
        that the physician or other entity could collect if the 
        individual were not so enrolled. Any penalty or other provision 
        of law that applies to such a payment with respect to an 
        individual entitled to benefits under this title (but not 
        enrolled with a Medicare Choice organization under this part) 
        also applies with respect to an individual so enrolled.
    (d) Office of Competition.--
            (1) Establishment.--There is established within the 
        Department of Health and Human Services an office to be known 
        as the `Office of Competition'.
            (2) Director.--The Secretary shall appoint the Director of 
        the Office of Competition.
            (3) Duties.--
                    (A) In general.--The Director shall administer this 
                subchapter and so much of part C of title XVIII of the 
                Social Security Act as relates to this subchapter.
                    (B) Transfer authority.--The Secretary shall 
                transfer such personnel, administrative support 
                systems, assets, records, funds, and other resources in 
                the Health Care Financing Administration to the Office 
                of Competition as are used in the administration of 
                section 1876 and as may be required to implement the 
                provisions of this part promptly and efficiently.
            (4) Use of non-federal entities.--The Secretary shall, to 
        the maximum extent feasible, enter into contracts with 
        appropriate non-Federal entities to carry out activities under 
        this subchapter.

SEC. 5043. BENEFITS AND BENEFICIARY PREMIUMS.

    (a) Benefits Provided to Individuals.--
            (1) Basic benefit plan.--Each Medicare Choice plan in an 
        applicable Medicare Choice payment area shall provide to 
        members enrolled under this subchapter, through providers and 
        other persons that meet the applicable requirements of title 
        XVIII of the Social Security Act and part A of title XI of such 
        Act--
                    (A) those items and services covered under parts A 
                and B of title XVIII of such Act which are available to 
                individuals residing in such area, subject to nominal 
                copayments as determined by the Secretary,
                    (B) prescription drugs, subject to such limits as 
                established by the Secretary, and
                    (C) additional health services as the Secretary may 
                approve.
            (2) Supplemental benefits.--
                    (A) In general.--Each Medicare Choice plan may 
                offer any of the optional supplemental benefit plans 
                described in subparagraph (B) to an individual enrolled 
                in the basic benefit plan offered by such organization 
                under this subchapter for an additional premium amount. 
                If the supplemental benefits are offered only to 
                individuals enrolled in the sponsor's plan under this 
                subchapter, the additional premium amount shall be the 
                same for all enrolled individuals in the applicable 
                Medicare Choice payment area. Such benefits may be 
                marketed and sold by the Medicare Choice organization 
                outside of the enrollment process described in part C 
                of title XVIII of the Social Security Act.
                    (B) Optional supplemental benefit plans 
                described.--The Secretary shall provide for 2 optional 
                supplemental benefit plans. Such plans shall include 
                such standardized items and services that the Secretary 
                determines must be provided to enrollees of such plans 
                described in order to offer the plans to Medicare 
                Choice eligible individuals.
                    (C) Limitation.--A Medicare Choice organization may 
                not offer an optional benefit plan to a Medicare Choice 
eligible individual unless such individual is enrolled in a basic 
benefit plan offered by such organization.
                    (D) Limitation on premium.--If a Medicare Choice 
                organization provides to individuals enrolled in a 
                Medicare Choice plan supplemental benefits described in 
                subparagraph (A), the sum of--
                             (i) the annual premiums for such benefits, 
                        plus
                             (ii) the actuarial value of any 
                        deductibles, coinsurance, and copayments 
                        charged with respect to such benefits for the 
                        year,
                shall not exceed the amount that would have been 
                charged for a plan in the applicable Medicare Choice 
                payment area which is not a Medicare Choice plan 
                (adjusted in such manner as the Secretary may prescribe 
                to reflect that only medicare beneficiaries are 
                enrolled in such plan). The Secretary shall negotiate 
                the limitation under this subparagraph with each plan 
                to which this paragraph applies.
            (3) Other rules.--Rules similar to rules of paragraphs (3) 
        and (4) of section 1852 of the Social Security Act (relating to 
        national coverage determinations and secondary payor 
        provisions) shall apply for purposes of this subchapter.
    (b) Premium Requirements for Beneficiaries.--
            (1) Premium differentials.--If a Medicare Choice eligible 
        individual enrolls in a Medicare Choice plan under this 
        subchapter, the individual shall be required to pay--
                    (A) 10 percent of the plan's premium;
                    (B) if the premium of the plan is higher than the 
                standardized payment amount (as determined under 
                section 5042), 100 percent of such difference; and
                    (C) an amount equal to cost-sharing under the 
                medicare fee-for-service program, except that such 
                amount shall not exceed the actuarial value of the 
                deductibles and coinsurance under such program less the 
                actual value of nominal copayments for benefits under 
                such plan for basic benefits described in subsection 
                (a)(1).
            (2) Part b premium.--An individual enrolled in a Medicare 
        Choice plan under this subchapter shall not be required to pay 
        the premium amount (determined under section 1839 of the Social 
        Security Act) under part B of title XVIII of such Act for so 
        long as such individual is so enrolled.

                      Subchapter B--Other Projects

SEC. 5045. MEDICARE ENROLLMENT DEMONSTRATION PROJECT.

    (a) Demonstration Project.--
            (1) Establishment.--The Secretary of Health and Human 
        Services (in this section referred to as the ``Secretary'') 
        shall implement a demonstration project (in this section 
        referred to as the ``project'') for the purpose of evaluating 
        the use of a third-party contractor to conduct the Medicare 
        Choice plan enrollment and disenrollment functions, as 
        described in part C of the Social Security Act (as added by 
        section 5001 of this Act), in an area.
            (2) Consultation.--Before implementing the project under 
        this section, the Secretary shall consult with affected parties 
        on--
                    (A) the design of the project;
                    (B) the selection criteria for the third-party 
                contractor; and
                    (C) the establishment of performance standards, as 
                described in paragraph (3).
            (3) Performance standards.--
                    (A) In general.--The Secretary shall establish 
                performance standards for the accuracy and timeliness 
                of the Medicare Choice plan enrollment and 
                disenrollment functions performed by the third-party 
                contractor.
                    (B) Noncompliance.--If the Secretary determines 
                that a third-party contractor is out of compliance with 
                the performance standards established under 
                subparagraph (A), such enrollment and disenrollment 
                functions shall be performed by the Medicare Choice 
                plan until the Secretary appoints a new third-party 
                contractor.
                    (C) Dispute.--In the event that there is a dispute 
                between the Secretary and a Medicare Choice plan 
                regarding whether or not the third-party contractor is 
                in compliance with the performance standards, such 
                enrollment and disenrollment functions shall be 
                performed by the Medicare Choice plan.
    (b) Report to Congress.--The Secretary shall periodically report to 
Congress on the progress of the project conducted pursuant to this 
section.
    (c) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of part C of the Social Security Act (as amended by 
section 5001 of this Act) to such extent and for such period as the 
Secretary determines is necessary to conduct the project.
    (d) Duration.--A demonstration project under this section shall be 
conducted for a 3-year period.
    (e) Separate From Other Demonstration Projects.--A project 
implemented by the Secretary under this section shall not be conducted 
in conjunction with any other demonstration project.

SEC. 5046. MEDICARE COORDINATED CARE DEMONSTRATION PROJECT.

    (a) Demonstration Projects.--
            (1) In general.--The Secretary of Health and Human Services 
        (in this section referred to as the ``Secretary'') shall 
        conduct demonstration projects for the purpose of evaluating 
        methods, such as case management and other models of 
        coordinated care, that--
                    (A) improve the quality of items and services 
                provided to target individuals; and
                    (B) reduce expenditures under the medicare program 
                under title XVIII of the Social Security Act (42 U.S.C. 
                1395 et seq.) for items and services provided to target 
                individuals.
            (2) Target individual defined.--In this section, the term 
        ``target individual'' means an individual that has a chronic 
        illness, as defined and identified by the Secretary, and is 
        enrolled under the fee-for-service program under parts A and B 
        of title XVIII of the Social Security Act (42 U.S.C. 1395c et 
        seq.; 1395j et seq.).
    (b) Program Design.--
            (1) Initial design.--The Secretary shall evaluate best 
        practices in the private sector of methods of coordinated care 
        for a period of 1 year and design the demonstration project 
        based on such evaluation.
            (2) Number and project areas.--Not later than 2 years after 
        the date of enactment of this Act, the Secretary shall 
        implement at least 9 demonstration projects, including--
                    (A) 6 projects in urban areas; and
                    (B) 3 projects in rural areas.
            (3) Expansion of projects; implementation of demonstration 
        project results.--
                    (A) Expansion of projects.--If the initial report 
                under subsection (c) contains an evaluation that 
                demonstration projects--
                            (i) reduce expenditures under the medicare 
                        program; or
                            (ii) do not increase expenditures under the 
                        medicare program and increase the quality of 
                        health care services provided to target 
                        individuals and satisfaction of beneficiaries 
                        and health care providers;
                the Secretary shall continue the existing demonstration 
                projects and may expand the number of demonstration 
                projects.
                    (B) Implementation of demonstration project 
                results.--If a report under subsection (c) contains an 
                evaluation as described in subparagraph (A), the 
                Secretary may issue regulations to implement, on a 
                permanent basis, the components of the demonstration 
                project that are beneficial to the medicare program.
    (c) Report to Congress.--
            (1) In general.--Not later than 2 years after the Secretary 
        implements the initial demonstration projects under this 
        section, and biannually thereafter, the Secretary shall submit 
        to Congress a report regarding the demonstration projects 
        conducted under this section.
            (2) Contents of report.--The report in paragraph (1) shall 
        include the following:
                    (A) A description of the demonstration projects 
                conducted under this section.
                    (B) An evaluation of--
                            (i) the cost-effectiveness of the 
                        demonstration projects;
                            (ii) the quality of the health care 
                        services provided to target individuals under 
                        the demonstration projects; and
                            (iii) beneficiary and health care provider 
                        satisfaction under the demonstration project.
                    (C) Any other information regarding the 
                demonstration projects conducted under this section 
                that the Secretary determines to be appropriate.
    (d) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of titles XI, XVIII, and XIX of the Social Security 
Act (42 U.S.C. 1301 et seq., 1395 et seq., 1396 et seq.) to such extent 
and for such period as the Secretary determines is necessary to conduct 
demonstration projects.
    (e) Funding.--
            (1) Demonstration projects.--
                    (A) In general.--The Secretary shall provide for 
                the transfer from the Federal Hospital Insurance Trust 
                Fund and the Federal Supplementary Insurance Trust Fund 
                under title XVIII of the Social Security Act (42 U.S.C. 
                1395i, 1395t), in such proportions as the Secretary 
                determines to be appropriate, of such funds as are 
                necessary for the costs of carrying out the 
                demonstration projects under this section.
                    (B) Limitation.--In conducting the demonstration 
                project under this section, the Secretary shall ensure 
                that the aggregate payments made by the Secretary do 
                not exceed the amount which the Secretary would have 
                paid if the demonstration projects under this section 
                were not implemented.
            (2) Evaluation and report.--There are authorized to be 
        appropriated such sums as are necessary for the purpose of 
        developing and submitting the report to Congress under 
        subsection (c).

SEC. 5047. ESTABLISHMENT OF MEDICARE REIMBURSEMENT DEMONSTRATION 
              PROJECTS.

    Title XVIII (42 U.S.C. 1395 et seq.) (as amended by section 5343) 
is amended by adding at the end the following:

        ``medicare subvention demonstration project for veterans

    ``Sec. 1896. (a) Definitions.--In this section:
            ``(1) Administering secretaries.--The term `administering 
        Secretaries' means the Secretary and the Secretary of Veterans 
        Affairs acting jointly.
            ``(2) Demonstration project; project.--The terms 
        `demonstration project' and `project' mean the demonstration 
        project carried out under this section.
            ``(3) Military retiree.--The term `military retiree' means 
        a member or former member of the Armed Forces who is entitled 
        to retired pay.
            ``(4) Targeted medicare-eligible veteran.--The term 
        `targeted medicare-eligible veteran' means an individual who--
                    ``(A) is a veteran (as defined in section 101(2) of 
                title 38, United States Code) and is described in 
                section 1710(a)(3) of title 38, United States Code; and
                    ``(B) is entitled to benefits under part A of this 
                title and is enrolled under part B of this title.
            ``(5) Trust funds.--The term `trust funds' means the 
        Federal Hospital Insurance Trust Fund established in section 
        1817 and the Federal Supplementary Medical Insurance Trust Fund 
        established in section 1841.
    ``(b) Demonstration Project.--
            ``(1) In general.--
                    ``(A) Establishment.--The administering Secretaries 
                are authorized to establish a demonstration project 
                (under an agreement entered into by the administering 
                Secretaries) under which the Secretary shall reimburse 
                the Secretary of Veterans Affairs, from the trust 
                funds, for medicare health care services furnished to 
                certain targeted medicare-eligible veterans.
                    ``(B) Agreement.--The agreement entered into under 
                subparagraph (A) shall include at a minimum--
                            ``(i) a description of the benefits to be 
                        provided to the participants of the 
                        demonstration project established under this 
                        section;
                            ``(ii) a description of the eligibility 
                        rules for participation in the demonstration 
                        project, including any criteria established 
                        under subsection (c) and any cost sharing under 
                        subsection (d);
                            ``(iii) a description of how the 
                        demonstration project will satisfy the 
                        requirements under this title;
                            ``(iv) a description of the sites selected 
                        under paragraph (2);
                            ``(v) a description of how reimbursement 
                        and maintenance of effort requirements under 
                        subsection (l) will be implemented in the 
                        demonstration project; and
                            ``(vi) a statement that the Secretary shall 
                        have access to all data of the Department of 
                        Veterans Affairs that the Secretary determines 
                        is necessary to conduct independent estimates 
                        and audits of the maintenance of effort 
                        requirement, the annual reconciliation, and 
                        related matters required under the 
                        demonstration project.
            ``(2) Number of sites.--The administering Secretaries shall 
        establish a plan for the selection of up to 12 medical centers 
        under the jurisdiction of the Secretary of Veterans Affairs and 
        located in geographically dispersed locations to participate in 
        the project.
            ``(3) General criteria.--The selection plan shall favor 
        selection of those medical centers that are suited to serve 
        targeted medicare-eligible individuals because--
                    ``(A) there is a high potential demand by targeted 
                medicare-eligible veterans for their services;
                    ``(B) they have sufficient capability in billing 
                and accounting to participate;
                    ``(C) they have favorable indicators of quality of 
                care, including patient satisfaction;
                    ``(D) they deliver a range of services required by 
                targeted medicare-eligible veterans; and
                    ``(E) they meet other relevant factors identified 
                in the plan.
            ``(4) Medical center near closed base.--The administering 
        Secretaries shall endeavor to include at least 1 medical center 
        that is in the same catchment area as a military medical 
        facility which was closed pursuant to either of the following 
        laws:
                    ``(A) The Defense Base Closure and Realignment Act 
                of 1990.
                    ``(B) Title II of the Defense Authorization 
                Amendments and Base Closure and Realignment Act.
            ``(5) Restriction.--No new facilities will be built or 
        expanded with funds from the demonstration project.
            ``(6) Duration.--The administering Secretaries shall 
        conduct the demonstration project during the 3-year period 
        beginning on January 1, 1998.
    ``(c) Voluntary Participation.--Participation of targeted medicare-
eligible veterans in the demonstration project shall be voluntary, 
subject to the capacity of participating medical centers and the 
funding limitations specified in subsection (l), and shall be subject 
to such terms and conditions as the administering Secretaries may 
establish. In the case of a demonstration project at a medical center 
described in subsection (b)(3), targeted medicare-eligible veterans who 
are military retirees shall be given preference in participating in the 
project.
    ``(d) Cost Sharing.--The Secretary of Veterans Affairs may 
establish cost-sharing requirements for veterans participating in the 
demonstration project. If such cost sharing requirements are 
established, those requirements shall be the same as the requirements 
that apply to targeted medicare-eligible patients at nongovernmental 
facilities.
    ``(e) Crediting of Payments.--A payment received by the Secretary 
of Veterans Affairs under the demonstration project shall be credited 
to the applicable Department of Veterans Affairs medical appropriation 
and (within that appropriation) to funds that have been allotted to the 
medical center that furnished the services for which the payment is 
made. Any such payment received during a fiscal year for services 
provided during a prior fiscal year may be obligated by the Secretary 
of Veterans Affairs during the fiscal year during which the payment is 
received.
    ``(f) Authority To Waive Certain Medicare Requirements.--The 
Secretary may, to the extent necessary to carry out the demonstration 
project, waive any requirement under this title. If the Secretary 
waives any such requirement, the Secretary shall include a description 
of such waiver in the agreement described in subsection (b)(1)(B).
    ``(g) Inspector General.--Nothing in the agreement entered into 
under subsection (b) shall limit the Inspector General of the 
Department of Health and Human Services from investigating any matters 
regarding the expenditure of funds under this title for the 
demonstration project, including compliance with the provisions of this 
title and all other relevant laws.
    ``(h) Report.--At least 30 days prior to the commencement of the 
demonstration project, the administering Secretaries shall submit a 
copy of the agreement entered into under subsection (b) to the 
committees of jurisdiction in Congress.
    ``(i) Managed Health Care Plans.--(1) In carrying out the 
demonstration project, the Secretary of Veterans Affairs may establish 
and operate managed health care plans.
    ``(2) Any such plan shall be operated by or through a Department of 
Veterans Affairs medical center or group of medical centers and may 
include the provision of health care services through other facilities 
under the jurisdiction of the Secretary of Veterans Affairs as well as 
public and private entities under arrangements made between the 
Department and the other public or private entity concerned. Any such 
managed health care plan shall be established and operated in 
conformance with standards prescribed by the administering Secretaries.
    ``(3) The administering Secretaries shall prescribe the minimum 
health care benefits to be provided under such a plan to veterans 
enrolled in the plan. Those benefits shall include at least all health 
care services covered under the medicare program under this title.
    ``(4) The establishment of a managed health care plan under this 
section shall be counted as the selection of a medical center for 
purposes of applying the numerical limitation under subsection (b)(1).
    ``(j) Medical Center Requirements.--The Secretary of Veterans 
Affairs may establish a managed health care plan using 1 or more 
medical centers and other facilities only after the Secretary of 
Veterans Affairs submits to Congress a report setting forth a plan for 
the use of such centers and facilities. The plan may not be implemented 
until the Secretary of Veterans Affairs has received from the Inspector 
General of the Department of Veterans Affairs, and has forwarded to 
Congress, certification of each of the following:
            ``(1) The cost accounting system of the Veterans Health 
        Administration (known as the Decision Support System) is 
        operational and is providing reliable cost information on care 
        delivered on an inpatient and outpatient basis at such centers 
        and facilities.
            ``(2) The centers and facilities have operated in 
        conformity with the eligibility reform amendments made by title 
        I of the Veterans Health Care Act of 1996 for not less than 3 
        months.
            ``(3) The centers and facilities have developed a credible 
        plan (on the basis of market surveys, data from the Decision 
        Support System, actuarial analysis, and other appropriate 
        methods and taking into account the level of payment under 
        subsection (l) and the costs of providing covered services at 
        the centers and facilities) to minimize, to the extent 
        feasible, the risk that appropriated funds allocated to the 
        centers and facilities will be required to meet the centers' 
        and facilities' obligation to targeted medicare-eligible 
        veterans under the demonstration project.
            ``(4) The centers and facilities collectively have 
        available capacity to provide the contracted benefits package 
        to a sufficient number of targeted medicare-eligible veterans.
            ``(5) The entity administering the health plan has 
        sufficient systems and safeguards in place to minimize any risk 
        that instituting the managed care model will result in reducing 
        the quality of care delivered to enrollees in the demonstration 
        project or to other veterans receiving care under paragraphs 
        subsection (1) or (2) of section 1710(a) of title 38, United 
        States Code.
    ``(k) Reserves.--The Secretary of Veterans Affairs shall maintain 
such reserves as may be necessary to ensure against the risk that 
appropriated funds, allocated to medical centers and facilities 
participating in the demonstration project through a managed health 
care plan under this section, will be required to meet the obligations 
of those medical centers and facilities to targeted medicare-eligible 
veterans.
    ``(l) Payments Based on Regular Medicare Payment Rates.--
            ``(1) Payments.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary shall 
                reimburse the Secretary of Veterans Affairs for 
                services provided under the demonstration project at 
                the following rates:
                            ``(i) Noncapitation.--Except as provided in 
                        clause (ii) and subject to subparagraphs (B)(i) 
                        and (D), at a rate equal to 95 percent of the 
                        amounts that otherwise would be payable under 
                        this title on a noncapitated basis for such 
                        services if the medical center were not a 
                        Federal medical center, were participating in 
                        the program, and imposed charges for such 
                        services.
                            ``(ii) Capitation.--Subject to 
                        subparagraphs (B)(ii) and (D), in the case of 
                        services provided to an enrollee under a 
                        managed health care plan established under 
                        subsection (i), at a rate equal to 95 percent 
                        of the amount paid to a Medicare Choice 
                        organization under part C with respect to such 
                        an enrollee.
                In cases in which a payment amount may not otherwise be 
                readily computed, the Secretaries shall establish rules 
                for computing equivalent or comparable payment amounts.
                    ``(B) Exclusion of certain amounts.--
                            ``(i) Noncapitation.--In computing the 
                        amount of payment under subparagraph (A)(i), 
                        the following shall be excluded:
                            (i) Disproportionate share hospital 
                        adjustment.--Any amount attributable to an 
                        adjustment under subsection (d)(5)(F) of 
                        section 1886 of the Social Security Act (42 
                        U.S.C. 1395ww).
                            (ii) Direct graduate medical education 
                        payments.--Any amount attributable to a payment 
                        under subsection (h) of such section.
                            (iii) Percentage of indirect medical 
                        education adjustment.--40 percent of any amount 
                        attributable to the adjustment under subsection 
                        (d)(5)(B) of such section.
                            (iv) Percentage of capital payments.--67 
                        percent of any amounts attributable to payments 
                        for capital-related costs under subsection (g) 
                        of such section.
                            ``(ii) Capitation.--In the case of years 
                        before 2001, in computing the amount of payment 
                        under subparagraph (A)(ii), the payment rate 
                        shall be computed as though the amounts 
                        excluded under clause (i) had been excluded in 
                        the determination of the amount paid to a 
                        Medicare Choice organization under part C with 
                        respect to an enrollee.
                    ``(C) Periodic payments from medicare trust 
                funds.--Payments under this subsection shall be made--
                            ``(i) on a periodic basis consistent with 
                        the periodicity of payments under this title; 
                        and
                            ``(ii) in appropriate part, as determined 
                        by the Secretary, from the trust funds.
                    ``(D) Annual limit on medicare payments.--The 
                amount paid to the Department of Veterans Affairs under 
                this subsection for any year for the demonstration 
                project may not exceed $50,000,000.
            ``(2) Reduction in payment for va failure to maintain 
        effort.--
                    ``(A) In general.--In order to avoid shifting onto 
                the medicare program under this title costs previously 
                assumed by the Department of Veterans Affairs for the 
                provision of medicare-covered services to targeted 
                medicare-eligible veterans, the payment amount under 
                this subsection for the project for a fiscal year shall 
                be reduced by the amount (if any) by which--
                            ``(i) the amount of the VA effort level for 
                        targeted veterans (as defined in subparagraph 
                        (B)) for the fiscal year ending in such year, 
                        is less than
                            ``(ii) the amount of the VA effort level 
                        for targeted veterans for fiscal year 1997.
                    ``(B) VA effort level for targeted veterans 
                defined.--For purposes of subparagraph (A), the term 
                `VA effort level for targeted veterans' means, for a 
                fiscal year, the amount, as estimated by the 
                administering Secretaries, that would have been 
                expended under the medicare program under this title 
                for VA-provided medicare-covered services for targeted 
                veterans (as defined in subparagraph (C)) for that 
                fiscal year if benefits were available under the 
                medicare program for those services. Such amount does 
                not include expenditures attributable to services for 
                which reimbursement is made under the demonstration 
                project.
                    ``(C) VA-provided medicare-covered services for 
                targeted veterans.--For purposes of subparagraph (B), 
                the term `VA-provided medicare-covered services for 
                targeted veterans' means, for a fiscal year, items and 
                services--
                            ``(i) that are provided during the fiscal 
                        year by the Department of Veterans Affairs to 
                        targeted medicare-eligible veterans;
                            ``(ii) that constitute hospital care and 
                        medical services under chapter 17 of title 38, 
                        United States Code; and
                            ``(iii) for which benefits would be 
                        available under the medicare program under this 
                        title if they were provided other than by a 
                        Federal provider of services that does not 
                        charge for those services.
            ``(3) Assuring no increase in cost to medicare program.--
                    ``(A) Monitoring effect of demonstration program on 
                costs to medicare program.--
                            ``(i) In general.--The Secretaries, in 
                        consultation with the Comptroller General, 
                        shall closely monitor the expenditures made 
                        under the medicare program for targeted 
                        medicare-eligible veterans during the period of 
                        the demonstration project compared to the 
                        expenditures that would have been made for such 
                        veterans during that period if the 
demonstration project had not been conducted.
                            ``(ii) Annual report by the comptroller 
                        general.--Not later than December 31 of each 
                        year during which the demonstration project is 
                        conducted, the Comptroller General shall submit 
                        to the Secretaries and the appropriate 
                        committees of Congress a report on the extent, 
                        if any, to which the costs of the Secretary 
                        under the medicare program under this title 
                        increased during the preceding fiscal year as a 
                        result of the demonstration project.
                    ``(B) Required response in case of increase in 
                costs.--
                            ``(i) In general.--If the administering 
                        Secretaries find, based on subparagraph (A), 
                        that the expenditures under the medicare 
                        program under this title increased (or are 
                        expected to increase) during a fiscal year 
                        because of the demonstration project, the 
                        administering Secretaries shall take such steps 
                        as may be needed--
                                    ``(I) to recoup for the medicare 
                                program the amount of such increase in 
                                expenditures; and
                                    ``(II) to prevent any such increase 
                                in the future.
                            ``(ii) Steps.--Such steps--
                                    ``(I) under clause (i)(I) shall 
                                include payment of the amount of such 
                                increased expenditures by the Secretary 
                                of Veterans Affairs from the current 
                                medical care appropriation of the 
                                Department of Veterans Affairs to the 
                                trust funds; and
                                    ``(II) under clause (i)(II) shall 
                                include suspending or terminating the 
                                demonstration project (in whole or in 
                                part) or lowering the amount of payment 
                                under paragraph (1)(A).
    ``(m) Evaluation and Reports.--
            ``(1) Independent evaluation.--The administering 
        Secretaries shall arrange for an independent entity with 
        expertise in the evaluation of health services to conduct an 
        evaluation of the demonstration project. The entity shall 
        submit annual reports on the demonstration project to the 
        administering Secretaries and to the committees of jurisdiction 
        in the Congress. The first report shall be submitted not later 
        than 12 months after the date on which the demonstration 
        project begins operation, and the final report not later than 
        3\1/2\ years after that date. The evaluation and reports shall 
        include an assessment, based on the agreement entered into 
        under subsection (b), of the following:
                    ``(A) The cost to the Department of Veterans 
                Affairs of providing care to veterans under the 
                project.
                    ``(B) Compliance of participating medical centers 
                with applicable measures of quality of care, compared 
                to such compliance for other medicare-participating 
                medical centers.
                    ``(C) A comparison of the costs of medical centers' 
                participation in the program with the reimbursements 
                provided for services of such medical centers.
                    ``(D) Any savings or costs to the medicare program 
                under this title from the project.
                    ``(E) Any change in access to care or quality of 
                care for targeted medicare-eligible veterans 
                participating in the project.
                    ``(F) Any effect of the project on the access to 
                care and quality of care for targeted medicare-eligible 
                veterans not participating in the project and other 
                veterans not participating in the project.
                    ``(G) The provision of services under managed 
                health care plans under subsection (l), including the 
                circumstances (if any) under which the Secretary of 
                Veterans Affairs uses reserves described in subsection 
                (k) and the Secretary of Veterans Affairs' response to 
                such circumstances (including the termination of 
                managed health care plans requiring the use of such 
                reserves).
                    ``(H) Any effect that the demonstration project has 
                on the enrollment in Medicare Choice organizations 
                under part C of this title in the established site 
                areas.
            ``(2) Report on extension and expansion of demonstration 
        project.--Not later than six months after the date of the 
        submission of the penultimate report under paragraph (1), the 
        administering Secretaries shall submit to Congress a report 
        containing their recommendation as to--
                    ``(A) whether to extend the demonstration project 
                or make the project permanent;
                    ``(B) whether to expand the project to cover 
                additional sites and areas and to increase the maximum 
                amount of reimbursement (or the maximum amount of 
                reimbursement permitted for managed health care plans 
                under this section) under the project in any year; and
                    ``(C) whether the terms and conditions of the 
                project should be continued (or modified) if the 
                project is extended or expanded.

   ``medicare subvention demonstration project for military retirees

    ``Sec. 1897. (a) Definitions.--In this section:
            ``(1) Administering secretaries.--The term `administering 
        Secretaries' means the Secretary and the Secretary of Defense 
        acting jointly.
            ``(2) Demonstration project; project.--The terms 
        `demonstration project' and `project' mean the demonstration 
        project carried out under this section.
            ``(3) Designated provider.--The term `designated provider' 
        has the meaning given that term in section 721(5) of the 
        National Defense Authorization Act For Fiscal Year 1997 (Public 
        Law 104-201; 110 Stat. 2593; 10 U.S.C. 1073 note).
            ``(4) Medicare-eligible military retiree or dependent.--The 
        term `medicare-eligible military retiree or dependent' means an 
        individual described in section 1074(b) or 1076(b) of title 10, 
        United States Code, who--
                    ``(A) would be eligible for health benefits under 
                section 1086 of such title by reason of subsection 
                (c)(1) of such section 1086 but for the operation of 
                subsection (d) of such section 1086;
                    ``(B)(i) is entitled to benefits under part A of 
                this title; and
                    ``(ii) if the individual was entitled to such 
                benefits before July 1, 1996, received health care 
                items or services from a health care facility of the 
                uniformed services before that date, but after becoming 
                entitled to benefits under part A of this title;
                    ``(C) is enrolled for benefits under part B of this 
                title; and
                    ``(D) has attained age 65.
            ``(5) Medicare health care services.--The term `medicare 
        health care services' means items or services covered under 
        part A or B of this title.
            ``(6) Military treatment facility.--The term `military 
        treatment facility' means a facility referred to in section 
        1074(a) of title 10, United States Code.
            ``(7) TRICARE.--The term `TRICARE' has the same meaning as 
        the term `TRICARE program' under section 711 of the National 
        Defense Authorization Act for Fiscal Year 1996 (10 U.S.C. 1073 
        note).
            ``(5) Trust funds.--The term `trust funds' means the 
        Federal Hospital Insurance Trust Fund established in section 
        1817 and the Federal Supplementary Medical Insurance Trust Fund 
        established in section 1841.
    ``(b) Demonstration Project.--
            ``(1) In general.--
                    ``(A) Establishment.--The administering Secretaries 
                are authorized to establish a demonstration project 
                (under an agreement entered into by the administering 
                Secretaries) under which the Secretary shall reimburse 
                the Secretary of Defense, from the trust funds, for 
                medicare health care services furnished to certain 
                medicare-eligible military retirees or dependents.
                    ``(B) Agreement.--The agreement entered into under 
                subparagraph (A) shall include at a minimum--
                            ``(i) a description of the benefits to be 
                        provided to the participants of the 
                        demonstration project established under this 
                        section;
                            ``(ii) a description of the eligibility 
                        rules for participation in the demonstration 
                        project, including any cost sharing 
                        requirements established under subsection (h);
                            ``(iii) a description of how the 
                        demonstration project will satisfy the 
                        requirements under this title;
                            ``(iv) a description of the sites selected 
                        under paragraph (2);
                            ``(v) a description of how reimbursement 
                        and maintenance of effort requirements under 
                        subsection (j) will be implemented in the 
                        demonstration project; and
                            ``(vi) a statement that the Secretary shall 
                        have access to all data of the Department of 
                        Defense that the Secretary determines is 
                        necessary to conduct independent estimates and 
                        audits of the maintenance of effort 
requirement, the annual reconciliation, and related matters required 
under the demonstration project.
            ``(2) In general.--The project established under this 
        section shall be conducted in no more than 6 sites, designated 
        jointly by the administering Secretaries after review of all 
        TRICARE regions.
            ``(3) Restriction.--No new military treatment facilities 
        will be built or expanded with funds from the demonstration 
        project.
            ``(4) Duration.--The administering Secretaries shall 
        conduct the demonstration project during the 3-year period 
        beginning on January 1, 1998.
    ``(c) Crediting of Payments.--A payment received by the Secretary 
of Defense under the demonstration project shall be credited to the 
applicable Department of Defense medical appropriation and (within that 
appropriation). Any such payment received during a fiscal year for 
services provided during a prior fiscal year may be obligated by the 
Secretary of Defense during the fiscal year during which the payment is 
received.
    ``(d) Authority To Waive Certain Medicare Requirements.--The 
Secretary may, to the extent necessary to carry out the demonstration 
project, waive any requirement under this title. If the Secretary 
waives any such requirement, the Secretary shall include a description 
of such waiver in the agreement described in subsection (b).
    ``(e) Inspector General.--Nothing in the agreement entered into 
under subsection (b) shall limit the Inspector General of the 
Department of Health and Human Services from investigating any matters 
regarding the expenditure of funds under this title for the 
demonstration project, including compliance with the provisions of this 
title and all other relevant laws.
    ``(f) Report.--At least 30 days prior to the commencement of the 
demonstration project, the administering Secretaries shall submit a 
copy of the agreement entered into under subsection (b) to the 
committees of jurisdiction in Congress.
    ``(g) Voluntary Participation.--Participation of medicare-eligible 
military retirees or dependents in the demonstration project shall be 
voluntary, subject to the capacity of participating military treatment 
facilities and designated providers and the funding limitations 
specified in subsection (j), and shall be subject to such terms and 
conditions as the administering Secretaries may establish.
    ``(h) Cost-Sharing by Demonstration Enrollees.--The Secretary of 
Defense may establish cost-sharing requirements for medicare-eligible 
military retirees and dependents who enroll in the demonstration 
project consistent with part C of this title.
    ``(i) TRICARE Health Care Plans.--
            ``(1) TRICARE program enrollment fee waiver.--The Secretary 
        of Defense shall waive the enrollment fee applicable to any 
        medicare-eligible military retiree or dependent enrolled in the 
        managed care option of the TRICARE program for any period for 
        which reimbursement is made under this section with respect to 
        such retiree or dependent.
            ``(2) Modification of tricare contracts.--In carrying out 
        the demonstration project, the Secretary of Defense is 
        authorized to amend existing TRICARE contracts in order to 
        provide the medicare health care services to the medicare-
        eligible military retirees and dependents enrolled in the 
        demonstration project.
            ``(3) Health care benefits.--The administering Secretaries 
        shall prescribe the minimum health care benefits to be provided 
        under such a plan to medicare-eligible military retirees or 
        dependents enrolled in the plan. Those benefits shall include 
        at least all medicare health care services covered under this 
        title.
    ``(j) Payments Based on Regular Medicare Payment Rates.--
            ``(1) Payments.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary shall 
                reimburse the Secretary of Defense for services 
                provided under the demonstration project at the 
                following rates:
                            ``(i) Noncapitation.--Except as provided in 
                        clause (ii) and subject to subparagraphs (B)(i) 
                        and (D), at a rate equal to 95 percent of the 
                        amounts that otherwise would be payable under 
                        this title on a noncapitated basis for such 
                        services if the military treatment facility or 
                        designated provider were not a Federal medical 
                        center, were participating in the program, and 
                        imposed charges for such services.
                            ``(ii) Capitation.--Subject to 
                        subparagraphs (B)(ii) and (D), in the case of 
                        services provided to an enrollee under a 
                        managed health care plan established under 
                        subsection (i), at a rate equal to 95 percent 
                        of the amount paid to a Medicare Choice 
organization under part C with respect to such an enrollee.
                In cases in which a payment amount may not otherwise be 
                readily computed, the Secretaries shall establish rules 
                for computing equivalent or comparable payment amounts.
                    ``(B) Exclusion of certain amounts.--
                            ``(i) Noncapitation.--In computing the 
                        amount of payment under subparagraph (A)(i), 
                        the following shall be excluded:
                                    ``(I) Special payments.--Any amount 
                                attributable to an adjustment under 
                                subparagraphs (B) and (F) of section 
                                1886(d)(5) and subsection (h) of such 
                                section.
                                    ``(II) Percentage of capital 
                                payments.--An amount determined by the 
                                administering Secretaries for amounts 
                                attributable to payments for capital-
                                related costs under subsection (g) of 
                                such section.
                            ``(ii) Capitation.--In the case of years 
                        before 2001, in computing the amount of payment 
                        under subparagraph (A)(ii), the payment rate 
                        shall be computed as though the amounts 
                        excluded under clause (i) had been excluded in 
                        the determination of the amount paid to a 
                        Medicare Choice organization under part C with 
                        respect to an enrollee.
                    ``(C) Periodic payments from medicare trust 
                funds.--Payments under this subsection shall be made--
                            ``(i) on a periodic basis consistent with 
                        the periodicity of payments under this title; 
                        and
                            ``(ii) in appropriate part, as determined 
                        by the Secretary, from the trust funds.
                    ``(D) Cap on amount.--The aggregate amount to be 
                reimbursed under this paragraph pursuant to the 
                agreement entered into between the administering 
                Secretaries under subsection (b) shall not exceed a 
                total of--
                            ``(i) $55,000,000 for calendar year 1998;
                            ``(ii) $65,000,000 for calendar year 1999; 
                        and
                            ``(iii) $75,000,000 for calendar year 2000.
            ``(2) Assuring no increase in cost to medicare program.--
                    ``(A) Monitoring effect of demonstration program on 
                costs to medicare program.--
                            ``(i) In general.--The Secretaries, in 
                        consultation with the Comptroller General, 
                        shall closely monitor the expenditures made 
                        under the medicare program for medicare-
                        eligible military retirees or dependents during 
                        the period of the demonstration project 
                        compared to the expenditures that would have 
                        been made for such medicare-eligible military 
                        retirees or dependents during that period if 
                        the demonstration project had not been 
                        conducted. The agreement entered into by the 
                        administering Secretaries under subsection (b) 
                        shall require any participating military 
                        treatment facility to maintain the level of 
                        effort for space available care to medicare-
                        eligible military retirees or dependents.
                            ``(ii) Annual report by the comptroller 
                        general.--Not later than December 31 of each 
                        year during which the demonstration project is 
                        conducted, the Comptroller General shall submit 
                        to the Secretaries and the appropriate 
                        committees of Congress a report on the extent, 
                        if any, to which the costs of the Secretary 
                        under the medicare program under this title 
                        increased during the preceding fiscal year as a 
                        result of the demonstration project.
                    ``(B) Required response in case of increase in 
                costs.--
                            ``(i) In general.--If the administering 
                        Secretaries find, based on subparagraph (A), 
                        that the expenditures under the medicare 
                        program under this title increased (or are 
                        expected to increase) during a fiscal year 
                        because of the demonstration project, the 
                        administering Secretaries shall take such steps 
                        as may be needed--
                                    ``(I) to recoup for the medicare 
                                program the amount of such increase in 
                                expenditures; and
                                    ``(II) to prevent any such increase 
                                in the future.
                            ``(ii) Steps.--Such steps--
                                    ``(I) under clause (i)(I) shall 
                                include payment of the amount of such 
                                increased expenditures by the Secretary 
                                of Defense from the current medical 
                                care appropriation of the Department of 
                                Defense to the trust funds; and
                                    ``(II) under clause (i)(II) shall 
                                include suspending or terminating the 
                                demonstration project (in whole or in 
                                part) or lowering the amount of payment 
                                under paragraph (1)(A).
    ``(k) Evaluation and Reports.--
            ``(1) Independent evaluation.--The administering 
        Secretaries shall arrange for an independent entity with 
        expertise in the evaluation of health services to conduct an 
        evaluation of the demonstration project. The entity shall 
        submit annual reports on the demonstration project to the 
        administering Secretaries and to the committees of jurisdiction 
        in the Congress. The first report shall be submitted not later 
        than 12 months after the date on which the demonstration 
        project begins operation, and the final report not later than 
        3\1/2\ years after that date. The evaluation and reports shall 
        include an assessment, based on the agreement entered into 
        under subsection (b), of the following:
                    ``(A) The number of medicare-eligible military 
                retirees and dependents opting to participate in the 
                demonstration project instead of receiving health 
                benefits through another health insurance plan 
                (including benefits under this title).
                    ``(B) Compliance by the Department of Defense with 
                the requirements under this title.
                    ``(C) The cost to the Department of Defense of 
                providing care to medicare-eligible military retirees 
                and dependents under the demonstration project.
                    ``(D) Compliance by the Department of Defense with 
                the standards of quality required of entities that 
                furnish medicare health care services.
                    ``(E) An analysis of whether, and in what manner, 
                easier access to the uniformed services treatment 
                system affects the number of medicare-eligible military 
                retirees and dependents receiving medicare health care 
                services.
                    ``(F) Any savings or costs to the medicare program 
                under this title resulting from the demonstration 
                project.
                    ``(G) An assessment of the access to care and 
                quality of care for medicare-eligible military retirees 
                and dependents under the demonstration project.
                    ``(H) Any impact of the demonstration project on 
                the access to care for medicare-eligible military 
                retirees and dependents who did not enroll in the 
                demonstration project and for other individuals 
                entitled to benefits under this title.
                    ``(I) Any impact of the demonstration project on 
                private health care providers.
                    ``(J) Any impact of the demonstration project on 
                access to care for active duty military personnel and 
                their dependents.
                    ``(K) A list of the health insurance plans and 
                programs that were the primary payers for medicare-
                eligible military retirees and dependents during the 
                year prior to their participation in the demonstration 
                project and the distribution of their previous 
                enrollment in such plans and programs.
                    ``(L) An identification of cost-shifting (if any) 
                between the medicare program under this title and the 
                Defense health program as a result of the demonstration 
                project and a description of the nature of any such 
                cost-shifting.
                    ``(M) An analysis of how the demonstration project 
                affects the overall accessibility of the uniformed 
                services treatment system and the amount of space 
                available for point-of-service care, and a description 
                of the unintended effects (if any) upon the normal 
                treatment priority system.
                    ``(N) A description of the difficulties (if any) 
                experienced by the Department of Defense in managing 
                the demonstration project.
                    ``(O) A description of the effects of the 
                demonstration project on military treatment facility 
                readiness and training and the probable effects of the 
                project on overall Department of Defense medical 
                readiness and training.
                    ``(P) A description of the effects that the 
                demonstration project, if permanent, would be expected 
                to have on the overall budget of the Defense health 
program, the budgets of individual military treatment facilities and 
designated providers, and on the budget of the medicare program under 
this title.
                    ``(Q) An analysis of whether the demonstration 
                project affects the cost to the Department of Defense 
                of prescription drugs or the accessibility, 
                availability, and cost of such drugs to demonstration 
                program beneficiaries.
                    ``(R) Any additional elements specified in the 
                agreement entered into under subsection (b).
            ``(2) Report on extension and expansion of demonstration 
        project.--Not later than six months after the date of the 
        submission of the penultimate report under paragraph (1), the 
        administering Secretaries shall submit to Congress a report 
        containing their recommendation as to--
                    ``(A) whether to extend the demonstration project 
                or make the project permanent;
                    ``(B) whether to expand the project to cover 
                additional sites and areas and to increase the maximum 
                amount of reimbursement (or the maximum amount of 
                reimbursement permitted for managed health care plans 
                under this section) under the project in any year; and
                    ``(C) whether the terms and conditions of the 
                project should be continued (or modified) if the 
                project is extended or expanded.''.

    CHAPTER 6--TAX TREATMENT OF HOSPITALS PARTICIPATING IN PROVIDER-
                        SPONSORED ORGANIZATIONS

SEC. 5049. TAX TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
              SPONSORED ORGANIZATIONS.

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

                   Subtitle B--Prevention Initiatives

SEC. 5101. ANNUAL SCREENING MAMMOGRAPHY FOR WOMEN OVER AGE 39.

    (a) In General.--Section 1834(c)(2)(A) (42 U.S.C. 1395m(c)(2)(A)) 
is amended by striking clauses (iii), (iv), and (v) and inserting the 
following:
                            ``(iii) in the case of a woman over 39 
                        years of age, payment may not be made under 
                        this part for screening mammography performed 
                        within 11 months following the month in which a 
                        previous screening mammography was performed.''
    (b) Waiver of Coinsurance.--
            (1) In general.--Section 1834(c)(1)(C) (42 U.S.C. 
        1395m(c)(1)(C)) is amended by striking ``80 percent of''.
            (2) Waiver of coinsurance in outpatient hospital 
        settings.--The third sentence of section 1866(a)(2)(A) (42 
        U.S.C. 1395cc(a)(2)(A)) is amended by inserting after 
        ``1861(s)(10)(A)'' the following: ``, with respect to screening 
        mammography (as defined in section 1861(jj),''.
    (c) Effective Date.--The amendments made by subsection (a) apply to 
items and services furnished on or after January 1, 1998.

SEC. 5102. COVERAGE OF COLORECTAL SCREENING.

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

                   ``Colorectal Cancer Screening Test

    ``(oo)(1)(A) The term `colorectal cancer screening test' means a 
procedure furnished to an individual that the Secretary prescribes in 
regulations as appropriate for the purpose of early detection of 
colorectal cancer, taking into account availability, effectiveness, 
costs, changes in technology and standards of medical practice, and 
such other factors as the Secretary considers appropriate.
    ``(B) The Secretary shall consult with appropriate organizations in 
prescribing regulations under subparagraph (A).''.
    (b) Frequency and Payment Limits.--Section 1834 (42 U.S.C. 1395m) 
is amended by inserting after subsection (c) the following new 
subsection:
    ``(d) Frequency and Payment Limits for Colorectal Cancer Screening 
Tests.--
            ``(1) In general.--The Secretary shall prescribe 
        regulations that--
                    ``(A) establish frequency limits for colorectal 
                cancer screening tests that take into account the risk 
                status of an individual and that are consistent with 
                frequency limits for similar or related services; and
                    ``(B) establish payment limits (including limits on 
                charges of nonparticipating physicians) for colorectal 
                cancer screening tests that are consistent with payment 
                limits for similar or related services.
            ``(2) Revisions.--The Secretary shall periodically review 
        and, to the extent the Secretary considers appropriate, revise 
        the frequency and payment limits established under paragraph 
        (1).
            ``(3) Factors to determine individuals at risk.--In 
        establishing criteria for determining whether an individual is 
        at risk for purposes of this subsection, the Secretary shall 
        take into consideration family history, prior experience of 
        cancer, a history of chronic digestive disease condition, and 
        the presence of any appropriate recognized gene markers for 
        colorectal cancer.
            ``(4) Consultation.--In establishing and revising frequency 
        and payment limits under this subsection, the Secretary shall 
        consult with appropriate organizations.''
    (c) Conforming Amendments.--(1) Paragraphs (1)(D) and (2)(D) of 
section 1833(a) (42 U.S.C. 1395l(a)) are each amended by inserting ``or 
section 1834(d)'' after ``subsection (h)(1)''.
    (2) Section 1833(h)(1)(A) (42 U.S.C. 1395l(h)(1)(A)) is amended by 
striking ``The Secretary'' and inserting ``Subject to section 1834(d), 
the Secretary''.
    (3) Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
            (A) in paragraph (1)--
                    (i) in subparagraph (E), by striking ``and'' at the 
                end,
                    (ii) in subparagraph (F), by striking the semicolon 
                at the end and inserting ``, and'', and
                    (iii) by adding at the end the following new 
                subparagraph:
            ``(G) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered under 
        section 1834(d);''; and
            (B) in paragraph (7), by striking ``paragraph (1)(B) or 
        under paragraph (1)(F)'' and inserting ``subparagraph (B), (F), 
        or (G) of paragraph (1)''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to items and services furnished on or after January 1, 
        1998.
            (2) Regulations.--The Secretary of Health and Human 
        Services shall issue final regulations described in sections 
        1861(oo) and 1834(d) of the Social Security Act (as added by 
        this section) within 3 months after the date of enactment of 
        this Act.

SEC. 5103. DIABETES SCREENING TESTS.

    (a) Diabetes Outpatient Self-Management Training Services.--
            (1) In general.--Section 1861(s) (42 U.S.C. 1395x(s)), as 
        amended by section 5102, is amended--
                    (A) in subsection (s)(2)--
                            (i) by striking ``and'' at the end of 
                        subparagraph (P);
                            (ii) by inserting ``and'' at the end of 
                        subparagraph (Q); and
                            (iii) by adding at the end the following:
            ``(R) diabetes outpatient self-management training services 
        (as defined in subsection (pp));'', and
                    (B) by adding at the end the following:

        ``Diabetes Outpatient Self-Management Training Services

    ``(pp)(1) The term `diabetes outpatient self-management training 
services' means educational and training services furnished to an 
individual with diabetes by a certified provider (as described in 
paragraph (2)(A)) in an outpatient setting by an individual or entity 
that meets the quality standards described in paragraph (2)(B), but 
only if the physician who is managing the individual's diabetic 
condition certifies that the services are needed under a comprehensive 
plan of care related to the individual's diabetic condition to provide 
the individual with necessary skills and knowledge (including skills 
related to the self-administration of injectable drugs) to participate 
in the management of the individual's condition.
    ``(2) In paragraph (1)--
            ``(A) a `certified provider' is a physician, or other 
        individual or entity designated by the Secretary, that, in 
        addition to providing diabetes outpatient self-management 
        training services, provides other items or services for which 
        payment may be made under this title; and
            ``(B) a physician, or other such individual or entity, 
        meets the quality standards described in this subparagraph if 
        the physician, or individual or entity, meets quality standards 
        established by the Secretary, except that the physician, or 
        other individual or entity, shall be deemed to have met such 
        standards if the physician or other individual or entity--
                    ``(i) meets applicable standards originally 
                established by the National Diabetes Advisory Board and 
                subsequently revised by organizations who participated 
                in the establishment of standards by such Board, or
                    ``(ii) is recognized by an organization that 
                represents individuals (including individuals under 
                this title) with diabetes as meeting standards for 
                furnishing the services.''
            (2) Consultation with organizations in establishing payment 
        amounts for services provided by physicians.--In establishing 
        payment amounts under section 1848 of the Social Security Act 
        for physicians' services consisting of diabetes outpatient 
        self-management training services, the Secretary of Health and 
        Human Services shall consult with appropriate organizations, 
        including such organizations representing individuals or 
        medicare beneficiaries with diabetes, in determining the 
        relative value for such services under section 1848(c)(2) of 
        such Act.
    (b) Blood-Testing Strips for Individuals With Diabetes.--
            (1) Including strips and monitors as durable medical 
        equipment.--The first sentence of section 1861(n) (42 U.S.C. 
        1395x(n)) is amended by inserting before the semicolon the 
        following: ``, and includes blood-testing strips and blood 
        glucose monitors for individuals with diabetes without regard 
        to whether the individual has Type I or Type II diabetes or to 
        the individual's use of insulin (as determined under standards 
        established by the Secretary in consultation with the 
        appropriate organizations)''.
            (2) 10 percent reduction in payments for testing strips.--
        Section 1834(a)(2)(B)(iv) (42 U.S.C. 1395m(a)(2)(B)(iv)) is 
        amended by adding before the period the following: ``(reduced 
        by 10 percent, in the case of a blood glucose testing strip 
        furnished after 1997 for an individual with diabetes)''.
    (c) Establishment of Outcome Measures for Beneficiaries With 
Diabetes.--
            (1) In general.--The Secretary of Health and Human 
        Services, in consultation with appropriate organizations, shall 
        establish outcome measures, including glysolated hemoglobin 
        (past 90-day average blood sugar levels), for purposes of 
        evaluating the improvement of the health status of medicare 
        beneficiaries with diabetes mellitus.
            (2) Recommendations for modifications to screening 
        benefits.--Taking into account information on the health status 
        of medicare beneficiaries with diabetes mellitus as measured 
        under the outcome measures established under subparagraph (A), 
        the Secretary shall from time to time submit recommendations to 
        Congress regarding modifications to the coverage of services 
        for such beneficiaries under the medicare program.
    (d) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after January 1, 1998.

SEC. 5104. COVERAGE OF BONE MASS MEASUREMENTS.

    (a) In General.--Section 1861 (42 U.S.C. 1395x) is amended--
            (1) in subsection (s)--
                    (A) in paragraph (12)(C), by striking ``and'' at 
                the end;
                    (B) by striking the period at the end of paragraph 
                (14) and inserting ``; and'';
                    (C) by redesignating paragraphs (15) and (16) as 
                paragraphs (16) and (17), respectively; and
                    (D) by inserting after paragraph (14) the 
                following:
            ``(15) bone mass measurement (as defined in subsection 
        (oo)).''; and
            (2) by inserting after subsection (pp), as added by section 
        5103, the following:

                        ``Bone Mass Measurement

    ``(gg)(1) The term `bone mass measurement' means a radiologic or 
radioscopic procedure or other Food and Drug Administration approved 
technology performed on a qualified individual (as defined in paragraph 
(2)) for the purpose of identifying bone mass, detecting bone loss, or 
determining bone quality, and includes a physician's interpretation of 
the results of the procedure.
    ``(2) For purposes of paragraph (1), the term `qualified 
individual' means an individual who is (in accordance with regulations 
prescribed by the Secretary)--
            ``(A) an estrogen-deficient woman at clinical risk for 
        osteoporosis and who is considering treatment;
            ``(B) an individual with vertebral abnormalities;
            ``(C) an individual receiving long-term glucocorticoid 
        steroid therapy;
            ``(D) an individual with primary hyperparathyroidism; or
            ``(E) an individual being monitored to assess the response 
        to or efficacy of an approved osteoporosis drug therapy.''.
    (b) Conforming Amendments.--Sections 1864(a), 1865(a), 
1902(a)(9)(C), and 1915(a)(1)(B)(ii)(I) (42 U.S.C. 1395aa(a), 
1395bb(a), 1396a(a)(9)(C), and 1396n(a)(1)(B)(ii)(I)) are amended by 
striking ``paragraphs (15) and (16)'' each place such term appears and 
inserting ``paragraphs (16) and (17)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bone mass measurements performed on or after January 1, 1998.

                     Subtitle C--Rural Initiatives

SEC. 5151. SOLE COMMUNITY HOSPITALS.

    Section 1886(b)(3)(C) (42 U.S.C. 1395ww(b)(3)(C)) is amended--
            (1) in clause (i), by redesignating subclauses (I) and (II) 
        as items (aa) and (bb), respectively;
            (2) by redesignating clauses (i), (ii), (iii), and (iv) as 
        subclauses (I), (II), (III), and (IV), respectively;
            (3) by striking ``(C) In'' and inserting ``(C)(i) Subject 
        to clause (ii), in''; and
            (4) by striking the last sentence and inserting the 
        following:
    ``(ii)(I) There shall be substituted for the base cost reporting 
period described in clause (i)(I) a hospital's cost reporting period 
(if any) beginning during fiscal year 1987 if such substitution results 
in an increase in the target amount for the hospital.
    ``(II) Beginning with discharges occurring in fiscal year 1998, 
there shall be substituted for the base cost reporting period described 
in clause (i)(I) either--
            ``(aa) the allowable operating costs of inpatient hospital 
        services (as defined in subsection (a)(4)) recognized under 
        this title for the hospital's cost reporting period (if any) 
        beginning during fiscal year 1994 increased (in a compounded 
        manner) by the applicable percentage increases applied to the 
        hospital under this paragraph for discharges occurring in 
        fiscal years 1995, 1996, 1997, and 1998, or
            ``(bb) the allowable operating costs of inpatient hospital 
        services (as defined in subsection (a)(4)) recognized under 
        this title for the hospital's cost reporting period (if any) 
        beginning during fiscal year 1995 increased (in a compounded 
        manner) by the applicable percentage increase applied to the 
        hospital under this paragraph for discharges occurring in 
        fiscal years 1995, 1996, 1997, and 1998,
if such substitution results in an increase in the target amount for 
the hospital.''.

SEC. 5152. MEDICARE-DEPENDENT, SMALL RURAL HOSPITAL PAYMENT EXTENSION.

    (a) Special Treatment Extended.--
            (1) Payment methodology.--Section 1886(d)(5)(G) (42 U.S.C. 
        1395ww(d)(5)(G)) is amended--
                    (A) in clause (i), by striking ``October 1, 1994,'' 
                and inserting ``October 1, 1994, or beginning on or 
                after October 1, 1997, and before October 1, 2001,''; 
                and
                    (B) in clause (ii)(II), by striking ``October 1, 
                1994,'' and inserting ``October 1, 1994, or beginning 
                on or after October 1, 1997, and before October 1, 
                2001,''.
            (2) Extension of target amount.--Section 1886(b)(3)(D) (42 
        U.S.C. 1395ww(b)(3)(D)) is amended--
                    (A) in the matter preceding clause (i), by striking 
                ``September 30, 1994,'' and inserting ``September 30, 
                1994, and for cost reporting periods beginning on or 
                after October 1, 1997, and before October 1, 2001,'';
                    (B) in clause (ii), by striking ``and'' at the end;
                    (C) in clause (iii), by striking the period at the 
                end and inserting ``, and''; and
                    (D) by adding after clause (iii) the following new 
                clause:
            ``(iv) with respect to discharges occurring during fiscal 
        year 1998 through fiscal year 2000, the target amount for the 
        preceding year increased by the applicable percentage increase 
under subparagraph (B)(iv).''.
            (3) Permitting hospitals to decline reclassification.--
        Section 13501(e)(2) of OBRA-93 (42 U.S.C. 1395ww note) is 
        amended by striking ``or fiscal year 1994'' and inserting ``, 
        fiscal year 1994, fiscal year 1998, fiscal year 1999, or fiscal 
        year 2000''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to discharges occurring on or after October 1, 1997.

SEC. 5153. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

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

             ``medicare rural hospital flexibility program

    ``Sec. 1820. (a) Establishment.--Any State that submits an 
application in accordance with subsection (b) may establish a medicare 
rural hospital flexibility program described in subsection (c).
    ``(b) Application.--A State may establish a medicare rural hospital 
flexibility program described in subsection (c) if the State submits to 
the Secretary at such time and in such form as the Secretary may 
require an application containing--
            ``(1) assurances that the State--
                    ``(A) has developed, or is in the process of 
                developing, a State rural health care plan that--
                            ``(i) provides for the creation of 1 or 
                        more rural health networks (as defined in 
                        subsection (d)) in the State;
                            ``(ii) promotes regionalization of rural 
                        health services in the State; and
                            ``(iii) improves access to hospital and 
                        other health services for rural residents of 
                        the State; and
                    ``(B) has developed the rural health care plan 
                described in subparagraph (A) in consultation with the 
                hospital association of the State, rural hospitals 
                located in the State, and the State Office of Rural 
                Health (or, in the case of a State in the process of 
                developing such plan, that assures the Secretary that 
                the State will consult with its State hospital 
                association, rural hospitals located in the State, and 
                the State Office of Rural Health in developing such 
                plan);
            ``(2) assurances that the State has designated (consistent 
        with the rural health care plan described in paragraph (1)(A)), 
        or is in the process of so designating, rural nonprofit or 
        public hospitals or facilities located in the State as critical 
        access hospitals; and
            ``(3) such other information and assurances as the 
        Secretary may require.
    ``(c) Medicare Rural Hospital Flexibility Program Described.--
            ``(1) In general.--A State that has submitted an 
        application in accordance with subsection (b), may establish a 
        medicare rural hospital flexibility program that provides 
        that--
                    ``(A) the State shall develop at least 1 rural 
                health network (as defined in subsection (d)) in the 
                State; and
                    ``(B) at least 1 facility in the State shall be 
                designated as a critical access hospital in accordance 
                with paragraph (2).
            ``(2) State designation of facilities.--
                    ``(A) In general.--A State may designate 1 or more 
                facilities as a critical access hospital in accordance 
                with subparagraph (B).
                    ``(B) Criteria for designation as critical access 
                hospital.--A State may designate a facility as a 
                critical access hospital if the facility--
                            ``(i) is a nonprofit or public hospital and 
                        is located in a county (or equivalent unit of 
                        local government) in a rural area (as defined 
                        in section 1886(d)(2)(D)) that--
                                    ``(I) is located more than a 35-
                                mile drive from a hospital, or another 
                                facility described in this subsection; 
                                or
                                    ``(II) is certified by the State as 
                                being a necessary provider of health 
                                care services to residents in the area;
                            ``(ii) makes available 24-hour emergency 
                        care services that a State determines are 
                        necessary for ensuring access to emergency care 
                        services in each area served by a critical 
                        access hospital;
                            ``(iii) provides not more than 15 acute 
                        care inpatient beds (meeting such standards as 
                        the Secretary may establish) for providing 
                        inpatient care for a period not to exceed 96 
                        hours (unless a longer period is required 
                        because transfer to a hospital is precluded 
                        because of inclement weather or other emergency 
                        conditions), except that a peer review 
                        organization or equivalent entity may, on 
                        request, waive the 96-hour restriction on a 
                        case-by-case basis;
                            ``(iv) meets such staffing requirements as 
                        would apply under section 1861(e) to a hospital 
                        located in a rural area, except that--
                                    ``(I) the facility need not meet 
                                hospital standards relating to the 
                                number of hours during a day, or days 
                                during a week, in which the facility 
                                must be open and fully staffed, except 
                                insofar as the facility is required to 
                                make available emergency care services 
                                as determined under clause (ii) and 
                                must have nursing services available on 
                                a 24-hour basis, but need not otherwise 
                                staff the facility except when an 
                                inpatient is present;
                                    ``(II) the facility may provide any 
                                services otherwise required to be 
                                provided by a full-time, on site 
                                dietitian, pharmacist, laboratory 
                                technician, medical technologist, and 
                                radiological technologist on a part-
                                time, off site basis under arrangements 
                                as defined in section 1861(w)(1); and
                                    ``(III) the inpatient care 
                                described in clause (iii) may be 
                                provided by a physician's assistant, 
                                nurse practitioner, or clinical nurse 
                                specialist subject to the oversight of 
                                a physician who need not be present in 
                                the facility; and
                            ``(v) meets the requirements of section 
                        1861(aa)(2)(I).
    ``(d) Definition of Rural Health Network.--
            ``(1) In general.--In this section, the term `rural health 
        network' means, with respect to a State, an organization 
        consisting of--
                    ``(A) at least 1 facility that the State has 
                designated or plans to designate as a critical access 
                hospital; and
                    ``(B) at least 1 hospital that furnishes acute care 
                services.
            ``(2) Agreements.--
                    ``(A) In general.--Each critical access hospital 
                that is a member of a rural health network shall have 
                an agreement with respect to each item described in 
                subparagraph (B) with at least 1 hospital that is a 
                member of the network.
                    ``(B) Items described.--The items described in this 
                subparagraph are the following:
                            ``(i) Patient referral and transfer.
                            ``(ii) The development and use of 
                        communications systems including (where 
                        feasible)--
                                    ``(I) telemetry systems; and
                                    ``(II) systems for electronic 
                                sharing of patient data.
                            ``(iii) The provision of emergency and non-
                        emergency transportation among the facility and 
                        the hospital.
                    ``(C) Credentialing and quality assurance.--Each 
                critical access hospital that is a member of a rural 
                health network shall have an agreement with respect to 
                credentialing and quality assurance with at least--
                            ``(i) 1 hospital that is a member of the 
                        network;
                            ``(ii) 1 peer review organization or 
                        equivalent entity; or
                            ``(iii) 1 other appropriate and qualified 
                        entity identified in the State rural health 
                        care plan.
    ``(e) Certification by the Secretary.--The Secretary shall certify 
a facility as a critical access hospital if the facility--
            ``(1) is located in a State that has established a medicare 
        rural hospital flexibility program in accordance with 
        subsection (c);
            ``(2) is designated as a critical access hospital by the 
        State in which it is located; and
            ``(3) meets such other criteria as the Secretary may 
        require.
    ``(f) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a critical access hospital from 
entering into an agreement with the Secretary under section 1883 under 
which the facility's inpatient hospital facilities are used for the 
furnishing of extended care services.
    ``(g) Grants.--
            ``(1) Medicare rural hospital flexibility program.--The 
        Secretary may award grants to States that have submitted 
        applications in accordance with subsection (b) for--
                    ``(A) engaging in activities relating to planning 
                and implementing a rural health care plan;
                    ``(B) engaging in activities relating to planning 
                and implementing rural health networks; and
                    ``(C) designating facilities as critical access 
                hospitals.
            ``(2) Rural emergency medical services.--
                    ``(A) In general.--The Secretary may award grants 
                to States that have submitted applications in 
                accordance with subparagraph (B) for the establishment 
                or expansion of a program for the provision of rural 
                emergency medical services.
                    ``(B) Application.--An application is in accordance 
                with this subparagraph if the State submits to the 
                Secretary at such time and in such form as the 
                Secretary may require an application containing the 
                assurances described in subparagraphs (A)(ii), 
                (A)(iii), and (B) of subsection (b)(1) and paragraph 
                (3) of that subsection.
    ``(h) Grandfathering of Certain Facilities.--
            ``(1) In general.--Any medical assistance facility 
        operating in Montana and any rural primary care hospital 
        designated by the Secretary under this section prior to the 
        date of the enactment of the Balanced Budget Act of 1997 shall 
        be deemed to have been certified by the Secretary under 
        subsection (e) as a critical access hospital if such facility 
        or hospital is otherwise eligible to be designated by the State 
        as a critical access hospital under subsection (c).
            ``(2) Continuation of medical assistance facility and rural 
        primary care hospital terms.--Notwithstanding any other 
        provision of this title, with respect to any medical assistance 
        facility or rural primary care hospital described in paragraph 
        (1), any reference in this title to a `critical access 
        hospital' shall be deemed to be a reference to a `medical 
        assistance facility' or `rural primary care hospital'.
    ``(i) Waiver of Conflicting Part A Provisions.--The Secretary is 
authorized to waive such provisions of this part and part D as are 
necessary to conduct the program established under this section.
    ``(j) Authorization of Appropriations.--There are authorized to be 
appropriated from the Federal Hospital Insurance Trust Fund for making 
grants to all States under subsection (g), $25,000,000 in each of the 
fiscal years 1998 through 2002.''.
    (b) Report on Alternative to 96-Hour Rule.--Not later than January 
1, 1998, the Administrator of the Health Care Financing Administration 
shall submit to Congress a report on the feasibility of, and 
administrative requirements necessary to establish an alternative for 
certain medical diagnoses (as determined by the Administrator) to the 
96-hour limitation for inpatient care in critical access hospitals 
required by section 1820(c)(2)(B)(iii) of the Social Security Act (42 
U.S.C. 1395i-4), as added by subsection (a) of this section.
    (c) Conforming Amendments Relating to Rural Primary Care Hospitals 
and Critical Access Hospitals.--
            (1) In general.--Title XI of the Social Security Act (42 
        U.S.C. 1301 et seq.) and title XVIII of that Act (42 U.S.C. 
        1395 et seq.) are each amended by striking ``rural primary 
        care'' each place it appears and inserting ``critical access''.
            (2) Definitions.--Section 1861(mm) of the Social Security 
        Act (42 U.S.C. 1395x(mm)) is amended to read as follows:

     ``critical access hospital; critical access hospital services

    ``(mm)(1) The term `critical access hospital' means a facility 
certified by the Secretary as a critical access hospital under section 
1820(e).
    ``(2) The term `inpatient critical access hospital services' means 
items and services, furnished to an inpatient of a critical access 
hospital by such facility, that would be inpatient hospital services if 
furnished to an inpatient of a hospital by a hospital.
    ``(3) The term `outpatient critical access hospital services' means 
medical and other health services furnished by a critical access 
hospital on an outpatient basis.''.
            (3) Part a payment.--Section 1814 of the Social Security 
        Act (42 U.S.C. 1395f) is amended--
                    (A) in subsection (a)(8), by striking ``72'' and 
                inserting ``96''; and
                    (B) by amending subsection (l) to read as follows:

       ``Payment for Inpatient Critical Access Hospital Services

    ``(l) The amount of payment under this part for inpatient critical 
access hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
            (4) Payment continued to designated eachs.--Section 
        1886(d)(5)(D) of the Social Security Act (42 U.S.C. 
        1395ww(d)(5)(D)) is amended--
                    (A) in clause (iii)(III), by inserting ``as in 
                effect on September 30, 1997'' before the period at the 
                end; and
                    (B) in clause (v)--
                            (i) by inserting ``as in effect on 
                        September 30, 1997'' after ``1820(i)(1)''; and
                            (ii) by striking ``1820(g)'' and inserting 
                        ``1820(d)''.
            (5) Part b payment.--Section 1834(g) of the Social Security 
        Act (42 U.S.C. 1395m(g)) is amended to read as follows:
    ``(g) Payment for Outpatient Critical Access Hospital Services.--
The amount of payment under this part for outpatient critical access 
hospital services is the reasonable costs of the critical access 
hospital in providing such services.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after October 1, 1997.

SEC. 5154. PROHIBITING DENIAL OF REQUEST BY RURAL REFERRAL CENTERS FOR 
              RECLASSIFICATION ON BASIS OF COMPARABILITY OF WAGES.

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

SEC. 5155. RURAL HEALTH CLINIC SERVICES.

    (a) Per-Visit Payment Limits for Provider-Based Clinics.--
            (1) Extension of limit.--
                    (A) In general.--The matter in section 1833(f) (42 
                U.S.C. 1395l(f)) preceding paragraph (1) is amended by 
                striking ``independent rural health clinics'' and 
                inserting ``rural health clinics (other than such 
                clinics in rural hospitals with less than 50 beds)''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) applies to services furnished after 
                1997.
            (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
        1395l(f)(1)) is amended by inserting ``per visit'' after 
        ``$46''.
    (b) Assurance of Quality Services.--
            (1) In general.--Subparagraph (I) of the first sentence of 
        section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to read 
        as follows:
                    ``(I) has a quality assessment and performance 
                improvement program, and appropriate procedures for 
                review of utilization of clinic services, as the 
                Secretary may specify,''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on January 1, 1998.
    (c) Waiver of Certain Staffing Requirements Limited to Clinics in 
Program.--
            (1) In general.--Section 1861(aa)(7)(B)) (42 U.S.C. 
        1395x(aa)(7)(B)) is amended by inserting before the period ``, 
        or if the facility has not yet been determined to meet the 
        requirements (including subparagraph (J) of the first sentence 
        of paragraph (2)) of a rural health clinic.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        applies to waiver requests made after 1997.
    (d) Refinement of Shortage Area Requirements.--
            (1) Designation reviewed triennially.--Section 1861(aa)(2) 
        (42 U.S.C. 1395x(aa)(2)) is amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking ``and that is designated'' and 
                inserting ``and that, within the previous 3-year 
                period, has been designated''; and
                    (B) by striking ``or that is designated'' and 
                inserting ``or designated''.
            (2) Area must have shortage of health care practitioners.--
        Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
        paragraph (1), is further amended in the second sentence, in 
        the matter in clause (i) preceding subclause (I)--
                    (A) by striking the comma after ``personal health 
                services''; and
                    (B) by inserting ``and in which there are 
                insufficient numbers of needed health care 
                practitioners (as determined by the Secretary),'' after 
                ``Bureau of the Census)''.
            (3) Previously qualifying clinics grandfathered only to 
        prevent shortage.--
                    (A) In General.--Section 1861(aa)(2) (42 U.S.C. 
                1395x(aa)(2)) is amended in the third sentence by 
                inserting before the period ``if it is determined, in 
                accordance with criteria established by the Secretary 
                in regulations, to be essential to the delivery of 
                primary care services that would otherwise be 
                unavailable in the geographic area served by the 
                clinic''.
                    (B) Payment for certain physician assistant 
                services.--
                            (i) In general.--With respect to any 
                        regulations issued to implement section 
                        1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) (as 
                        amended by subparagraph (A)), the Secretary of 
                        Health and Human Services shall include in such 
                        regulations provisions providing for the direct 
                        payment to the physician assistant for any 
                        physician assistant services as described in 
                        clause (ii).
                            (ii) Services described.--Services 
                        described in this clause are physician 
                        assistant services provided at a rural health 
                        clinic that is principally owned, as determined 
                        by the Secretary, by a physician assistant--
                                    (I) as of the date of enactment of 
                                this Act; and
                                    (II) continuously from such date 
                                through the date on which such services 
                                are provided.
                            (iii) Sunset.--The provisions of this 
                        subparagraph shall not apply after January 1, 
                        2003.
            (4) Effective dates; implementing regulations.--
                    (A) In general.--Except as otherwise provided, the 
                amendments made by the preceding paragraphs take effect 
                on January 1 of the first calendar year beginning at 
                least 1 month after enactment of this Act.
                    (B) Current rural health clinics.--The amendments 
                made by the preceding paragraphs take effect, with 
                respect to entities that are rural health clinics under 
                title XVIII of the Social Security Act (42 U.S.C. 1395 
                et seq.) on the date of enactment of this Act, on 
                January 1 of the second calendar year following the 
                calendar year specified in subparagraph (A).
                    (C) Grandfathered clinics.--
                            (i) In general.--The amendment made by 
                        paragraph (3) shall take effect on the 
                        effective date of regulations issued by the 
                        Secretary under clause (ii).
                            (ii) Regulations.--The Secretary shall 
                        issue final regulations implementing paragraph 
(3) that shall take effect no later than January 1 of the third 
calendar year beginning at least 1 month after the date of enactment of 
this Act.

SEC. 5156. MEDICARE REIMBURSEMENT FOR TELEHEALTH SERVICES.

    (a) In General.--Not later than July 1, 1998, the Secretary of 
Health and Human Services (in this section referred to as the 
``Secretary'') shall make payments from the Federal Supplementary 
Medical Insurance Trust Fund under part B of title XVIII of the Social 
Security Act (42 U.S.C. 1395j et seq.) in accordance with the 
methodology described in subsection (b) for professional consultation 
via telecommunications systems with a health care provider furnishing a 
service for which payment may be made under such part to a beneficiary 
under the medicare program residing in a rural area (as defined in 
section 1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D))) that is 
designated as a health professional shortage area under section 
332(a)(1)(A) of the Public Health Service Act (42 U.S.C. 
254e(a)(1)(A)), notwithstanding that the individual health care 
provider providing the professional consultation is not at the same 
location as the health care provider furnishing the service to that 
beneficiary.
    (b) Methodology for Determining Amount of Payments.--Taking into 
account the findings of the report required under section 192 of the 
Health Insurance Portability and Accountability Act of 1996 (Public Law 
104-191; 110 Stat. 1988), the findings of the report required under 
paragraph (c), and any other findings related to the clinical efficacy 
and cost-effectiveness of telehealth applications, the Secretary shall 
establish a methodology for determining the amount of payments made 
under subsection (a) within the following parameters:
            (1) The payment shall include a bundled payment to be 
        shared between the referring health care provider and the 
        consulting health care provider. The amount of such bundled 
        payment shall not be greater than the current fee schedule of 
        the consulting health care provider for the health care 
        services provided.
            (2) The payment shall not include any reimbursement for any 
        line charges or any facility fees.
    (c) Supplemental Report.--Not later than January 1, 1998, the 
Secretary shall submit a report to Congress which shall contain a 
detailed analysis of--
            (1) how telemedicine and telehealth systems are expanding 
        access to health care services;
            (2) the clinical efficacy and cost-effectiveness of 
        telemedicine and telehealth applications;
            (3) the quality of telemedicine and telehealth services 
        delivered; and
            (4) the reasonable cost of telecommunications charges 
        incurred in practicing telemedicine and telehealth in rural, 
        frontier, and underserved areas.
    (d) Expansion of Telehealth Services for Certain Medicare 
Beneficiaries.--
            (1) In general.--Not later than January 1, 1999, the 
        Secretary shall submit a report to Congress that examines the 
        possibility of making payments from the Federal Supplementary 
        Medical Insurance Trust Fund under part B of title XVIII of the 
        Social Security Act (42 U.S.C. 1395j et seq.) for professional 
        consultation via telecommunications systems with a health care 
        provider furnishing a service for which payment may be made 
        under such part to a beneficiary described in paragraph (2), 
        notwithstanding that the individual health care provider 
        providing the professional consultation is not at the same 
        location as the health care provider furnishing the service to 
        that beneficiary.
            (2) Beneficiary described.--A beneficiary described in this 
        paragraph is a beneficiary under the medicare program under 
title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) who 
does not reside in a rural area (as so defined) that is designated as a 
health professional shortage area under section 332(a)(1)(A) of the 
Public Health Service Act (42 U.S.C. 254e(a)(1)(A)), who is homebound 
or nursing homebound, and for whom being transferred for health care 
services imposes a serious hardship.
            (3) Report.--The report described in paragraph (1) shall 
        contain a detailed statement of the potential costs to the 
        medicare program of making the payments described in that 
        paragraph using various reimbursement schemes.

SEC. 5157. TELEMEDICINE, INFORMATICS, AND EDUCATION DEMONSTRATION 
              PROJECT.

    (a) Purpose and Authorization.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this section, the Secretary of Health and Human 
        Services (in this section referred to as the ``Secretary'') 
        shall conduct a demonstration project described in paragraph 
        (2).
            (2) Description of project.--The demonstration project 
        described in this paragraph is a single demonstration project 
        to study the use of eligible health care provider telemedicine 
        networks to implement high-capacity computing and advanced 
        networks to improve primary care (and prevent health care 
        complications), improve access to specialty care, and provide 
        educational and training support to rural practitioners.
            (3) Waiver authority.--The Secretary shall waive compliance 
        with the requirements of titles XI, XVIII, and XIX of the 
        Social Security Act (42 U.S.C. 1301 et seq., 1395 et seq., 1396 
        et seq.) to such extent and for such period as the Secretary 
        determines is necessary to conduct the demonstration project.
            (4) Duration of project.--The project shall be conducted 
        for a 5-year period.
    (b) Objectives of Project.--The objectives of the demonstration 
project conducted under this section shall include the following:
            (1) The improvement of patient access to primary and 
        specialty care and the reduction of inappropriate hospital 
        visits in order to improve patient quality-of-life and reduce 
        overall health care costs.
            (2) The development of a curriculum to train and 
        development of standards for required credentials and licensure 
        of health professionals (particularly primary care health 
        professionals) in the use of medical informatics and 
        telecommunications.
            (3) The demonstration of the application of advanced 
        technologies such as video-conferencing from a patient's home 
        and remote monitoring of a patient's medical condition.
            (4) The development of standards in the application of 
        telemedicine and medical informatics.
            (5) The development of a model for cost-effective delivery 
        of primary and related care in both a managed care environment 
        and in a fee-for-service environment.
    (c) Eligible Health Care Provider Telemedicine Network Defined.--In 
this section, the term ``eligible health care provider telemedicine 
network'' means a consortium that--
            (1) includes--
                    (A) at least 1 tertiary care hospital with an 
                existing telemedicine network with an existing 
                relationship with a medical school; and
                    (B) not more than 6 facilities, including at least 
                3 rural referral centers, in rural areas; and
            (2) meets the following requirements:
                    (A) The consortium is located in a region that is 
                predominantly rural.
                    (B) The consortium submits to the Secretary an 
                application at such time, in such manner, and 
                containing such information as the Secretary may 
                require, including a description of the use the 
                consortium would make of any amounts received under the 
                demonstration project and the source and amount of non-
                Federal funds used in the project.
                    (C) The consortium guarantees that it will be 
                responsible for payment for all costs of the project 
                that are not paid under this section and that the 
                maximum amount of payment that may be made to the 
                consortium under this section shall not exceed the 
                amount specified in subsection (d)(3).
    (d) Coverage as Medicare Part B Services.--
            (1) In general.--Subject to the succeeding provisions of 
        this section, services for medicare beneficiaries furnished 
        under the demonstration project shall be considered to be 
        services covered under part B of title XVIII of the Social 
        Security Act (42 U.S.C. 1395j).
            (2) Payments.--
                    (A) In general.--Subject to paragraph (3), payment 
                for services provided under this section shall be made 
                at a rate of 50 percent of the costs that are 
                reasonable and related to the provision of such 
                services. In computing such costs, the Secretary shall 
                include costs described in subparagraph (B), but may 
                not include costs described in subparagraph (C).
                    (B) Costs that may be included.--The costs 
                described in this subparagraph are the permissible 
                costs (as recognized by the Secretary) for the 
                following:
                            (i) The acquisition of telemedicine 
                        equipment for use in patients' homes (but only 
                        in the case of patients located in medically 
                        underserved areas).
                            (ii) Curriculum development and training of 
                        health professionals in medical informatics and 
                        telemedicine.
                            (iii) Payment of telecommunications costs 
                        including salaries, maintenance of equipment, 
                        and costs of telecommunications between 
                        patients' homes and the eligible network and 
                        between the network and other entities under 
                        the arrangements described in subsection (c).
                            (iv) Payments to practitioners and 
                        providers under the medicare programs.
                    (C) Other costs.--The costs described in this 
                subparagraph include the following:
                            (i) The purchase or installation of 
                        transmission equipment (other than such 
                        equipment used by health professionals to 
                        deliver medical informatics services under the 
                        project).
                            (ii) The establishment or operation of a 
                        telecommunications common carrier network.
                            (iii) Construction that is limited to minor 
                        renovations related to the installation of 
                        equipment.
            (3) Limitation and funds.--The Secretary shall make the 
        payments under the demonstration project conducted under this 
        section from the Federal Supplementary Medical Insurance Trust 
        Fund, established under section 1841 of the Social Security Act 
        (42 U.S.C. 1395t), except that the total amount of the payments 
        that may be made by the Secretary under this section shall not 
        exceed $27,000,000.

    Subtitle D--Anti-Fraud and Abuse Provisions and Improvements in 
                      Protecting Program Integrity

         CHAPTER 1--REVISIONS TO SANCTIONS FOR FRAUD AND ABUSE

SEC. 5201. AUTHORITY TO REFUSE TO ENTER INTO MEDICARE AGREEMENTS WITH 
              INDIVIDUALS OR ENTITIES CONVICTED OF FELONIES.

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

SEC. 5202. EXCLUSION OF ENTITY CONTROLLED BY FAMILY MEMBER OF A 
              SANCTIONED INDIVIDUAL.

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

SEC. 5203. IMPOSITION OF CIVIL MONEY PENALTIES.

    (a) Civil Money Penalties for Persons That Contract With Excluded 
Individuals.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is amended--
            (1) in paragraph (4), by striking ``or'' at the end;
            (2) in paragraph (5), by adding ``or'' at the end; and
            (3) by inserting after paragraph (5) the following:
            ``(6) arranges or contracts (by employment or otherwise) 
        with an individual or entity that the person knows or should 
        know is excluded from participation in a Federal health care 
        program (as defined in section 1128B(f)), for the provision of 
        items or services for which payment may be made under such a 
        program;''.
    (b) Civil Money Penalties for Services Ordered or Prescribed by an 
Excluded Individual or Entity.--Section 1128A(a)(1) (42 U.S.C. 1320a-
7a(a)(1)) is amended--
            (1) in subparagraph (D)--
                    (A) by inserting ``, ordered, or prescribed by such 
                person'' after ``other item or service furnished'';
                    (B) by inserting ``(pursuant to this title or title 
                XVIII)'' after ``period in which the person was 
                excluded'';
                    (C) by striking ``pursuant to a determination by 
                the Secretary'' and all that follows through ``the 
                provisions of section 1842(j)(2)''; and
                    (D) by striking ``or'' at the end;
            (2) by redesignating subparagraph (E) as subparagraph (F); 
        and
            (3) by inserting after subparagraph (D) the following:
                    ``(E) is for a medical or other item or service 
                ordered or prescribed by a person excluded pursuant to 
                this title or title XVIII from the program under which 
                the claim was made, and the person furnishing such item 
                or service knows or should know of such exclusion, 
                or''.
    (c) Civil Money Penalties for Kickbacks.--
            (1) Permitting secretary to impose civil money penalty.--
        Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by 
        subsection (a), is amended--
                    (A) in paragraph (5), by striking ``or'' at the 
                end;
                    (B) in paragraph (6), by adding ``or'' at the end; 
                and
                    (C) by adding after paragraph (6) the following:
            ``(7) commits an act described in paragraph (1) or (2) of 
        section 1128B(b);''.
            (2) Description of civil money penalty applicable.--Section 
        1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by paragraph (1), 
        is amended in the matter following paragraph (7)--
                    (A) by striking ``occurs).'' and inserting 
                ``occurs; or in cases under paragraph (7), $50,000 for 
                each such act).''; and
                    (B) by inserting after ``of such claim'' the 
                following: ``(or, in cases under paragraph (7), damages 
                of not more than 3 times the total amount of 
                remuneration offered, paid, solicited, or received, 
                without regard to whether a portion of such 
remuneration was offered, paid, solicited, or received for a lawful 
purpose)''.
    (d) Effective Dates.--
            (1) Contracts with excluded persons.--The amendments made 
        by subsection (a) shall apply to arrangements and contracts 
        entered into after the date of the enactment of this Act.
            (2) Services ordered or prescribed.--The amendments made by 
        subsection (b) shall apply to items and services furnished, 
        ordered, or prescribed after the date of the enactment of this 
        Act.
            (3) Kickbacks.--The amendments made by subsection (c) shall 
        apply to acts taken after the date of the enactment of this 
        Act.

        CHAPTER 2--IMPROVEMENTS IN PROTECTING PROGRAM INTEGRITY

SEC. 5211. DISCLOSURE OF INFORMATION, SURETY BONDS, AND ACCREDITATION.

    (a) Disclosure of Information, Surety Bond, and Accreditation 
Requirement for Suppliers of Durable Medical Equipment.--Section 
1834(a) (42 U.S.C. 1395m(a)) is amended by inserting after paragraph 
(15) the following:
            ``(16) Disclosure of information, surety bond, and 
        accreditation.--The Secretary shall not provide for the 
        issuance (or renewal) of a provider number for a supplier of 
        durable medical equipment, for purposes of payment under this 
        part for durable medical equipment furnished by the supplier, 
        unless the supplier provides the Secretary on a continuing 
        basis--
                    ``(A) with--
                            ``(i) full and complete information as to 
                        the identity of each person with an ownership 
                        or control interest (as defined in section 
                        1124(a)(3)) in the supplier or in any 
                        subcontractor (as defined by the Secretary in 
                        regulations) in which the supplier directly or 
                        indirectly has a 5 percent or more ownership 
                        interest; and
                            ``(ii) to the extent determined to be 
                        feasible under regulations of the Secretary, 
                        the name of any disclosing entity (as defined 
                        in section 1124(a)(2)) with respect to which a 
                        person with such an ownership or control 
                        interest in the supplier is a person with such 
                        an ownership or control interest in the 
                        disclosing entity;
                    ``(B) with a surety bond in a form specified by the 
                Secretary and in an amount that is not less than 
                $50,000; and
                    ``(C) at the discretion of the Secretary, with 
                evidence of compliance with the applicable conditions 
                or requirements of this title through an accreditation 
                survey conducted by a national accreditation body under 
                section 1865(b).
The Secretary may waive the requirement of a bond under subparagraph 
(B) in the case of a supplier that provides a comparable surety bond 
under State law.''.
    (b) Surety Bond Requirement for Home Health Agencies.--
            (1) In general.--Section 1861(o) (42 U.S.C. 1395x(o)) is 
        amended--
                    (A) in paragraph (7), by inserting ``and including 
                providing the Secretary on a continuing basis with a 
                surety bond in a form specified by the Secretary and in 
                an amount that is not less than $50,000'' after 
                ``financial security of the program''; and
                    (B) by adding at the end the following: ``The 
                Secretary may waive the requirement of a surety bond 
                under paragraph (7) in the case of an agency or 
                organization that provides a comparable surety bond 
                under State law.''
            (2) Conforming amendments.--Section 1861(v)(1)(H) (42 
        U.S.C. 1395x(v)(1)(H)) is amended--
                    (A) in clause (i), by striking ``the financial 
                security requirement'' and inserting ``the financial 
                security and surety bond requirements''; and
                    (B) in clause (ii), by striking ``the financial 
                security requirement described in subsection (o)(7) 
                applies'' and inserting ``the financial security and 
                surety bond requirements described in subsection (o)(7) 
                apply''.
            (3) Reference to current disclosure requirement.--For 
        additional provisions requiring home health agencies to 
        disclose information on ownership and control interests, see 
        section 1124 of the Social Security Act (42 U.S.C. 1320a-3).
    (c) Authorizing Application of Disclosure and Surety Bond 
Requirements to Ambulance Services and Certain Clinics.--Section 
1834(a)(16) (42 U.S.C. 1395m(a)(16)), as added by subsection (a), is 
amended by adding at the end the following flush sentence:
        The Secretary, in the Secretary's discretion, may impose the 
        requirements of the previous sentence with respect to some or 
        all classes of suppliers of ambulance services described in 
        section 1861(s)(7) and clinics that furnish medical and other 
        health services (other than physicians' services) under this 
        part.''.
    (d) Application to Comprehensive Outpatient Rehabilitation 
Facilities (CORFs).--Section 1861(cc)(2) (42 U.S.C. 1395x(cc)(2)) is 
amended--
            (1) in subparagraph (I), by inserting before the period at 
        the end the following: ``and providing the Secretary on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000''; and
            (2) by adding at the end the following flush sentence:
``The Secretary may waive the requirement of a bond under subparagraph 
(I) in the case of a facility that provides a comparable surety bond 
under State law.''.
    (e) Application to Rehabilitation Agencies.--Section 1861(p) (42 
U.S.C. 1395x(p)) is amended--
            (1) in paragraph (4)(A)(v), by inserting after ``as the 
        Secretary may find necessary,'' the following: ``and provides 
        the Secretary, to the extent required by the Secretary, on a 
        continuing basis with a surety bond in a form specified by the 
        Secretary and in an amount that is not less than $50,000,'', 
        and
            (2) by adding at the end the following: ``The Secretary may 
        waive the requirement of a bond under paragraph (4)(A)(v) in 
        the case of a clinic or agency that provides a comparable 
        surety bond under State law.''.
    (f) Effective Dates.--
            (1) Suppliers of durable medical equipment.--The amendment 
        made by subsection (a) shall apply to suppliers of durable 
        medical equipment with respect to such equipment furnished on 
        or after January 1, 1998.
            (2) Home health agencies.--The amendments made by 
        subsection (b) shall apply to home health agencies with respect 
        to services furnished on or after January 1, 1998. The 
        Secretary of Health and Human Services shall modify 
        participation agreements under section 1866(a)(1) of the Social 
        Security Act (42 U.S.C. 1395cc(a)(1)) with respect to home 
        health agencies to provide for implementation of such 
        amendments on a timely basis.
            (3) Other amendments.--The amendments made by subsections 
        (c) through (e) shall take effect on the date of the enactment 
        of this Act and may be applied with respect to items and 
        services furnished on or after the date specified in paragraph 
        (1).

SEC. 5212. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

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

SEC. 5213. APPLICATION OF CERTAIN PROVISIONS OF THE BANKRUPTCY CODE.

    (a) Restricted Applicability of Bankruptcy Stay, Discharge, and 
Preferential Transfer Provisions to Medicare and Medicaid Debts.--Part 
A of title XI (42 U.S.C. 1301 et seq.) is amended by inserting after 
section 1143 the following:

       ``application of certain provisions of the bankruptcy code

    ``Sec. 1144. (a) Medicare and Medicaid-Related Actions Not Stayed 
by Bankruptcy Proceedings.--The commencement or continuation of any 
action against a debtor under this title or title XVIII or XIX (other 
than an action with respect to health care services for the debtor 
under title XVIII), including any action or proceeding to exclude or 
suspend the debtor from program participation, assess civil money 
penalties, recoup or set off overpayments, or deny or suspend payment 
of claims shall not be subject to the provisions of section 362(a) of 
title 11, United States Code.
    ``(b) Certain Medicare- and Medicaid-Related Debt Not Dischargeable 
in Bankruptcy.--A debt owed to the United States or to a State for an 
overpayment under title XVIII or XIX (other than an overpayment for 
health care services for the debtor under title XVIII) resulting from 
the fraudulent actions of the debtor, or for a penalty, fine, or 
assessment under this title or title XVIII or XIX, shall not be 
dischargeable under any provision of title 11, United States Code.
    ``(c) Repayment of Certain Debts Considered Final.--Payments made 
to repay a debt to the United States or to a State with respect to 
items or services provided, or claims for payment made, under title 
XVIII or XIX (including repayment of an overpayment (other than an 
overpayment for health care services for the debtor under title XVIII) 
resulting from the fraudulent actions of the debtor), or to pay a 
penalty, fine, or assessment under this title or title XVIII or XIX, 
shall be considered final and not preferential transfers under section 
547 of title 11, United States Code.''.
    (b) Medicare Rules Applicable to Bankruptcy Proceedings.--Title 
XVIII (42 U.S.C. 1395 et seq.) is amended by adding at the end the 
following:

           ``application of provisions of the bankruptcy code

    ``Sec. 1894. (a) Use of Medicare Standards and Procedures.--
Notwithstanding any provision of title 11, United States Code, or any 
other provision of law, in the case of claims by a debtor in bankruptcy 
for payment under this title, the determination of whether the claim is 
allowable and of the amount payable, shall be made in accordance with 
the provisions of this title and title XI and implementing regulations.
    ``(b) Notice to Creditor of Bankruptcy Petitioner.--In the case of 
a debt owed to the United States with respect to items or services 
provided, or claims for payment made, under this title (including a 
debt arising from an overpayment or a penalty, fine, or assessment 
under title XI or this title), the notices to the creditor of 
bankruptcy petitions, proceedings, and relief required under title 11, 
United States Code (including under section 342 of that title and 
section 2002(j) of the Federal Rules of Bankruptcy Procedure), shall be 
given to the Secretary. Provision of such notice to a fiscal agent of 
the Secretary shall not be considered to satisfy this requirement.
    ``(c) Turnover of Property to the Bankruptcy Estate.--For purposes 
of section 542(b) of title 11, United States Code, a claim for payment 
under this title shall not be considered to be a matured debt payable 
to the estate of a debtor until such claim has been allowed by the 
Secretary in accordance with procedures under this title.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to bankruptcy petitions filed after the date of the enactment of 
this Act.

SEC. 5214. REPLACEMENT OF REASONABLE CHARGE METHODOLOGY BY FEE 
              SCHEDULES.

    (a) In General.--Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is 
amended in the matter preceding subparagraph (A) by striking ``the 
reasonable charges for the services'' and inserting ``the lesser of the 
actual charges for the services and the amounts determined by the 
applicable fee schedules developed by the Secretary for the particular 
services''.
    (b) Conforming Amendments.--
            (1) Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended--
                    (A) in subparagraph (A), by striking ``reasonable 
                charges for'' and inserting ``payment bases otherwise 
                applicable to'';
                    (B) in subparagraph (B), by striking ``reasonable 
                charges'' and inserting ``fee schedule amounts''; and
                    (C) by inserting after subparagraph (F) the 
                following: ``(G) with respect to services described in 
                clause (i) or (ii) of section 1861(s)(2)(K) (relating 
                to physician assistants and nurse practitioners), the 
                amounts paid shall be 80 percent of the lesser of the 
                actual charge for the services and the applicable 
                amount determined under subclause (I) or (II) of 
                section 1842(b)(12)(A)(ii),''.
            (2) Section 1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended--
                    (A) in subparagraph (B), in the matter preceding 
                clause (i), by striking ``(C), (D),'' and inserting 
                ``(D)''; and
                    (B) by striking subparagraph (C).
            (3) Section 1833(l) (42 U.S.C. 1395l(l)) is amended--
                    (A) in paragraph (3)--
                            (i) by striking subparagraph (B); and
                            (ii) by striking ``(3)(A)'' and inserting 
                        ``(3)''; and
                    (B) by striking paragraph (6).
            (4) Section 1834(a)(10)(B) (42 U.S.C. 1395m(a)(10)(B)) is 
        amended by striking ``paragraphs (8) and (9)'' and all that 
        follows through ``section 1848(i)(3).'' and inserting ``section 
        1842(b)(8) to covered items and suppliers of such items and 
        payments under this subsection as such provisions would 
        otherwise apply to physicians' services and physicians.''.
            (5) Section 1834(g)(1)(A)(ii) (42 U.S.C. 
        1395m(g)(1)(A)(ii)) is amended in the heading by striking 
        ``Reasonable charges for professional'' and inserting 
        ``Professional''.
            (6) Section 1842(a) (42 U.S.C. 1395u(a)) is amended--
                    (A) in the matter preceding paragraph (1), by 
                striking ``reasonable charge'' and inserting ``fee 
                schedule''; and
                    (B) in paragraph (1)(A), by striking ``reasonable 
                charge'' and inserting ``other''.
            (7) Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended--
                    (A) in subparagraph (B)--
                            (i) in the matter preceding clause (i), by 
                        striking ``where payment'' and all that follows 
                        through ``made--'' and inserting ``where 
                        payment under this part for a service is on a 
                        basis other than a cost basis, such payment 
                        will (except as otherwise provided in section 
                        1870(f)) be made--''; and
                            (ii) by striking clause (ii)(I) and 
                        inserting the following: ``(I) the amount 
                        determined by the applicable payment basis 
                        under this part is the full charge for the 
                        service,''; and
                    (B) by striking the second, third, fourth, fifth, 
                sixth, eighth, and ninth sentences.
            (8) Section 1842(b)(4) (42 U.S.C. 1395u(b)(4)) is amended 
        to read as follows:
    ``(4) In the case of an enteral or parenteral pump that is 
furnished on a rental basis during a period of medical need--
            ``(A) monthly rental payments shall not be made under this 
        part for more than 15 months during that period, and
            ``(B) after monthly rental payments have been made for 15 
        months during that period, payment under this part shall be 
made for maintenance and servicing of the pump in amounts that the 
Secretary determines to be reasonable and necessary to ensure the 
proper operation of the pump.''.
            (9) Section 6112(b) (42 U.S.C. 1395m note; Public Law 101-
        239) of OBRA--1989 is repealed.
            (10) Section 1842(b)(7) (42 U.S.C. 1395u(b)(7)) is 
        amended--
                    (A) in subparagraph (D)(i), in the matter preceding 
                subclause (I), by striking ``, to the extent that such 
                payment is otherwise allowed under this paragraph,'';
                    (B) in subparagraph (D)(ii), by striking 
                ``subparagraph'' and inserting ``paragraph'';
                    (C) by striking ``(7)(A) In the case of'' and all 
                that follows through subparagraph (C);
                    (D) by striking ``(D)(i)'' and inserting 
                ``(7)(A)'';
                    (E) by redesignating clauses (ii) and (iii) as 
                subparagraphs (B) and (C), respectively; and
                    (F) by redesignating subclauses (I), (II), and 
                (III) of subparagraph (A) (as redesignated by 
                subparagraph (D) of this paragraph) as clauses (i), 
                (ii), and (iii), respectively.
            (11) Section 1842(b)(9) (42 U.S.C. 1395u(b)(9)) is 
        repealed.
            (12) Section 1842(b)(10) (42 U.S.C. 1395u(b)(10)) is 
        repealed.
            (13) Section 1842(b)(11) (42 U.S.C. 1395u(b)(11)) is 
        amended--
                    (A) by striking subparagraphs (B) through (D);
                    (B) by striking ``(11)(A)'' and inserting ``(11)''; 
                and
                    (C) by redesignating clauses (i) and (ii) as 
                subparagraphs (A) and (B), respectively.
            (14) Section 1842(b)(12)(A)(ii) (42 U.S.C. 
        1395u(b)(12)(A)(ii)) is amended--
                    (A) in the matter preceding subclause (I), by 
                striking ``prevailing charges determined under 
                paragraph (3)'' and inserting ``the amounts determined 
                under section 1833(a)(1)(G)''; and
                    (B) in subclause (II), by striking ``prevailing 
                charge rate'' and all that follows up to the period and 
                inserting ``fee schedule amount specified in section 
                1848 for such services performed by physicians''.
            (15) Paragraphs (14) through (17) of section 1842(b) (42 
        U.S.C. 1395u(b)) are repealed.
            (16) Section 1842(b) (42 U.S.C. 1395u(b)) is amended--
                    (A) in paragraph (18)(A), by striking ``reasonable 
                charge or''; and
                    (B) by redesignating paragraph (18) as paragraph 
                (14).
            (17) Section 1842(j)(1) (42 U.S.C. 1395u(j)) is amended to 
        read as follows:
    ``(j)(1) See subsections (k), (l), (m), (n), and (p) as to the 
cases in which sanctions may be applied under paragraph (2).''.
            (18) Section 1842(j)(4) (42 U.S.C. 1395u(j)(4)) is amended 
        by striking ``under paragraph (1)''.
            (19) Section 1842(n)(1)(A) (42 U.S.C. 1395u(n)(1)(A)) is 
        amended by striking ``reasonable charge (or other applicable 
        limit)'' and inserting ``other applicable limit''.
            (20) Section 1842(q) (42 U.S.C. 1395u(q)) is amended--
                    (A) by striking paragraph (1)(B); and
                    (B) by striking ``(q)(1)(A)'' and inserting 
                ``(q)(1)''.
            (21) Section 1845(b)(1) (42 U.S.C. 1395w-1(b)(1)) is 
        amended by striking ``adjustments to the reasonable charge 
        levels for physicians' services recognized under section 
        1842(b) and''.
            (22) Section 1848(i)(3) (42 U.S.C. 1395w-4(i)(3)) is 
        repealed.
            (23) Section 1866(a)(2)(A)(ii) (42 U.S.C. 
        1395cc(a)(2)(A)(ii)) is amended by striking ``reasonable 
        charges'' and all that follows through ``provider)'' and 
        inserting ``amount customarily charged for the items and 
        services by the provider''.
            (24) Section 1881(b)(3)(A) (42 U.S.C. 1395rr(b)(3)(A)) is 
        amended by striking ``a reasonable charge'' and all that 
        follows through ``section 1848)'' and inserting ``the basis 
        described in section 1848''.
            (25) Section 9340 of OBRA--1986 (42 U.S.C. 1395u note; 
        Public Law 99-509) is repealed.
    (c) Effective Dates.--The amendments made by this section to the 
extent such amendments substitute fee schedules for reasonable charges, 
shall apply to particular services as of the date specified by the 
Secretary of Health and Human Services.
    (d) Initial Budget Neutrality.--The Secretary, in developing a fee 
schedule for particular services (under the amendments made by this 
section), shall set amounts for the first year period to which the fee 
schedule applies at a level so that the total payments under title 
XVIII of the Social Security Act (42 U.S.C. 1395 et seq.) for those 
services for that year period shall be approximately equal to the 
estimated total payments if those amendments had not been made.

SEC. 5215. APPLICATION OF INHERENT REASONABLENESS TO ALL PART B 
              SERVICES OTHER THAN PHYSICIANS' SERVICES.

    (a) In General.--Section 1842(b)(8) (42 U.S.C. 1395u(b)(8)) is 
amended to read as follows:
    ``(8) The Secretary shall describe by regulation the factors to be 
used in determining the cases (of particular items or services) in 
which the application of this part (other than to physicians' services 
paid under section 1848) results in the determination of an amount 
that, because of its being grossly excessive or grossly deficient, is 
not inherently reasonable, and provide in those cases for the factors 
to be considered in establishing an amount that is realistic and 
equitable.''.
    (b) Conforming Amendment.--Section 1834(a)(10) (42 U.S.C. 
1395m(a)(10)(B)) is amended--
            (1) by striking subparagraph (B); and
            (2) by redesignating subparagraph (C) as subparagraph (B).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 5216. REQUIREMENT TO FURNISH DIAGNOSTIC INFORMATION.

    (a) Inclusion of Non-Physician Practitioners in Requirement To 
Provide Diagnostic Codes for Physician Services.--Paragraphs (1) and 
(2) of section 1842(p) (42 U.S.C. 1395u(p)) are each amended by 
inserting ``or practitioner specified in subsection (b)(18)(C)'' after 
``by a physician''.
    (b) Requirement To Provide Diagnostic Information When Ordering 
Certain Items or Services Furnished by Another Entity.--Section 1842(p) 
(42 U.S.C. 1395u(p)), is amended by adding at the end the following:
    ``(4) In the case of an item or service defined in paragraph (3), 
(6), (8), or (9) of subsection 1861(s) ordered by a physician or a 
practitioner specified in subsection (b)(18)(C), but furnished by 
another entity, if the Secretary (or fiscal agent of the Secretary) 
requires the entity furnishing the item or service to provide 
diagnostic or other medical information for payment to be made to the 
entity, the physician or practitioner shall provide that information to 
the entity at the time that the item or service is ordered by the 
physician or practitioner.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to items and services furnished on or after January 1, 1998.

SEC. 5217. REPORT BY GAO ON OPERATION OF FRAUD AND ABUSE CONTROL 
              PROGRAM.

    Section 1817(k)(6) (42 U.S.C. 1395i(k)(6)) is amended by inserting 
``June 1, 1998, and'' after ``Not later than''.

SEC. 5218. COMPETITIVE BIDDING.

    (a) General Rule.--Part B of title XVIII (42 U.S.C. 1395j et seq.) 
is amended by inserting after section 1846 the following:

``SEC. 1847. COMPETITIVE ACQUISITION OF ITEMS AND SERVICES.

    ``(a) Establishment of Bidding Areas.--
            ``(1) In general.--The Secretary shall establish 
        competitive acquisition areas for contract award purposes for 
        the furnishing under this part after 1997 of the items and 
        services described in subsection (c). The Secretary may 
        establish different competitive acquisition areas under this 
        subsection for different classes of items and services.
            ``(2) Criteria for establishment.--The competitive 
        acquisition areas established under paragraph (1) shall be 
        chosen based on the availability and accessibility of entities 
        able to furnish items and services, and the probable savings to 
        be realized by the use of competitive bidding in the furnishing 
        of items and services in the area.
    ``(b) Awarding of Contracts in Areas.--
            ``(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying items and 
        services described in subsection (c) for each competitive 
        acquisition area established under subsection (a) for each 
        class of items and services.
            ``(2) Conditions for awarding contract.--The Secretary may 
        not award a contract to any entity under the competition 
        conducted pursuant to paragraph (1) to furnish an item or 
        service unless the Secretary finds that the entity meets 
        quality standards specified by the Secretary, and subject to 
        paragraph (3), that the total amounts to be paid under the 
        contract are expected to be less than the total amounts that 
        would otherwise be paid.
            ``(3) Limit on amount of payment.--The Secretary may not 
        under a contract awarded under this section provide for payment 
for an item or service in an amount in excess of the applicable fee 
schedule under this part for similar or related items or services. The 
preceding sentence shall not apply if the Secretary determines that an 
amount in excess of such amount is warranted by reason of technological 
innovation, quality improvement, or similar reasons, except that the 
total amount paid under the contract shall not exceed the limit under 
paragraph (2).
            ``(4) Contents of contract.--A contract entered into with 
        an entity under the competition conducted pursuant to paragraph 
        (1) is subject to terms and conditions that the Secretary may 
        specify.
            ``(5) Limit on number of contractors.--The Secretary may 
        limit the number of contractors in a competitive acquisition 
        area to the number needed to meet projected demand for items 
        and services covered under the contracts.
    ``(c) Services described.--The items and services to which this 
section applies are all items and services covered under this part 
(except for physician services as defined by 1861(r)) that the 
Secretary may specify.''.
    (b) Items and Services To Be Furnished Only Through Competitive 
Acquisition.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (14),
            (2) by striking the period at the end of paragraph (15) and 
        inserting ``; or'', and
            (3) by inserting after paragraph (15) the following:
            ``(16) where the expenses are for an item or service 
        furnished in a competitive acquisition area (as established by 
        the Secretary under section 1847(a)) by an entity other than an 
        entity with which the Secretary has entered into a contract 
        under section 1847(b) for the furnishing of such an item or 
        service in that area, unless the Secretary finds that the 
        expenses were incurred in a case of urgent need, or in other 
        circumstances specified by the Secretary.''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
apply to items and services furnished after December 31, 1997.

            CHAPTER 3--CLARIFICATIONS AND TECHNICAL CHANGES

SEC. 5221. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

    (a) Reference Correction.--(1) Section 1128D(b)(2)(D) (42 U.S.C. 
1320a-7d(b)(2)(D)), as added by section 205 of the Health Insurance 
Portability and Accountability Act of 1996, is amended by striking 
``1128B(b)'' and inserting ``1128A(b)''.
    (2) Section 1128E(g)(3)(C) (42 U.S.C. 1320a-7e(g)(3)(C)) is amended 
by striking ``Veterans' Administration'' and inserting ``Department of 
Veterans Affairs''.
    (b) Language in Definition of Conviction.--Section 1128E(g)(5) (42 
U.S.C. 1320a-7e(g)(5)), as inserted by section 221(a) of the Health 
Insurance Portability and Accountability Act of 1996, is amended by 
striking ``paragraph (4)'' and inserting ``paragraphs (1) through 
(4)''.
    (c) Implementation of Exclusions.--Section 1128 (42 U.S.C. 1320a-7) 
is amended--
            (1) in subsection (a), by striking ``any program under 
        title XVIII and shall direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program (as defined in subsection (h))'' and inserting 
        ``any Federal health care program (as defined in section 
        1128B(f))''; and
            (2) in subsection (b), by striking ``any program under 
        title XVIII and may direct that the following individuals and 
        entities be excluded from participation in any State health 
        care program'' and inserting ``any Federal health care program 
        (as defined in section 1128B(f))''.
    (d) Sanctions for Failure to Report.--Section 1128E(b) (42 U.S.C. 
1320a-7e(b)), as inserted by section 221(a) of the Health Insurance 
Portability and Accountability Act of 1996, is amended by adding at the 
end the following:
            ``(6) Sanctions for failure to report.--
                    ``(A) Health plans.--Any health plan that fails to 
                report information on an adverse action required to be 
                reported under this subsection shall be subject to a 
                civil money penalty of not more than $25,000 for each 
                such adverse action not reported. Such penalty shall be 
                imposed and collected in the same manner as civil money 
                penalties under subsection (a) of section 1128A are 
                imposed and collected under that section.
                    ``(B) Governmental agencies.--The Secretary shall 
                provide for a publication of a public report that 
                identifies those Government agencies that have failed 
                to report information on adverse actions as required to 
                be reported under this subsection.''.
    (e) Clarification of Treatment of Certain Waivers and Payments of 
Premiums.--
            (1) Section 1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is 
        amended--
                    (A) in subparagraph (A)(iii)--
                            (i) in subclause (I), by adding ``or'' at 
                        the end;
                            (ii) in subclause (II), by striking ``or'' 
                        at the end; and
                            (iii) by striking subclause (III);
                    (B) by redesignating subparagraphs (B) and (C) as 
                subparagraphs (C) and (D); and
                    (C) by inserting after subparagraph (A) the 
                following:
                    ``(B) any permissible waiver as specified in 
                section 1128B(b)(3) or in regulations issued by the 
                Secretary;''.
            (2) Section 1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)), is 
        amended--
                    (A) in subparagraph (C), as redesignated by 
                paragraph (1), by striking ``or'' at the end;
                    (B) in subparagraph (D), as so redesignated, by 
                striking the period at the end and inserting ``; or''; 
                and
                    (C) by adding at the end the following:
                    ``(D) the waiver of deductible and coinsurance 
                amounts pursuant to medicare supplemental policies 
                under section 1882(t).''.
    (f) Effective Dates.--
            (1) In general.--Except as provided in this subsection, the 
        amendments made by this section shall be effective as if 
        included in the enactment of the Health Insurance Portability 
        and Accountability Act of 1996.
            (2) Federal health program.--The amendments made by 
        subsection (c) shall take effect on the date of the enactment 
        of this Act.
            (3) Sanction for failure to report.--The amendment made by 
        subsection (d) shall apply to failures occurring on or after 
        the date of the enactment of this Act.
            (4) Clarification.--The amendments made by subsection 
        (e)(2) shall take effect on the date of the enactment of this 
        Act.

                Subtitle E--Prospective Payment Systems

                CHAPTER 1--PROVISIONS RELATING TO PART A

SEC. 5301. PROSPECTIVE PAYMENT FOR INPATIENT REHABILITATION HOSPITAL 
              SERVICES.

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

SEC. 5302. STUDY AND REPORT ON PAYMENTS FOR LONG-TERM CARE HOSPITALS.

    (a) Study.--The Secretary of Health and Human Services shall--
            (1) collect data to develop, establish, administer and 
        evaluate a case-mix adjusted prospective payment system for 
        hospitals described in section 1886(d)(1)(B)(iv) (42 U.S.C. 
        1395ww(d)(1)(B)(iv)); and
            (2) develop a legislative proposal for establishing and 
        administering such a payment system that includes an adequate 
        patient classification system that reflects the differences in 
        patient resource use and costs among such hospitals.
    (b) Report.--Not later than October 1, 1999, the Secretary of 
Health and Human Services shall submit the proposal described in 
subsection (a)(2) to the appropriate committees of Congress.

                CHAPTER 2--PROVISIONS RELATING TO PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

SEC. 5311. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS (FDO) FOR CERTAIN 
              OUTPATIENT HOSPITAL SERVICES.

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

SEC. 5312. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
              OUTPATIENT SERVICES.

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

SEC. 5313. PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
              DEPARTMENT SERVICES.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following:
    ``(t) Prospective Payment System for Hospital Outpatient Department 
Services.--
            ``(1) In general.--With respect to hospital outpatient 
        services designated by the Secretary (in this section referred 
        to as `covered OPD services') and furnished during a year 
beginning with 1999, the amount of payment under this part shall be 
determined under a prospective payment system established by the 
Secretary in accordance with this subsection.
            ``(2) System requirements.--Under the payment system--
                    ``(A) the Secretary shall develop a classification 
                system for covered OPD services;
                    ``(B) the Secretary may establish groups of covered 
                OPD services, within the classification system 
                described in subparagraph (A), so that services 
                classified within each group are comparable clinically 
                and with respect to the use of resources;
                    ``(C) the Secretary shall, using data on claims 
                from 1997 and using data from the most recent available 
                cost reports, establish relative payment weights for 
                covered OPD services (and any groups of such services 
                described in subparagraph (B)) based on median hospital 
                costs and shall determine projections of the frequency 
                of utilization of each such service (or group of 
                services) in 1999;
                    ``(D) the Secretary shall determine a wage 
                adjustment factor to adjust the portion of payment and 
                coinsurance attributable to labor-related costs for 
                relative differences in labor and labor-related costs 
                across geographic regions in a budget neutral manner;
                    ``(E) the Secretary shall establish other 
                adjustments as determined to be necessary to ensure 
                equitable payments, such as outlier adjustments or 
                adjustments for certain classes of hospitals; and
                    ``(F) the Secretary shall develop a method for 
                controlling unnecessary increases in the volume of 
                covered OPD services.
            ``(3) Calculation of base amounts.--
                    ``(A) Aggregate amounts that would be payable if 
                deductibles were disregarded.--The Secretary shall 
                estimate the total amounts that would be payable from 
                the Trust Fund under this part for covered OPD services 
                in 1999, determined without regard to this subsection, 
                as though the deductible under section 1833(b) did not 
                apply, and as though the coinsurance described in 
                section 1866(a)(2)(A)(ii) (as in effect before the date 
                of the enactment of this subsection) continued to 
                apply.
                    ``(B) Unadjusted copayment amount.--
                            ``(i) In general.--For purposes of this 
                        subsection, subject to clause (ii), the 
                        `unadjusted copayment amount' applicable to a 
                        covered OPD service (or group of such services) 
                        is 20 percent of the national median of the 
                        charges for the service (or services within the 
                        group) furnished during 1997, updated to 1999 
                        using the Secretary's estimate of charge growth 
                        during the period.
                            ``(ii) Adjustments when fully phased in.--
                        If the pre-deductible payment percentage for a 
                        covered OPD service (or group of such services) 
                        furnished in a year would be equal to or exceed 
                        80 percent, then the unadjusted copayment 
                        amount shall be 25 percent of amount determined 
                        under subparagraph (D)(i).
                            ``(iii) Rules for new services.--The 
                        Secretary shall establish rules for 
                        establishment of an unadjusted copayment amount 
                        for a covered OPD service not furnished during 
                        1997, based upon its classification within a 
                        group of such services.
                    ``(C) Calculation of conversion factors.--
                            ``(i) For 1999.--
                                    ``(I) In general.--The Secretary 
                                shall establish a 1999 conversion 
                                factor for determining the medicare 
                                pre-deductible OPD fee payment amounts 
                                for each covered OPD service (or group 
                                of such services) furnished in 1999. 
                                Such conversion factor shall be 
                                established--
                                            ``(aa) on the basis of the 
                                        weights and frequencies 
                                        described in paragraph (2)(C), 
                                        and
                                            ``(bb) in such manner that 
                                        the sum of the products 
                                        determined under subclause (II) 
                                        for each service or group 
                                        equals the total project amount 
                                        described in subparagraph (A).
                                    ``(II) Product.--The Secretary 
                                shall determine for each service 
or group the product of the medicare pre-deductible OPD fee payment 
amount (taking into account appropriate adjustments described in 
paragraphs (2)(D) and (2)(E)) and the frequencies for such service or 
group.
                            ``(ii) Subsequent years.--Subject to 
                        paragraph (8)(B), the Secretary shall establish 
                        a conversion factor for covered OPD services 
                        furnished in subsequent years in an amount 
                        equal to the conversion factor established 
                        under this subparagraph and applicable to such 
                        services furnished in the previous year 
                        increased by the OPD payment increase factor 
                        specified under clause (iii) for the year 
                        involved.
                            ``(iii) OPD payment increase factor.--For 
                        purposes of this subparagraph, the `OPD payment 
                        increase factor' for services furnished in a 
                        year is equal to the sum of--
                                    ``(I) the market basket percentage 
                                increase applicable under section 
                                1886(b)(3)(B)(iii) to hospital 
                                discharges occurring during the fiscal 
                                year ending in such year, plus
                                    ``(II) in the case of a covered OPD 
                                service (or group of such services) 
                                furnished in a year in which the pre-
                                deductible payment percentage would not 
                                exceed 80 percent, 3.5 percentage 
                                points.
                        In applying the previous sentence for years 
                        beginning with 2000, the Secretary may 
                        substitute for the market basket percentage 
                        increase under subclause (I) an annual 
                        percentage increase that is computed and 
                        applied with respect to covered OPD services 
                        furnished in a year in the same manner as the 
                        market basket percentage increase is determined 
                        and applied to inpatient hospital services for 
                        discharges occurring in a fiscal year.
                    ``(D) Pre-deductible payment percentage.--The pre-
                deductible payment percentage for a covered OPD service 
                (or group of such services) furnished in a year is 
                equal to the ratio of--
                            ``(i) the conversion factor established 
                        under subparagraph (C) for the year, multiplied 
                        by the weighting factor established under 
                        paragraph (2)(C) for the service (or group), to
                            ``(ii) the sum of the amount determined 
                        under clause (i) and the unadjusted copayment 
                        amount determined under subparagraph (B) for 
                        such service or group.
                    ``(E) Calculation of medicare opd fee schedule 
                amounts.--The Secretary shall compute a medicare OPD 
                fee schedule amount for each covered OPD service (or 
                group of such services) furnished in a year, in an 
                amount equal to the product of--
                            ``(i) the conversion factor computed under 
                        subparagraph (C) for the year, and
                            ``(ii) the relative payment weight 
                        (determined under paragraph (2)(C)) for the 
                        service or group.
            ``(4) Medicare payment amount.--The amount of payment made 
        from the Trust Fund under this part for a covered OPD service 
        (and such services classified within a group) furnished in a 
        year is determined as follows:
                    ``(A) Fee schedule and copayment amount.--Add (i) 
                the medicare OPD fee schedule amount (computed under 
                paragraph (3)(E)) for the service or group and year, 
                and (ii) the unadjusted copayment amount (determined 
                under paragraph (3)(B)) for the service or group.
                    ``(B) Subtract applicable deductible.--Reduce the 
                sum under subparagraph (A) by the amount of the 
                deductible under section 1833(b), to the extent 
                applicable.
                    ``(C) Apply payment proportion to remainder.--
                Multiply the amount determined under subparagraph (B) 
                by the pre-deductible payment percentage (as determined 
                under paragraph (3)(D)) for the service or group and 
                year involved.
                    ``(D) Labor-related adjustment.--The amount of 
                payment is the product determined under subparagraph 
                (C) with the labor-related portion of such product 
                adjusted for relative differences in the cost of labor 
                and other factors determined by the Secretary, as 
                computed under paragraph (2)(D).
            ``(5) Copayment amount.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the copayment amount under this 
                subsection is determined as follows:
                            ``(i) Unadjusted copayment.--Compute the 
                        amount by which the amount described in 
                        paragraph (4)(B) exceeds the amount of payment 
                        determined under paragraph (4)(C).
                            ``(ii) Labor adjustment.--The copayment 
                        amount is the difference determined under 
                        clause (i) with the labor-related portion of 
                        such difference adjusted for relative 
                        differences in the cost of labor and other 
                        factors determined by the Secretary, as 
                        computed under paragraphs (2)(D). The 
                        adjustment under this clause shall be made in a 
                        manner that does not result in any change in 
                        the aggregate copayments made in any year if 
                        the adjustment had not been made.
                    ``(B) Election to offer reduced copayment amount.--
                The Secretary shall establish a procedure under which a 
                hospital, before the beginning of a year (beginning 
                with 1999), may elect to reduce the copayment amount 
                otherwise established under subparagraph (A) for some 
                or all covered OPD services to an amount that is not 
                less than 25 percent of the medicare OPD fee schedule 
                amount (computed under paragraph (3)(E)) for the 
                service involved, adjusted for relative differences in 
                the cost of labor and other factors determined by the 
                Secretary, as computed under subparagraphs (D) and (E) 
                of paragraph (2). Under such procedures, such reduced 
                copayment amount may not be further reduced or 
                increased during the year involved and the hospital may 
                disseminate information on the reduction of copayment 
                amount effected under this subparagraph.
                    ``(C) No impact on deductibles.--Nothing in this 
                paragraph shall be construed as affecting a hospital's 
                authority to waive the charging of a deductible under 
                section 1833(b).
            ``(6) Periodic review and adjustments components of 
        prospective payment system.--
                    ``(A) Periodic review.--The Secretary may 
                periodically review and revise the groups, the relative 
                payment weights, and the wage and other adjustments 
                described in paragraph (2) to take into account changes 
                in medical practice, changes in technology, the 
                addition of new services, new cost data, and other 
                relevant information and factors.
                    ``(B) Budget neutrality adjustment.--If the 
                Secretary makes adjustments under subparagraph (A), 
                then the adjustments for a year may not cause the 
                estimated amount of expenditures under this part for 
                the year to increase or decrease from the estimated 
                amount of expenditures under this part that would have 
                been made if the adjustments had not been made.
                    ``(C) Update factor.--If the Secretary determines 
                under methodologies described in subparagraph (2)(F) 
                that the volume of services paid for under this 
                subsection increased beyond amounts established through 
                those methodologies, the Secretary may appropriately 
                adjust the update to the conversion factor otherwise 
                applicable in a subsequent year.
            ``(7) Special rule for ambulance services.--The Secretary 
        shall pay for hospital outpatient services that are ambulance 
        services on the basis described in the matter in subsection 
        (a)(1) preceding subparagraph (A).
            ``(8) Special rules for certain hospitals.--In the case of 
        hospitals described in section 1886(d)(1)(B)(v)--
                    ``(A) the system under this subsection shall not 
                apply to covered OPD services furnished before January 
                1, 2000; and
                    ``(B) the Secretary may establish a separate 
                conversion factor for such services in a manner that 
                specifically takes into account the unique costs 
                incurred by such hospitals by virtue of their patient 
                population and service intensity.
            ``(9) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the development of the classification system 
                under paragraph (2), including the establishment of 
                groups and relative payment weights for covered OPD 
                services, of wage adjustment factors, other 
                adjustments, and methods described in paragraph (2)(F);
                    ``(B) the calculation of base amounts under 
                paragraph (3);
                    ``(C) periodic adjustments made under paragraph 
                (6); and
                    ``(D) the establishment of a separate conversion 
                factor under paragraph (8)(B).''.
    (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
1395cc(a)(2)(A)(ii)) is amended by adding at the end the following: 
``In the case of items and services for which payment is made under 
part B under the prospective payment system established under section 
1833(t), clause (ii) of the first sentence shall be applied by 
substituting for 20 percent of the reasonable charge, the applicable 
copayment amount established under section 1833(t)(5).''.
    (c) Treatment of Reduction in Copayment Amount.--Section 
1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
            (1) by striking ``or'' at the end of subparagraph (B),
            (2) by striking the period at the end of subparagraph (C) 
        and inserting ``; or'', and
            (3) by adding at the end the following new subparagraph:
            ``(D) a reduction in the copayment amount for covered OPD 
        services under section 1833(t)(5)(B).''.
    (d) Conforming Amendments.--
            (1) Approved asc procedures performed in hospital 
        outpatient departments.--
                    (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 
                13951(i)(3)(A)) is amended--
                            (I) by inserting ``before January 1, 1999'' 
                        after ``furnished'', and
                            (II) by striking ``in a cost reporting 
                        period''.
                    (ii) The amendment made by clause (i) shall apply 
                to services furnished on or after January 1, 1999.
                    (B) Section 1833(a)(4) (42 U.S.C. 13951(a)(4)) is 
                amended by inserting ``or subsection (t)'' before the 
                semicolon.
            (2) Radiology and other diagnostic procedures.--
                    (A) Section 1833(n)(1)(A) (42 U.S.C. 
                1395l(n)(1)(A)) is amended by inserting ``and before 
                January 1, 1999'' after ``October 1, 1988,'' and after 
                ``October 1, 1989,''.
                    (B) Section 1833(a)(2)(E) (42 U.S.C. 
                1395l(a)(2)(E)) is amended by inserting ``or , for 
                services or procedures performed on or after January 1, 
                1999, subsection (t)'' before the semicolon.
            (3) Other hospital outpatient services.--Section -
        1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
                    (A) in clause (i), by inserting ``furnished before 
                January 1, 1999,'' after ``(i)'',
                    (B) in clause (ii), by inserting ``before January 
                1, 1999,'' after ``furnished'',
                    (C) by redesignating clause (iii) as clause (iv), 
                and
                    (D) by inserting after clause (ii), the following 
                new clause:
                            ``(iii) if such services are furnished on 
                        or after January 1, 1999, the amount determined 
                        under subsection (t), or''.

                    Subchapter B--Ambulance Services

SEC. 5321. PAYMENTS FOR AMBULANCE SERVICES.

    (a) Interim Reductions.--
            (1) Payments determined on reasonable cost basis.--Section 
        1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at the 
        end the following new subparagraph:
                    ``(V) In determining the reasonable cost of 
                ambulance services (as described in subsection (s)(7)) 
                provided during a fiscal year (beginning with fiscal 
                year 1998 and ending with fiscal year 2002), the 
                Secretary shall not recognize any costs in excess of 
                costs recognized as reasonable for ambulance services 
                provided during the previous fiscal year (after 
                application of this subparagraph), increased by the 
                percentage increase in the consumer price index for all 
                urban consumers (U.S. city average) as estimated by the 
                Secretary for the 12-month period ending with the 
                midpoint of the fiscal year involved reduced in the 
                case of fiscal year 1998 by 1.0 percentage point.''
            (2) Payments determined on reasonable charge basis.--
        Section 1842(b) (42 U.S.C. 1395u(b)) is amended by adding at 
        the end the following new paragraph:
    ``(19) For purposes of section 1833(a)(1), the reasonable charge 
for ambulance services (as described in section 1861(s)(7)) provided 
during a fiscal year (beginning with fiscal year 1998 and ending with 
fiscal year 2002) may not exceed the reasonable charge for such 
services provided during the previous fiscal year (after application of 
this paragraph), increased by the percentage increase in the consumer 
price index for all urban consumers (U.S. city average) as estimated by 
the Secretary for the 12-month period ending with the midpoint of the 
year involved reduced in the case of fiscal year 1998 by 1.0 percentage 
point.''
    (b) Establishment of Prospective Fee Schedule.--
            (1) Payment in accordance with fee schedule.--Section 
        1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended--
                    (A) by striking ``and (P)'' and inserting ``(P)''; 
                and
                    (B) by striking the semicolon at the end and 
                inserting the following: ``, and (Q) with respect to 
                ambulance service, the amounts paid shall be 80 percent 
                of the lesser of the actual charge for the services or 
                the amount determined by a fee schedule established by 
                the Secretary under section 1834(k);''.
            (2) Establishment of schedule.--Section 1834 (42 U.S.C. 
        1395m) is amended by adding at the end the following new 
        subsection:
    ``(k) Establishment of Fee Schedule for Ambulance Services.--
            ``(1) In general.--The Secretary shall establish a fee 
        schedule for payment for ambulance services under this part 
        through a negotiated rulemaking process described in title 5, 
        United States Code, and in accordance with the requirements of 
this subsection.
            ``(2) Considerations.--In establishing such fee schedule, 
        the Secretary shall--
                    ``(A) establish mechanisms to control increases in 
                expenditures for ambulance services under this part;
                    ``(B) establish definitions for ambulance services 
                which link payments to the type of services provided;
                    ``(C) consider appropriate regional and operational 
                differences;
                    ``(D) consider adjustments to payment rates to 
                account for inflation and other relevant factors; and
                    ``(E) phase in the application of the payment rates 
                under the fee schedule in an efficient and fair manner.
            ``(3) Savings.--In establishing such fee schedule, the 
        Secretary shall--
                    ``(A) ensure that the aggregate amount of payments 
                made for ambulance services under this part during 1999 
                does not exceed the aggregate amount of payments which 
                would have been made for such services under this part 
                during such year if the amendments made by section 5321 
                of the Balanced Budget Act of 1997 had not been made; 
                and
                    ``(B) set the payment amounts provided under the 
                fee schedule for services furnished in 2000 and each 
                subsequent year at amounts equal to the payment amounts 
                under the fee schedule for service furnished during the 
                previous year, increased by the percentage increase in 
                the consumer price index for all urban consumers (U.S. 
                city average) for the 12-month period ending with June 
                of the previous year reduced (but not below zero) by 
                1.0 percentage points.
            ``(4) Consultation.--In establishing the fee schedule for 
        ambulance services under this subsection, the Secretary shall 
        consult with various national organizations representing 
        individuals and entities who furnish and regulate ambulance 
        services and share with such organizations relevant data in 
        establishing such schedule.
            ``(5) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869 or 
        otherwise of the amounts established under the fee schedule for 
        ambulance services under this subsection, including matters 
        described in paragraph (2).
            ``(6) Restraint on billing.--The provisions of 
        subparagraphs (A) and (B) of section 1842(b)(18) shall apply to 
        ambulance services for which payment is made under this 
        subsection in the same manner as they apply to services 
        provided by a practitioner described in section 
        1842(b)(18)(C).''.
            (3) Effective date.--The amendments made by this section 
        apply to ambulance services furnished on or after January 1, 
        1999.
    (c) Authorizing Payment for Paramedic Intercept Service Providers 
in Rural Communities.--In promulgating regulations to carry out section 
1861(s)(7) of the Social Security Act (42 U.S.C. 1395x(s)(7)) with 
respect to the coverage of ambulance service, the Secretary of Health 
and Human Services may include coverage of advanced life support 
services (in this subsection referred to as ``ALS intercept services'') 
provided by a paramedic intercept service provider in a rural area if 
the following conditions are met:
            (1) The ALS intercept services are provided under a 
        contract with one or more volunteer ambulance services and are 
        medically necessary based on the health condition of the 
        individual being transported.
            (2) The volunteer ambulance service involved--
                    (A) is certified as qualified to provide ambulance 
                service for purposes of such section,
                    (B) provides only basic life support services at 
                the time of the intercept, and
                    (C) is prohibited by State law from billing for any 
                services.
            (3) The entity supplying the ALS intercept services--
                    (A) is certified as qualified to provide such 
                services under the medicare program under title XVIII 
                of the Social Security Act, and
                    (B) bills all recipients who receive ALS intercept 
                services from the entity, regardless of whether or not 
                such recipients are medicare beneficiaries.

            CHAPTER 3--PROVISIONS RELATING TO PARTS A AND B

          Subchapter A--Payments to Skilled Nursing Facilities

SEC. 5331. BASING UPDATES TO PER DIEM LIMITS EFFECTIVE FOR FISCAL YEAR 
              1998 ON COST LIMITS EFFECTIVE FOR FISCAL YEAR 1997.

    The last sentence of section 1888(a) (42 U.S.C. 1395yy(a)) is 
amended by striking ``subsection'' the last place it appears and all 
that follows and inserting ``subsection, except that the limits 
effective for cost reporting periods beginning on or after October 1, 
1997, shall be based on the limits effective for cost reporting periods 
beginning on or after October 1, 1996, increased by the skilled nursing 
facility market basket index to account for inflation and adjusted to 
account for the most recent changes in metropolitan statistical areas 
and wage index data.''.

SEC. 5332. PROSPECTIVE PAYMENT FOR SKILLED NURSING FACILITY SERVICES.

    (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended by 
adding at the end the following new subsection:
    ``(e) Prospective Payment.--
            ``(1) Payment provision.--Notwithstanding any other 
        provision of this title, subject to paragraph (7), the amount 
        of the payment for all costs (as defined in paragraph (2)(B)) 
        of covered skilled nursing facility services (as defined in 
        paragraph (2)(A)) for each day of such services furnished--
                    ``(A) in a cost reporting period during the 
                transition period (as defined in paragraph (2)(E)), is 
                equal to the sum of--
                            ``(i) the non-Federal percentage of the 
                        facility-specific per diem rate (computed under 
                        paragraph (3)), and
                            ``(ii) the Federal percentage of the 
                        adjusted Federal per diem rate (determined 
                        under paragraph (4)) applicable to the 
                        facility; and
                    ``(B) after the transition period is equal to the 
                adjusted Federal per diem rate applicable to the 
                facility.
            ``(2) Definitions.--For purposes of this subsection:
                    ``(A) Covered skilled nursing facility services.--
                            ``(i) In general.--The term `covered 
                        skilled nursing facility services'--
                                    ``(I) means post-hospital extended 
                                care services as defined in section 
                                1861(i) for which benefits are provided 
                                under part A; and
                                    ``(II) includes all items and 
                                services (other than services described 
                                in clause (ii)) for which payment may 
                                be made under part B and which are 
                                furnished to an individual who is a 
                                resident of a skilled nursing facility 
                                during the period in which the 
                                individual is provided covered post-
                                hospital extended care services.
                            ``(ii) Services excluded.--Services 
                        described in this clause are physicians' 
                        services, services described by clauses (i) 
                        through (iii) of section 1861(s)(2)(K), 
                        certified nurse-midwife services, qualified 
                        psychologist services, services of a certified 
                        registered nurse anesthetist, items and 
                        services described in subparagraphs in (F) and 
                        (O) of section 1861(s)(2), and, only with 
                        respect to services furnished during 1998, the 
                        transportation costs of electrocardiogram 
                        equipment for electrocardiogram tests services 
                        (HCPCS Code R0076). Services described in this 
                        clause do not include any physical, 
                        occupational, or speech-language therapy 
                        services regardless of whether or not the 
                        services are furnished by, or under the 
                        supervision of, a physician or other health 
                        care professional.
                    ``(B) All costs.--The term `all costs' means 
                routine service costs, ancillary costs, and capital-
                related costs of covered skilled nursing facility 
                services, but does not include costs associated with 
                approved educational activities.
                    ``(C) Non-federal percentage; federal percentage.--
                For--
                            ``(i) the first cost reporting period (as 
                        defined in subparagraph (D)) of a facility, the 
                        `non-Federal percentage' is 75 percent and the 
                        `Federal percentage' is 25 percent;
                            ``(ii) the next cost reporting period of 
                        such facility, the `non-Federal percentage' is 
                        50 percent and the `Federal percentage' is 50 
                        percent; and
                            ``(iii) the subsequent cost reporting 
                        period of such facility, the `non-
Federal percentage' is 25 percent and the `Federal percentage' is 75 
percent.
                    ``(D) First cost reporting period.--The term `first 
                cost reporting period' means, with respect to a skilled 
                nursing facility, the first cost reporting period of 
                the facility beginning on or after October 1, 1998.
                    ``(E) Transition period.--
                            ``(i) In general.--The term `transition 
                        period' means, with respect to a skilled 
                        nursing facility, the 3 cost reporting periods 
                        of the facility beginning with the first cost 
                        reporting period.
                            ``(ii) Treatment of new skilled nursing 
                        facilities.--In the case of a skilled nursing 
                        facility that does not have a settled cost 
                        report for a cost reporting period before July 
                        1, 1998, payment for such services shall be 
                        made under this subsection as if all services 
                        were furnished after the transition period.
            ``(3) Determination of facility specific per diem rates.--
        The Secretary shall determine a facility-specific per diem rate 
        for each skilled nursing facility for a cost reporting period 
        as follows:
                    ``(A) Determining base payments.--The Secretary 
                shall determine, on a per diem basis, the total of--
                            ``(i) the allowable costs of extended care 
                        services for the facility for cost reporting 
                        periods beginning in 1995 with appropriate 
                        adjustments (as determined by the Secretary) to 
                        non-settled cost reports, and
                            ``(ii) an estimate of the amounts that 
                        would be payable under part B (disregarding any 
                        applicable deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in paragraph 
                        (2)(A)(i)(II) furnished during such period to 
                        an individual who is a resident of the 
                        facility, regardless of whether or not the 
                        payment was made to the facility or to another 
                        entity.
                    ``(B) Update to cost reporting periods through 
                1998.--The Secretary shall update the amount determined 
                under subparagraph (A), for each cost reporting period 
                after the cost reporting period described in 
                subparagraph (A)(i) and up to the first cost reporting 
                period by a factor equal to the skilled nursing 
                facility market basket percentage increase.
                    ``(C) Updating to applicable cost reporting 
                period.--The Secretary shall further update such amount 
                for each cost reporting period beginning with the first 
                cost reporting period and up to and including the cost 
                reporting period involved by a factor equal to the 
                skilled nursing facility market basket percentage 
                increase.
                    ``(D) Certain demonstration projects.--In the case 
                of a facility participating in the Nursing Home Case-
                Mix and Quality Demonstration (RUGS-III), the Secretary 
                shall determine the facility specific per diem rate for 
                any year after 1997 by computing the base period 
                payments by using the RUGS-III rate received by the 
                facility for 1997, increased by a factor equal to the 
                skilled nursing facility market basket percentage 
                increase.
            ``(4) Federal per diem rate.--
                    ``(A) Determination of historical per diem for 
                facilities.--For each skilled nursing facility that 
                received payments for post-hospital extended care 
                services during a cost reporting period beginning in 
fiscal year 1995 and that was subject to (and not exempted from) the 
per diem limits referred to in paragraph (1) or (2) of subsection (a) 
(and facilities described in subsection (d)), the Secretary shall 
estimate, on a per diem basis for such cost reporting period, the total 
of--
                            ``(i) subject to subparagraph (I), the 
                        allowable costs of extended care services for 
                        the facility for cost reporting periods 
                        beginning in 1995 with appropriate adjustments 
                        (as determined by the Secretary) to non-settled 
                        cost reports, and
                            ``(ii) an estimate of the amounts that 
                        would be payable under part B (disregarding any 
                        applicable deductibles, coinsurance and 
                        copayments) for covered skilled nursing 
                        facility services described in paragraph 
                        (2)(A)(i)(II) furnished during such period to 
                        an individual who is a resident of the 
                        facility, regardless of whether or not the 
                        payment was made to the facility or to another 
                        entity.
                    ``(B) Update to cost reporting periods through 
                1998.--The Secretary shall update the amount determined 
                under subparagraph (A), for each cost reporting period 
                after the cost reporting period described in 
                subparagraph (A)(i) and up to the first cost reporting 
                period by a factor equal to the skilled nursing 
                facility market basket percentage increase reduced (on 
                an annualized basis) by 1 percentage point.
                    ``(C) Computation of standardized per diem rate.--
                The Secretary shall standardize the amount updated 
                under subparagraph (B) for each facility by--
                            ``(i) adjusting for variations among 
                        facility by area in the average facility wage 
                        level per diem, and
                            ``(ii) adjusting for variations in case mix 
                        per diem among facilities.
                    ``(D) Computation of weighted average per diem 
                rate.--The Secretary shall compute a weighted average 
                per diem rate by computing an average of the 
                standardized amounts computed under subparagraph (C), 
                weighted for each facility by the number of days of 
                extended care services furnished during the cost 
                reporting period referred to in subparagraph (A). The 
                Secretary may compute and apply such average separately 
                for facilities located in urban and rural areas (as 
                defined in section 1886(d)(2)(D)).
                    ``(E) Updating.--
                            ``(i) Fiscal year 1999.--For fiscal year 
                        1999, the Secretary shall compute for each 
                        skilled nursing facility an unadjusted Federal 
                        per diem rate equal to the weighted average per 
                        diem rate computed under subparagraph (D) and 
                        applicable to the facility increased by skilled 
                        nursing facility market basket percentage 
                        change for the fiscal year involved.
                            ``(ii) Subsequent fiscal years.--For each 
                        subsequent fiscal year the Secretary shall 
                        compute for each skilled nursing facility an 
                        unadjusted Federal per diem rate equal to the 
                        Federal per diem rate computed under this 
                        subparagraph for the previous fiscal year and 
                        applicable to the facility increased by the 
                        skilled nursing facility market basket 
                        percentage change for the fiscal year involved.
                    ``(F) Adjustment for case mix creep.--Insofar as 
                the Secretary determines that such adjustments under 
                subparagraph (G)(i) for a previous fiscal year (or 
                estimates that such adjustments for a future fiscal 
                year) did (or are likely to) result in a change in 
                aggregate payments under this subsection during the 
                fiscal year that are a result of changes in the coding 
                or classification of residents that do not reflect real 
                changes in case mix, the Secretary may adjust 
                unadjusted Federal per diem rates for subsequent years 
                so as to discount the effect of such coding or 
                classification changes.
                    ``(G) Application to specific facilities.--The 
                Secretary shall compute for each skilled nursing 
                facility for each fiscal year (beginning with fiscal 
                year 1998) an adjusted Federal per diem rate equal to 
                the unadjusted Federal per diem rate determined under 
                subparagraph (E), as adjusted under subparagraph (F), 
                and as further adjusted as follows:
                            ``(i) Adjustment for case mix.--The 
                        Secretary shall provide for an appropriate 
                        adjustment to account for case mix. Such 
                        adjustment shall be based on a resident 
                        classification system, established by the 
                        Secretary, that accounts for the relative 
                        resource utilization of different patient 
                        types. The case mix adjustment shall be based 
                        on resident assessment data and other data that 
                        the Secretary considers appropriate.
                            ``(ii) Adjustment for geographic variations 
                        in labor costs.--The Secretary shall adjust the 
                        portion of such per diem rate attributable to 
                        wages and wage-related costs for the area in 
                        which the facility is located compared to the 
                        national average of such costs using an 
                        appropriate wage index as determined by the 
                        Secretary. Such adjustment shall be done in a 
                        manner that does not result in aggregate 
                        payments under this subsection that are greater 
                        or less than those that would otherwise be made 
                        if such adjustment had not been made.
                    ``(H) Publication of information on per diem 
                rates.--The Secretary shall provide for publication in 
                the Federal Register, before the July 1 preceding each 
fiscal year (beginning with fiscal year 1999), of--
                            ``(i) the unadjusted Federal per diem rates 
                        to be applied to days of covered skilled 
                        nursing facility services furnished during the 
                        fiscal year,
                            ``(ii) the case mix classification system 
                        to be applied under subparagraph (G)(i) with 
                        respect to such services during the fiscal 
                        year, and
                            ``(iii) the factors to be applied in making 
                        the area wage adjustment under subparagraph 
                        (G)(ii) with respect to such services.
                    ``(I) Exclusion of exception payments from 
                determination of historical per diem.--In determining 
                allowable costs under subparagraph (A)(i), the 
                Secretary shall not take into account any payments 
                described in subsection (c).
            ``(5) Skilled nursing facility market basket index, 
        percentage, and historical trend factor.--For purposes of this 
        subsection:
                    ``(A) Skilled nursing facility market basket 
                index.--The Secretary shall establish a skilled nursing 
                facility market basket index that reflects changes over 
                time in the prices of an appropriate mix of goods and 
                services included in covered skilled nursing facility 
                services.
                    ``(B) Skilled nursing facility market basket 
                percentage.--The term `skilled nursing facility market 
                basket percentage' means, for a fiscal year or other 
                annual period and as calculated by the Secretary, the 
                percentage change in the skilled nursing facility 
                market basket index (established under subparagraph 
                (A)) from the midpoint of the prior fiscal year (or 
                period) to the midpoint of the fiscal year (or other 
                period) involved.
            ``(6) Submission of resident assessment data.--A skilled 
        nursing facility shall provide the Secretary, in a manner and 
        within the timeframes prescribed by the Secretary, the resident 
        assessment data necessary to develop and implement the rates 
        under this subsection. For purposes of meeting such 
        requirement, a skilled nursing facility may submit the resident 
        assessment data required under section 1819(b)(3), using the 
        standard instrument designated by the State under section 
        1819(e)(5).
            ``(7) Transition for medicare swing bed hospitals.--
                    ``(A) In general.--The Secretary shall determine an 
                appropriate manner in which to apply this subsection to 
                the facilities described in subparagraph (B), taking 
                into account the purposes of this subsection, and shall 
                provide that at the end of the transition period (as 
                defined in paragraph (2)(E)) such facilities shall be 
                paid only under this subsection. Payment shall not be 
                made under this subsection to such facilities for cost 
                reporting periods beginning before such date (not 
                earlier than July 1, 1999) as the Secretary specifies.
                    ``(B) Facilities described.--The facilities 
                described in this subparagraph are facilities that have 
                in effect an agreement described in section 1883, for 
                which payment is made for the furnishing of extended 
                care services on a reasonable cost basis under section 
                1814(l) (as in effect on and after such date).
            ``(8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 1878, or 
        otherwise of--
                    ``(A) the establishment of Federal per diem rates 
                under paragraph (4), including the computation of the 
                standardized per diem rates under paragraph (4)(C), 
                adjustments and corrections for case mix under 
                paragraphs (4)(F) and (4)(G)(i), and adjustments for 
                variations in labor-related costs under paragraph 
                (4)(G)(ii); and
                    ``(B) the establishment of transitional amounts 
                under paragraph (7).''.
    (b) Consolidated Billing.--
            (1) For snf services.--Section 1862(a) (42 U.S.C. 1395y(a)) 
        is amended--
                    (A) by striking ``or'' at the end of paragraph 
                (15),
                    (B) by striking the period at the end of paragraph 
                (16) and inserting ``; or'', and
                    (C) by inserting after paragraph (16) the following 
                new paragraph:
            ``(17) which are covered skilled nursing facility services 
        described in section 1888(e)(2)(A)(i)(II) and which are 
        furnished to an individual who is a resident of a skilled 
        nursing facility by an entity other than the skilled nursing 
        facility, unless the services are furnished under arrangements 
        (as defined in section 1861(w)(1)) with the entity made by the 
        skilled nursing facility, or such services are furnished by a 
        physician described in section 1861(r)(1).''.
            (2) Requiring payment for all part b items and services to 
        be made to facility.--The first sentence of section 1842(b)(6) 
        (42 U.S.C. 1395u(b)(6)) is amended--
                    (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                    (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service (other than services described in section 
                1888(e)(2)(A)(ii)) furnished to an individual who (at 
                the time the item or service is furnished) is a 
                resident of a skilled nursing facility, payment shall 
                be made to the facility (without regard to whether or 
                not the item or service was furnished by the facility, 
                by others under arrangement with them made by the 
                facility, under any other contracting or consulting 
                arrangement, or otherwise).''.
            (3) Payment rules.--Section 1888(e) (42 U.S.C. 1395yy(e)), 
        as added by subsection (a), is amended by adding at the end the 
        following:
            ``(9) Payment for certain services.--
                    ``(A) In general.--In the case of an item or 
                service furnished by a skilled nursing facility (or by 
                others under arrangement with them made by a skilled 
                nursing facility or under any other contracting or 
                consulting arrangement or otherwise) for which payment 
                would otherwise (but for this paragraph) be made under 
                part B in an amount determined in accordance with 
                section 1833(a)(2)(B), the amount of the payment under 
                such part shall be based on the part B methodology 
                applicable to the item or service, except that for 
                items and services that would be included in a 
                facility's cost report if not for this section, the 
                facility may continue to use a cost report for 
                reimbursement purposes until the prospective payment 
                system established under this section is implemented.
                    ``(B) Therapy and pathology services.--Payment for 
                physical therapy, occupational therapy, respiratory 
                therapy, and speech language pathology services shall 
                reflect new salary equivalency guidelines calculated 
                pursuant to section 1861(v)(5) when finalized through 
                the regulatory process.
            ``(10) Required coding.--No payment may be made under part 
        B for items and services (other than services described in 
        paragraph (2)(A)(ii)) furnished to an individual who is a 
        resident of a skilled nursing facility unless the claim for 
        such payment includes a code (or codes) under a uniform coding 
        system specified by the Secretary that identifies the items or 
        services delivered.''.
            (4) Conforming amendments.--
                    (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 1395i-
                3(b)(3)(C)(i)) is amended by striking ``Such'' and 
                inserting ``Subject to the timeframes prescribed by the 
                Secretary under section 1888(t)(6), such''.
                    (B) Section 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is 
                amended by striking ``(2);'' and inserting ``(2) and 
                section 1842(b)(6)(E);''.
                    (C) Section 1833(a)(2)(B) (42 U.S.C. 
                1395l(a)(2)(B)) is amended by inserting ``or section 
                1888(e)(9)'' after ``section 1886''.
                    (D) Section 1861(h) (42 U.S.C 1395x(h)) is 
                amended--
                            (i) in the opening paragraph, by striking 
                        ``paragraphs (3) and (6)'' and inserting 
                        ``paragraphs (3), (6), and (7)'', and
                            (ii) in paragraph (7), after ``skilled 
                        nursing facilities'', by inserting ``, or by 
                        others under arrangements with them made by the 
                        facility''.
                    (E) Section 1866(a)(1)(H) (42 U.S.C. 
                1395cc(a)(1)(H)) is amended--
                            (i) by redesignating clauses (i) and (ii) 
                        as subclauses (I) and (II) respectively,
                            (ii) by inserting ``(i)'' after ``(H)'', 
                        and
                            (iii) by adding after clause (i), as so 
                        redesignated, the following new clause:
            ``(ii) in the case of skilled nursing facilities which 
        provide covered skilled nursing facility services--
                    ``(I) that are furnished to an individual who is a 
                resident of the skilled nursing facility, and
                    ``(II) for which the individual is entitled to have 
                payment made under this title,
        to have items and services (other than services described in 
        section 1888(e)(2)(A)(ii)) furnished by the skilled nursing 
        facility or otherwise under arrangements (as defined in section 
        1861(w)(1)) made by the skilled nursing facility,''.
    (c) Medical Review Process.--In order to ensure that medicare 
beneficiaries are furnished appropriate services in skilled nursing 
facilities, the Secretary of Health and Human Services shall establish 
and implement a thorough medical review process to examine the effects 
of the amendments made by this section on the quality of covered 
skilled nursing facility services furnished to medicare beneficiaries. 
In developing such a medical review process, the Secretary shall place 
a particular emphasis on the quality of non-routine covered services 
and physicians' services for which payment is made under title XVIII of 
the Social Security Act for which payment is made under section 1848 of 
such Act.
    (d) Effective Date.--The amendments made by this section are 
effective for cost reporting periods beginning on or after July 1, 
1998; except that the amendments made by subsection (b) shall apply to 
items and services furnished on or after July 1, 1998.

            Subchapter B--Home Health Services and Benefits

               PART I--PAYMENTS FOR HOME HEALTH SERVICES

SEC. 5341. RECAPTURING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
              PAYMENT INCREASES FOR HOME HEALTH SERVICES.

    (a) Basing Updates to Per Visit Cost Limits on Limits for Fiscal 
Year 1993.--Section 1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended 
by adding at the end the following:
    ``(iv) In establishing limits under this subparagraph for cost 
reporting periods beginning after September 30, 1997, the Secretary 
shall not take into account any changes in the home health market 
basket, as determined by the Secretary, with respect to cost reporting 
periods which began on or after July 1, 1994, and before July 1, 
1996.''.
    (b) No Exceptions Permitted Based on Amendment.--The Secretary of 
Health and Human Services shall not consider the amendment made by 
subsection (a) in making any exemptions and exceptions pursuant to 
section 1861(v)(1)(L)(ii) of the Social Security Act (42 U.S.C. 
1395x(v)(1)(L)(ii)).

SEC. 5342. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

    (a) Reductions in Cost Limits.--Section 1861(v)(1)(L)(i) (42 U.S.C. 
1395x(v)(1)(L)(i)) is amended--
            (1) by moving the indentation of subclauses (I) through 
        (III) 2-ems to the left;
            (2) in subclause (I), by inserting ``of the mean of the 
        labor-related and nonlabor per visit costs for freestanding 
        home health agencies'' before the comma at the end;
            (3) in subclause (II), by striking ``, or'' and inserting 
        ``of such mean,'';
            (4) in subclause (III)--
                    (A) by inserting ``and before October 1, 1997,'' 
                after ``July 1, 1987'', and
                    (B) by striking the period at the end and inserting 
                ``of such mean, or''; and
            (5) by striking the matter following subclause (III) and 
        inserting the following:
            ``(IV) October 1, 1997, 105 percent of the median of the 
        labor-related and nonlabor per visit costs for freestanding 
        home health agencies.''.
    (b) Delay in Updates.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
1395x(v)(1)(L)(iii)) is amended by inserting ``, or on or after July 1, 
1997, and before October 1, 1997'' after ``July 1, 1996''.
    (c) Additions to Cost Limits.--Section 1861(v)(1)(L) (42 U.S.C. 
1395x(v)(1)(L)), as amended by section 5341(a), is amended by adding at 
the end the following:
    ``(v) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
shall provide for an interim system of limits. Payment shall be the 
lower of--
            ``(I) costs determined under the preceding provisions of 
        this subparagraph, or
            ``(II) an agency-specific per beneficiary annual limitation 
        calculated from the agency's 12-month cost reporting period 
        ending on or after January 1, 1994, and on or before December 
        31, 1994, based on reasonable costs (including nonroutine 
        medical supplies), updated by the home health market basket 
        index.
The per beneficiary limitation in subclause (II) shall be multiplied by 
the agency's unduplicated census count of patients (entitled to 
benefits under this title) for the cost reporting period subject to the 
limitation to determine the aggregate agency-specific per beneficiary 
limitation.
    ``(vi) For services furnished by home health agencies for cost 
reporting periods beginning on or after October 1, 1997, the following 
rules apply:
            ``(I) For new providers and those providers without a 12-
        month cost reporting period ending in calendar year 1994, the 
        per beneficiary limitation shall be equal to the median of 
        these limits (or the Secretary's best estimates thereof) 
        applied to other home health agencies as determined by the 
        Secretary. A home health agency that has altered its corporate 
        structure or name shall not be considered a new provider for 
        this purpose.
            ``(II) For beneficiaries who use services furnished by more 
        than one home health agency, the per beneficiary limitations 
        shall be prorated among the agencies.''.
    (d) Development of Case Mix System.--The Secretary of Health and 
Human Services shall expand research on a prospective payment system 
for home health agencies under the medicare program under title XVIII 
of the Social Security Act (42 U.S.C. 1395 et seq.) that ties 
prospective payments to a unit of service, including an intensive 
effort to develop a reliable case mix adjuster that explains a 
significant amount of the variances in costs.
    (e) Submission of Data for Case Mix System.--Effective for cost 
reporting periods beginning on or after October 1, 1997, the Secretary 
of Health and Human Services may require all home health agencies to 
submit additional information that the Secretary considers necessary 
for the development of a reliable case mix system.

SEC. 5343. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

    (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended 
by section 5011, is amended by adding at the end the following new 
section:

             ``prospective payment for home health services

    ``Sec. 1895. (a) In General.--Notwithstanding section 1861(v), the 
Secretary shall provide, for cost reporting periods beginning on or 
after October 1, 1999, for payments for home health services in 
accordance with a prospective payment system established by the 
Secretary under this section.
    ``(b) System of Prospective Payment for Home Health Services.--
            ``(1) In general.--The Secretary shall establish under this 
        subsection a prospective payment system for payment for all 
        costs of home health services. Under the system under this 
        subsection all services covered and paid on a reasonable cost 
        basis under the medicare home health benefit as of the date of 
        the enactment of the this section, including medical supplies, 
        shall be paid for on the basis of a prospective payment amount 
        determined under this subsection and applicable to the services 
        involved. In implementing the system, the Secretary may provide 
        for a transition (of not longer than 4 years) during which a 
        portion of such payment is based on agency-specific costs, but 
        only if such transition does not result in aggregate payments 
        under this title that exceed the aggregate payments that would 
        be made if such a transition did not occur.
            ``(2) Unit of payment.--In defining a prospective payment 
        amount under the system under this subsection, the Secretary 
        shall consider an appropriate unit of service and the number, 
        type, and duration of visits provided within that unit, 
        potential changes in the mix of services provided within that 
        unit and their cost, and a general system design that provides 
        for continued access to quality services.
            ``(3) Payment basis.--
                    ``(A) Initial basis.--
                            ``(i) In general.--Under such system the 
                        Secretary shall provide for computation of a 
                        standard prospective payment amount (or 
                        amounts). Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2000 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect but if the reduction in limits 
                        described in clause (ii) had been in effect. 
                        Such amount shall be standardized in a manner 
                        that eliminates the effect of variations in 
                        relative case mix and wage levels among 
                        different home health agencies in a budget 
                        neutral manner consistent with the case mix and 
                        wage level adjustments provided under paragraph 
                        (4)(A). Under the system, the Secretary may 
                        recognize regional differences or differences 
                        based upon whether or not the services or 
                        agency are in an urbanized area.
                            ``(ii) Reduction.--The reduction described 
                        in this clause is a reduction by 15 percent in 
                        the cost limits and per beneficiary limits 
                        described in section 1861(v)(1)(L), as those 
                        limits are in effect on September 30, 1999.
                    ``(B) Annual update.--
                            ``(i) In general.--The standard prospective 
                        payment amount (or amounts) shall be adjusted 
                        for each fiscal year (beginning with fiscal 
                        year 2001) in a prospective manner specified by 
                        the Secretary by the home health market basket 
                        percentage increase applicable to the fiscal 
                        year involved.
                            ``(ii) Home health market basket percentage 
                        increase.--For purposes of this subsection, the 
                        term `home health market basket percentage 
                        increase' means, with respect to a fiscal year, 
                        a percentage (estimated by the Secretary before 
                        the beginning of the fiscal year) determined 
                        and applied with respect to the mix of goods 
                        and services included in home health services 
                        in the same manner as the market basket 
                        percentage increase under section 
                        1886(b)(3)(B)(iii) is determined and applied to 
                        the mix of goods and services comprising 
                        inpatient hospital services for the fiscal 
                        year.
                    ``(C) Adjustment for outliers.--The Secretary shall 
                reduce the standard prospective payment amount (or 
                amounts) under this paragraph applicable to home health 
                services furnished during a period by such proportion 
                as will result in an aggregate reduction in payments 
                for the period equal to the aggregate increase in 
                payments resulting from the application of paragraph 
                (5) (relating to outliers).
            ``(4) Payment computation.--
                    ``(A) In general.--The payment amount for a unit of 
                home health services shall be the applicable standard 
                prospective payment amount adjusted as follows:
                            ``(i) Case mix adjustment.--The amount 
                        shall be adjusted by an appropriate case mix 
                        adjustment factor (established under 
                        subparagraph (B)).
                            ``(ii) Area wage adjustment.--The portion 
                        of such amount that the Secretary estimates to 
                        be attributable to wages and wage-related costs 
                        shall be adjusted for geographic differences in 
                        such costs by an area wage adjustment factor 
(established under subparagraph (C)) for the area in which the services 
are furnished or such other area as the Secretary may specify.
                    ``(B) Establishment of case mix adjustment 
                factors.--The Secretary shall establish appropriate 
                case mix adjustment factors for home health services in 
                a manner that explains a significant amount of the 
                variation in cost among different units of services.
                    ``(C) Establishment of area wage adjustment 
                factors.--The Secretary shall establish area wage 
                adjustment factors that reflect the relative level of 
                wages and wage-related costs applicable to the 
                furnishing of home health services in a geographic area 
                compared to the national average applicable level. Such 
                factors may be the factors used by the Secretary for 
                purposes of section 1886(d)(3)(E).
            ``(5) Outliers.--The Secretary may provide for an addition 
        or adjustment to the payment amount otherwise made in the case 
        of outliers because of unusual variations in the type or amount 
        of medically necessary care. The total amount of the additional 
        payments or payment adjustments made under this paragraph with 
        respect to a fiscal year may not exceed 5 percent of the total 
        payments projected or estimated to be made based on the 
        prospective payment system under this subsection in that year.
            ``(6) Proration of prospective payment amounts.--If a 
        beneficiary elects to transfer to, or receive services from, 
        another home health agency within the period covered by the 
        prospective payment amount, the payment shall be prorated 
        between the home health agencies involved.
    ``(c) Requirements for Payment Information.--With respect to home 
health services furnished on or after October 1, 1998, no claim for 
such a service may be paid under this title unless--
            ``(1) the claim has the unique identifier for the physician 
        who prescribed the services or made the certification described 
        in section 1814(a)(2) or 1835(a)(2)(A); and
            ``(2) in the case of a service visit described in paragraph 
        (1), (2), (3), or (4) of section 1861(m), the claim has 
        information (coded in an appropriate manner) on the length of 
        time of the service visit, as measured in 15 minute increments.
    ``(d) Limitation on Review.--There shall be no administrative or 
judicial review under section 1869, 1878, or otherwise of--
            ``(1) the establishment of a transition period under 
        subsection (b)(1);
            ``(2) the definition and application of payment units under 
        subsection (b)(2);
            ``(3) the computation of initial standard prospective 
        payment amounts under subsection (b)(3)(A) (including the 
        reduction described in clause (ii) of such subsection);
            ``(4) the adjustment for outliers under subsection 
        (b)(3)(C);
            ``(5) case mix and area wage adjustments under subsection 
        (b)(4);
            ``(6) any adjustments for outliers under subsection (b)(5); 
        and
            ``(7) the amounts or types of exceptions or adjustments 
        under subsection (b)(7).''.
    (b) Elimination of Periodic Interim Payments for Home Health 
Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
            (1) by inserting ``and'' at the end of subparagraph (C),
            (2) by striking subparagraph (D), and
            (3) by redesignating subparagraph (E) as subparagraph (D).
    (c) Conforming Amendments.--
            (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)) is amended in the matter preceding paragraph (1) by 
        striking ``and 1886'' and inserting ``1886, and 1895''.
            (2) Treatment of items and services paid under part b.--
                    (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                            (i) by amending subparagraph (A) to read as 
                        follows:
                    ``(A) with respect to home health services (other 
                than a covered osteoporosis drug) (as defined in 
                section 1861(kk)), the amount determined under the 
                prospective payment system under section 1895;'';
                            (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                            (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                            (iv) by adding at the end the following new 
                        subparagraph:
                    ``(G) with respect to items and services described 
                in section 1861(s)(10)(A), the lesser of--
                            ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                            ``(ii) the customary charges with respect 
                        to such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                    (B) Requiring payment for all items and services to 
                be made to agency.--
                            (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) (as 
                        amended by section 5332(b)(2)) is amended--
                                    (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                    (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (F) in the case of home health 
                                services furnished to an individual who 
                                (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or when any other contracting 
                                or consulting arrangement, or 
                                otherwise).''.
                            (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)) (as amended 
                        by section 5332(b)(4)(B)) is amended by 
                        striking ``section 1842(b)(6)(E);'' and 
                        inserting ``subparagraphs (E) and (F) of 
                        section 1842(b)(6);''.
                    (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by section 5332(b)(1), is 
                amended--
                            (i) by striking ``or'' at the end of 
                        paragraph (16);
                            (ii) by striking the period at the end of 
                        paragraph (17) and inserting ``or''; and
                            (iii) by inserting after paragraph (17) the 
                        following:
            ``(18) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
    (d) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall apply to cost reporting periods beginning on 
or after October 1, 1999.
    (e) Contingency.--If the Secretary of Health and Human Services for 
any reason does not establish and implement the prospective payment 
system for home health services described in section 1895(b) of the 
Social Security Act (as added by subsection (a)) for cost reporting 
periods described in subsection (d), for such cost reporting periods 
the Secretary shall provide for a reduction by 15 percent in the cost 
limits and per beneficiary limits described in section 1861(v)(1)(L) of 
such Act, as those limits would otherwise be in effect on September 30, 
1999.

SEC. 5344. PAYMENT BASED ON LOCATION WHERE HOME HEALTH SERVICE IS 
              FURNISHED.

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

                     PART II--HOME HEALTH BENEFITS

SEC. 5361. MODIFICATION OF PART A HOME HEALTH BENEFIT FOR INDIVIDUALS 
              ENROLLED UNDER PART B.

    (a) In General.--Section 1812 (42 U.S.C. 1395d) is amended--
            (1) in subsection (a)(3), by striking ``home health 
        services'' and inserting ``for individuals not enrolled in part 
        B, home health services, and for individuals so enrolled, part 
        A home health services (as defined in subsection (g))'';
            (2) by redesignating subsection (g) as subsection (h); and
            (3) by inserting after subsection (f) the following new 
        subsection:
    ``(g)(1) For purposes of this section, the term `part A home health 
services' means--
            ``(A) for services furnished during each year beginning 
        with 1998 and ending with 2003, home health services subject to 
        the transition reduction applied under paragraph (2)(C) for 
        services furnished during the year, and
            ``(B) for services furnished on or after January 1, 2004, 
        post-institutional home health services for up to 100 visits 
        during a home health spell of illness.
    ``(2) For purposes of paragraph (1)(A), the Secretary shall 
specify, before the beginning of each year beginning with 1998 and 
ending with 2003, a transition reduction in the home health services 
benefit under this part as follows:
            ``(A) The Secretary first shall estimate the amount of 
        payments that would have been made under this part for home 
health services furnished during the year if--
                    ``(i) part A home health services were all home 
                health services, and
                    ``(ii) part A home health services were limited to 
                services described in paragraph (1)(B).
            ``(B)(i) The Secretary next shall compute a transfer 
        reduction amount equal to the appropriate proportion (specified 
        under clause (ii)) of the amount by which the amount estimated 
        under subparagraph (A)(i) for the year exceeds the amount 
        estimated under subparagraph (A)(ii) for the year.
            ``(ii) For purposes of clause (i), the `appropriate 
        proportion' is equal to--
                    ``(I) \1/7\ for 1998,
                    ``(II) \2/7\ for 1999,
                    ``(III) \3/7\ for 2000,
                    ``(IV) \4/7\ for 2001,
                    ``(V) \5/7\ for 2002, and
                    ``(V) \6/7\ for 2003.
            ``(C) The Secretary shall establish a transition reduction 
        by specifying such a visit limit (during a home health spell of 
        illness) or such a post-institutional limitation on home health 
        services furnished under this part during the year as the 
        Secretary estimates will result in a reduction in the amount of 
        payments that would otherwise be made under this part for home 
        health services furnished during the year equal to the transfer 
        amount computed under subparagraph (B)(i) for the year.
    ``(3) Payment under this part for home health services furnished an 
individual enrolled under part B--
            ``(A) during a year beginning with 1998 and ending with 
        2003, may not be made for services that are not within the 
        visit limit or other limitation specified by the Secretary 
        under the transition reduction under paragraph (3)(C) for 
        services furnished during the year; or
            ``(B) on or after January 1, 2004, may not be made for home 
        health services that are not post-institutional home health 
        services or for post-institutional furnished to the individual 
        after such services have been furnished to the individual for a 
        total of 100 visits during a home health spell of illness.''.
    (b) Post-Institutional Home Health Services Defined.--Section 1861 
(42 U.S.C. 1395x), as amended by sections 5102(a) and 5103(a), is 
amended by adding at the end the following:

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

    ``(qq)(1) The term `post-institutional home health services' means 
home health services furnished to an individual--
            ``(A) after discharge from a hospital or rural primary care 
        hospital in which the individual was an inpatient for not less 
        than 3 consecutive days before such discharge if such home 
        health services were initiated within 14 days after the date of 
        such discharge; or
            ``(B) after discharge from a skilled nursing facility in 
        which the individual was provided post-hospital extended care 
        services if such home health services were initiated within 14 
        days after the date of such discharge.
    ``(2) The term `home health spell of illness' with respect to any 
individual means a period of consecutive days--
            ``(A) beginning with the first day (not included in a 
        previous home health spell of illness) (i) on which such 
        individual is furnished post-institutional home health 
        services, and (ii) which occurs in a month for which the 
        individual is entitled to benefits under part A, and
            ``(B) ending with the close of the first period of 60 
        consecutive days thereafter on each of which the individual is 
        neither an inpatient of a hospital or rural primary care 
        hospital nor an inpatient of a facility described in section 
        1819(a)(1) or subsection (y)(1) nor provided home health 
        services.''.
    (c) Maintaining Appeal Rights for Home Health Services.--Section 
1869(b)(2)(B) (42 U.S.C. 1395ff(b)(2)(B)) is amended by inserting ``(or 
$100 in the case of home health services)'' after ``$500''.
    (d) Maintaining Seamless Administration Through Fiscal 
Intermediaries.--Section 1842(b)(2) (42 U.S.C. 1395u(b)(2)) is amended 
by adding at the end the following:
    ``(E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by section 
5361, would be payable under part A instead of under this part, the 
Secretary shall continue administration of such claims through fiscal 
intermediaries under section 1816.''.
    (e) Effective Date.--The amendments made by this section apply to 
services furnished on or after January 1, 1998. For the purpose of 
applying such amendments, any home health spell of illness that began, 
but did not end, before such date shall be considered to have begun as 
of such date.

SEC. 5362. IMPOSITION OF $5 COPAYMENT FOR PART B HOME HEALTH SERVICES.

    (a) In General.--Section 1833(a)(2)(A) (42 U.S.C. 1395l(a)(2)(A)) 
(as amended by section 5343(c)(2)) is amended by striking ``1895'' and 
inserting ``1895, less a copayment amount equal to $5 per visit, not to 
exceed a total annual copayment amount equal to the inpatient hospital 
deductible determined under section 1813 for the calendar year in which 
such service is furnished''.
    (b) Provider Charges.--Section 1866(a)(2)(A)(i) (42 U.S.C. 
1395cc(a)(2)(A)(i)) is amended--
            (1) by striking ``deduction or coinsurance'' and inserting 
        ``deduction, coinsurance, or copayment''; and
            (2) by striking ``section 1833(b)'' and inserting 
        ``subsection (a)(2)(A) or (b) of section 1833''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after October 1, 1997.

SEC. 5363. CLARIFICATION OF PART-TIME OR INTERMITTENT NURSING CARE.

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

SEC. 5364. STUDY ON DEFINITION OF HOMEBOUND.

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

SEC. 5365. NORMATIVE STANDARDS FOR HOME HEALTH CLAIMS DENIALS.

    (a) In General.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 5102(c), is amended--
            (1) by striking ``and'' at the end of subparagraph (F),
            (2) by striking the semicolon at the end of subparagraph 
        (G) and inserting ``, and'', and
            (3) by inserting after subparagraph (G) the following new 
        subparagraph:
            ``(H) the frequency and duration of home health services 
        which are in excess of normative guidelines that the Secretary 
        shall establish by regulation;''.
    (b) Notification.--The Secretary of Health and Human Services may 
establish a process for notifying a physician in cases in which the 
number of home health service visits furnished under the medicare 
program under title XVIII of the Social Security Act (42 U.S.C. 1395 et 
seq.) pursuant to a prescription or certification of the physician 
significantly exceeds such threshold (or thresholds) as the Secretary 
specifies. The Secretary may adjust such threshold to reflect 
demonstrated differences in the need for home health services among 
different beneficiaries.
    (c) Effective Date.--The amendments made by this section apply to 
services furnished on or after October 1, 1997.

SEC. 5366. INCLUSION OF COST OF SERVICE IN EXPLANATION OF MEDICARE 
              BENEFITS.

    (a) In General.--Section 1842(h)(7) of the Social Security Act (42 
U.S.C. 1395u(h)(7)) is amended--
            (1) in subparagraph (C), by striking ``and'' at the end;
            (2) in subparagraph (D), by striking the period at the end 
        and inserting ``, and''; and
            (3) by adding at the end the following:
            ``(E) in the case of home health services furnished to an 
        individual enrolled under this part, the total amount that the 
        home health agency or other provider of such services billed 
        for such services.''.
    (b) Effective Date.--The amendments made by subsection (a) apply to 
explanation of benefits provided on and after October 1, 1997.

               Subtitle F--Provisions Relating to Part A

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

SEC. 5401. PPS HOSPITAL PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended--
            (1) in subclause (XII)--
                    (A) by inserting ``and the period beginning on 
                October 1, 1997, and ending on December 31, 1997,'' 
                after ``fiscal year 1997,''; and
                    (B) by striking ``and'' at the end; and
            (2) by striking subclause (XIII) and inserting the 
        following:
            ``(XIII) for calendar year 1998 for hospitals in all areas, 
        the market basket percentage increase minus 2.5 percentage 
        points,
            ``(XIV) for calendar years 1999 through 2002 for hospitals 
        in all areas, the market basket percentage increase minus 1.0 
        percentage points, and
            ``(XV) for calendar year 2003 and each subsequent calendar 
        year for hospitals in all areas, the market basket percentage 
        increase.''.
    (b) Rule of Construction.--Section 1886 (42 U.S.C. 1395ww) is 
amended by adding at the end the following new subsection:
    ``(j) PPS Calendar Year Payments.--Notwithstanding any other 
provision of this title, any updates or payment amounts determined 
under this section shall on and after December 31, 1998, take effect 
and be applied on a calendar year basis. With respect to any cost 
reporting periods that relate to any such updates or payment amounts, 
the Secretary shall revise such cost reporting periods to ensure that 
on and after December 31, 1998, such cost reporting periods relate to 
updates and payment amounts made under this section on a calendar year 
basis in the same manner as such cost reporting periods applied to 
updates and payment amounts under this section on the day before the 
date of enactment of this subsection.''.

SEC. 5402. CAPITAL PAYMENTS FOR PPS HOSPITALS.

    (a) Maintaining Savings From Temporary Reduction in PPS Capital 
Rates.--Section 1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended by 
adding at the end the following: ``In addition to the reduction 
described in the preceding sentence, for discharges occurring on or 
after October 1, 1997, the Secretary shall apply the budget neutrality 
adjustment factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 of title 
42 of the Code of Federal Regulations), to (i) the unadjusted standard 
Federal capital payment rate (as described in section 412.308(c) of 
that title, as in effect on September 30, 1997), and (ii) the 
unadjusted hospital-specific rate (as described in section 
412.328(e)(1) of that title, as in effect on September 30, 1997).''.
    (b) System Exception Payments for Transitional Capital.--
            (1) In general.--Section 1886(g)(l) (42 U.S.C. 
        1395ww(g)(1)) is amended--
                    (A) by redesignating subparagraph (C) as 
                subparagraph (F), and
                    (B) by inserting after subparagraph (B) the 
                following:
                    ``(C) The exceptions under the system provided by 
                the Secretary under subparagraph (B)(iii) shall include 
                the provision of exception payments under the special 
                exceptions process provided under section 412.348(g) of 
                title 42, Code of Federal Regulations (as in effect on 
                September 1, 1995), except that the Secretary shall 
                revise such process, effective for discharges occurring 
                after September 30, 1997, as follows:
                            ``(i) Eligible hospital requirements, as 
                        described in section 412.348(g)(1) of title 42, 
                        Code of Federal Regulations, shall apply except 
                        that subparagraph (ii) shall be revised to 
                        require that hospitals located in an urban area 
                        with at least 300 beds shall be eligible under 
                        such process and that such a hospital shall be 
                        eligible without regard to its disproportionate 
                        patient percentage under subsection (d)(5)(F) 
                        or whether it qualifies for additional payment 
                        amounts under such subsection.
                            ``(ii) Project size requirements, as 
                        described in section 412.348(g)(5) of title 42, 
                        Code of Federal Regulations, shall apply except 
                        that subparagraph (ii) shall be revised to 
                        require that the project costs of a hospital 
                        are at least 150 percent of its operating cost 
                        during the first 12 month cost reporting period 
                        beginning on or after October 1, 1991.
                            ``(iii) The minimum payment level for 
                        qualifying hospitals shall be 85 percent.
                            ``(iv) A hospital shall be considered to 
                        meet the requirement that it complete the 
                        project involved no later than the end of the 
                        last cost reporting period of the hospital 
                        beginning before October l, 2001, if--
                                    ``(I) the hospital has obtained a 
                                certificate of need for the project 
                                approved by the State or a local 
                                planning authority by September 1, 
                                1995; and
                                    ``(II) by September 1, 1995, the 
                                hospital has expended on the project at 
                                least $750,000 or 10 percent of the 
                                estimated cost of the project.
                            ``(v) Offsetting amounts, as described in 
                        section 412.348(g)(8)(ii) of title 42, Code of 
                        Federal Regulations, shall apply except that 
                        subparagraph (B) of such section shall be 
                        revised to require that the additional payment 
                        that would otherwise be payable for the cost 
                        reporting period shall be reduced by the amount 
                        (if any) by which the hospital's current year 
                        medicare capital payments (excluding, if 
                        applicable, 75 percent of the hospital's 
                        capital-related disproportionate share 
                        payments) exceeds its medicare capital costs 
                        for such year.
                    ``(D)(i) The Secretary shall reduce the Federal 
                capital and hospital rates up to $50,000,000 for a 
                calendar year to ensure that the application of 
                subparagraph (C) does not result in an increase in the 
                total amount that would have been paid under this 
                subsection in the fiscal year if such subparagraph did 
                not apply.
                    ``(ii) Payments made pursuant to the application of 
                subparagraph (C) shall not be considered for purposes 
                of calculating total estimated payments under section 
                412.348(h), Title 42, Code of Federal Regulations.
                    ``(E) The Secretary shall provide for publication 
                in the Federal Register each year (beginning with 1999) 
                of a description of the distributional impact of the 
                application of subparagraph (C) on hospitals which 
                receive, and do not receive, an exception payment under 
                such subparagraph.''.
            (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
        U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
        provide'' and inserting ``shall provide (in accordance with 
        subparagraph (C))''.

               CHAPTER 2--PAYMENT OF PPS EXEMPT HOSPITALS

SEC. 5421. PAYMENT UPDATE.

    (a) In General.--Section 1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) 
is amended--
            (1) in clause (ii)--
                    (A) by striking ``and'' at the end of subclause 
                (V);
                    (B) by redesignating subclause (VI) as subclause 
                (VIII); and
                    (C) by inserting after subclause (V), the following 
                subclauses:
            ``(VI) for fiscal year 1998, is 0 percent;
            ``(VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) for the 
        fiscal year; and''; and
            (2) by adding at the end the following new clause:
    ``(vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for the most recent cost reporting period 
for which information is available--
            ``(I) is equal to, or exceeds, 110 percent of the 
        hospital's target amount (as determined under subparagraph (A)) 
        for such cost reporting period, the applicable update factor 
        specified under this clause is the market basket percentage;
            ``(II) exceeds 100 percent, but is less than 110 percent, 
        of such target amount for the hospital, the applicable update 
        factor specified under this clause is 0 percent or, if greater, 
        the market basket percentage minus 0.25 percentage points for 
        each percentage point by which such allowable operating costs 
        (expressed as a percentage of such target amount) is less than 
        110 percent of such target amount;
            ``(III) is equal to, or less than 100 percent, but exceeds 
        \2/3\ of such target amount for the hospital, the applicable 
        update factor specified under this clause is 0 percent or, if 
        greater, the market basket percentage minus 1.5 percentage 
        points; or
            ``(IV) does not exceed \2/3\ of such target amount for the 
        hospital, the applicable update factor specified under this 
        clause is 0 percent.''.
    (b) No Effect of Payment Reduction on Exceptions and Adjustments.--
Section 1886(b)(4)(A)(ii) (42 U.S.C. 1395ww(b)(4)(A)(ii)) is amended by 
adding at the end the following new sentence: ``In making such 
reductions, the Secretary shall treat the applicable update factor 
described in paragraph (3)(B)(vi) for a fiscal year as being equal to 
the market basket percentage for that year.''.

SEC. 5422. REDUCTIONS TO CAPITAL PAYMENTS FOR CERTAIN PPS-EXEMPT 
              HOSPITALS AND UNITS.

    Section 1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the 
end the following new paragraph:
    ``(4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring during 
fiscal years 1998 through 2002 and that may be made under this title 
with respect to capital-related costs of inpatient hospital services of 
a hospital which is described in clause (i), (ii), or (iv) of 
subsection (d)(1)(B) or a unit described in the matter after clause (v) 
of such subsection, the Secretary shall reduce the amounts of such 
payments otherwise determined under this title by 15 percent.''.

SEC. 5423. CAP ON TEFRA LIMITS.

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

SEC. 5424. CHANGE IN BONUS AND RELIEF PAYMENTS.

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

SEC. 5425. TARGET AMOUNTS FOR REHABILITATION HOSPITALS, LONG-TERM CARE 
              HOSPITALS, AND PSYCHIATRIC HOSPITALS.

    Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended--
            (1) in subparagraph (A), in the matter preceding clause 
        (i), by striking ``and (E)'' and inserting ``(E), (F), and 
        (G)''; and
            (2) by adding at the end the following new subparagraphs:
    ``(F) In the case of a rehabilitation hospital (or unit thereof) 
(as described in clause (ii) of subsection (d)(1)(B)), for cost 
reporting periods beginning on or after October 1, 1997--
            ``(i) in the case of a hospital which first receives 
        payments under this section before October 1, 1997, the target 
        amount determined under subparagraph (A) for such hospital or 
        unit for a cost reporting period beginning during a fiscal year 
        shall not be less than 50 percent of the national mean of the 
        target amounts determined under such subparagraph for all such 
        hospitals for cost reporting periods beginning during such 
        fiscal year (determined without regard to this subparagraph); 
        and
            ``(ii) in the case of a hospital which first receives 
        payments under this section on or after October 1, 1997, such 
        target amount may not be greater than 130 percent of the 
        national mean of the target amounts for such hospitals (and 
        units thereof) for cost reporting periods beginning during 
        fiscal year 1991.
    ``(G) In the case of a hospital which has an average inpatient 
length of stay of greater than 25 days (as described in clause (iv) of 
subsection (d)(1)(B)), for cost reporting periods beginning on or after 
October 1, 1997--
            ``(i) in the case of a hospital which first receives 
        payments under this section as a hospital that is not a 
        subsection (d) hospital or a subsection (d) Puerto Rico 
        hospital before October 1, 1997, the target amount determined 
        under subparagraph (A) for such hospital for a cost reporting 
        period beginning during a fiscal year shall not be less than 50 
        percent of the national mean of the target amounts determined 
        under such subparagraph for all such hospitals for cost 
        reporting periods beginning during such fiscal year (determined 
        without regard to this subparagraph); and
            ``(ii) in the case of any other hospital which first 
        receives payment under this section on or after October 1, 
        1997, such target amount may not be greater than 130 percent of 
        such national mean of the target amounts for such hospitals for 
        cost reporting periods beginning during fiscal year 1991.
    ``(H) In the case of a psychiatric hospital (as defined in section 
1861(f)), for cost reporting periods beginning on or after October 1, 
1997--
            ``(i) in the case of a hospital which first receives 
        payments under this section before October 1, 1997, the target 
        amount determined under subparagraph (A) for such hospital for 
        a cost reporting period beginning during a fiscal year shall 
        not be less than 50 percent of the national mean of the target 
        amounts determined under such subparagraph for all such 
        hospitals for cost reporting periods beginning during such 
        fiscal year (determined without regard to this subparagraph); 
        and
            ``(ii) in the case of any other hospital which first 
        receives payment under this section on or after October 1, 
        1997, such target amount may not be greater than 130 percent of 
        such national mean of the target amounts for such hospitals for 
        cost reporting periods beginning during fiscal year 1991.''.

SEC. 5426. TREATMENT OF CERTAIN LONG-TERM CARE HOSPITALS LOCATED WITHIN 
              OTHER HOSPITALS.

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

SEC. 5427. ELIMINATION OF EXEMPTIONS; REPORT ON EXCEPTIONS AND 
              ADJUSTMENTS.

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

SEC. 5428. TECHNICAL CORRECTION RELATING TO SUBSECTION (D) HOSPITALS.

    (a) In General.--Section 1886(d)(1) (42 U.S.C. 1395ww(d)(1)) is 
amended--
            (1) in subparagraph (B)(v)--
                    (A) by inserting ``(I)'' after ``(v)''; and
                    (B) by striking the semicolon at the end and 
                inserting ``, or''; and
                    (C) by adding at the end the following:
            ``(II) a hospital that--
                    ``(aa) was recognized as a comprehensive cancer 
                center or clinical cancer research center by the 
                National Cancer Institute of the National Institutes of 
                Health as of April 20, 1983, or is able to demonstrate, 
                for any six-month period, that at least 50 percent of 
                its total discharges have a principal diagnosis that 
                reflects a finding of neoplastic disease, as defined in 
                subparagraph (E);
                    ``(bb) applied on or before December 31, 1990, for 
                classification as a hospital involved extensively in 
                treatment for or research on cancer under this clause 
                (as in effect on the day before the date of the 
                enactment of this subclause), but was not approved for 
                such classification; and
                    ``(cc) is located in a State which, as of December 
                19, 1989, was not operating a demonstration project 
                under section 1814(b);''; and
            (2) by adding at the end the following:
    ``(E) For purposes of subparagraph (B)(v)(II)(aa), the term 
`principal diagnosis that reflects a finding of neoplastic disease' 
means the condition established after study to be chiefly responsible 
for occasioning the admission of a patient to a hospital, except that 
only discharges with ICD-9-CM principal diagnosis codes of 140 through 
239, V58.0, V58.1, V66.1, or 990 will be considered to reflect such a 
principal diagnosis.''.
    (b) Payments.--Any classification by reason of section 
1886(d)(1)(B)(v)(II) of the Social Security Act (42 U.S.C. 
1395ww(d)(1)(B)(v)(II)) (as added by subsection (a)) shall apply to all 
cost reporting periods beginning on or after January 1, 1991. Any 
payments owed to a hospital as a result of such section (as so amended) 
shall be made expeditiously, but in no event later than 1 year after 
the date of enactment of this Act.

SEC. 5429. CERTAIN CANCER HOSPITALS.

    (a) In General.--Section 1886(d)(1) (42 U.S.C. 1395ww(d)(1)), as 
amended by section 5428, is amended--
            (1) in subparagraph (B)(v), by striking the semicolon at 
        the end of subclause (II)(cc) and inserting the following: ``, 
        or'', and by adding at the end the following:
            ``(III) a hospital--
                    ``(aa) that was classified under subsection (iv) 
                beginning on or before December 31, 1990, and through 
                December 31, 1995; and
                    ``(bb) throughout the period described in item (aa) 
                and currently has greater than 49 percent of its total 
                patient discharges with a principal diagnosis that 
                reflects a finding of neoplastic disease;''; and
            (2) by adding at the end the following:
    ``(F) In the case of a hospital that is classified under 
subparagraph (B)(v)(III), no rebasing is permitted by such hospital and 
such hospital shall use the base period in effect at the time of such 
hospital's December 31, 1995, cost report.''.

             CHAPTER 3--GRADUATE MEDICAL EDUCATION PAYMENTS

                 Subchapter A--Direct Medical Education

SEC. 5441. LIMITATION ON NUMBER OF RESIDENTS AND ROLLING AVERAGE FTE 
              COUNT.

    Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by adding 
after subparagraph (E) the following:
                    ``(F) Limitation on number of residents in 
                allopathic and osteopathic medicine.--Except as 
                provided in subparagraph (H), such rules shall provide 
                that for purposes of a cost reporting period beginning 
                on or after October 1, 1997, the total number of full-
                time equivalent residents before application of 
                weighting factors (as determined under this paragraph) 
                with respect to a hospital's approved medical residency 
                training program in the fields of allopathic medicine 
                and osteopathic medicine may not exceed the number of 
                full-time equivalent residents with respect to such 
                programs for the hospital's most recent cost reporting 
                period ending on or before December 31, 1996.
                    ``(G) Counting interns and residents for 1998 and 
                subsequent years.--
                            ``(i) In general.--For cost reporting 
                        periods beginning on or after October 1, 1997, 
                        subject to the limit described in subparagraph 
                        (F) and except as provided in subparagraph (H), 
                        the total number of full-time equivalent 
                        residents for determining a hospital's graduate 
                        medical education payment shall equal the 
                        average of the full-time equivalent resident 
                        counts for the cost reporting period and the 
                        preceding two cost reporting periods.
                            ``(ii) Adjustment for short periods.--If 
                        any cost reporting period beginning on or after 
                        October 1, 1997, is not equal to twelve months, 
                        the Secretary shall make appropriate 
                        modifications to ensure that the average full-
                        time equivalent resident counts pursuant to 
                        clause (ii) are based on the equivalent of full 
                        twelve-month cost reporting periods.
                            ``(iii) Transition rule for 1998.--In the 
                        case of a hospital's first cost reporting 
                        period beginning on or after October 1, 1997, 
                        clause (i) shall be applied by using the 
                        average for such period and the preceding cost 
                        reporting period.
                    ``(H) Special rules for new facilities.--
                            ``(i) In general.--If a hospital is an 
                        applicable facility under clause (iii) for any 
                        year with respect to any approved medical 
                        residency training program described in 
                        subsection (h)--
                                    ``(I) subject to the applicable 
                                annual limit under clause (ii), the 
                                Secretary may provide an additional 
                                amount of full-time equivalent 
                                residents which may be taken into 
                                account with respect to such program 
                                under subparagraph (F) for cost 
                                reporting periods beginning during such 
                                year, and
                                    ``(II) the averaging rules under 
                                subparagraph (G) shall not apply for 
                                such year.
                            ``(ii) Applicable annual limit.--The total 
                        of additional full-time equivalent residents 
                        which the Secretary may authorize under clause 
                        (i) for all applicable facilities for any year 
                        shall not exceed the amount which would result 
                        in the number of full-time equivalent residents 
                        with respect to approved medical residency 
                        training programs in the fields of allopathic 
                        and osteopathic medicine for all hospitals 
                        exceeding such number for the preceding year. 
                        In allocating such additional residents, the 
                        Secretary shall give special consideration to 
                        facilities that meet the needs of underserved 
                        rural areas.
                            ``(iii) Applicable facility.--For purposes 
                        of this subparagraph, a hospital shall be 
                        treated as an applicable facility with respect 
                        to an approved medical residency training 
                        program only during the first 5 years during 
                        which such program is in existence. A hospital 
                        shall not be treated as such a facility if the 
                        5-year period described in the preceding 
                        sentence ended on or before December 31, 1996.
                            ``(iv) Coordination with limit.--For 
                        purposes of applying subparagraph (F), the 
                        number of full-time equivalent residents of an 
applicable facility with respect to any approved medical residency 
training program in the fields of allopathic and osteopathic medicine 
for the facility's most recent cost reporting period ending on or 
before December 31, 1996, shall be increased by the number of such 
residents allocated to such facility under clause (i).''

SEC. 5442. PERMITTING PAYMENT TO NONHOSPITAL PROVIDERS.

    (a) In General.--Section 1886 (42 U.S.C. 1395ww) is amended by 
adding at the end the following:
    ``(j) Payment to Nonhospital Providers.--
            ``(1) In general.--For cost reporting periods beginning on 
        or after October 1, 1997, the Secretary may establish rules for 
        payment to qualified nonhospital providers for their direct 
        costs of medical education, if those costs are incurred in the 
        operation of an approved medical residency training program 
        described in subsection (h). Such rules shall specify the 
        amounts, form, and manner in which payments will be made and 
        the portion of such payments that will be made from each of the 
        trust funds under this title.
            ``(2) Qualified nonhospital providers.--For purposes of 
        this subsection, the term `qualified nonhospital providers' 
        means--
                    ``(A) a federally qualified health center, as 
                defined in section 1861(aa)(4);
                    ``(B) a rural health clinic, as defined in section 
                1861(aa)(2); and
                    ``(C) such other providers (other than hospitals) 
                as the Secretary determines to be appropriate.''
    (b) Prohibition on Double Payments.--Section 1886(h)(3)(B) (42 
U.S.C. 1395ww(h)(3)(B)) is amended by adding at the end the following:
        ``The Secretary shall reduce the aggregate approved amount to 
        the extent payment is made under subsection (j) for residents 
        included in the hospital's count of full-time equivalent 
        residents.''

                Subchapter B--Indirect Medical Education

SEC. 5446. INDIRECT GRADUATE MEDICAL EDUCATION PAYMENTS.

    (a) Multiyear Transition Regarding Percentages.--
            (1) In general.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
        1395ww(d)(5)(B)(ii)) is amended to read as follows:
                    ``(ii) For purposes of clause (i)(II), the indirect 
                teaching adjustment factor is equal to
                c  x  (((1+r) to the nth power) - 1), where `r' is the 
                ratio of the hospital's full-time equivalent interns 
                and residents to beds and `n' equals .405. For 
                discharges occurring--
                            ``(I) on or after May 1, 1986, and before 
                        October 1, 1997, `c' is equal to 1.89;
                            ``(II) during fiscal year 1998, `c' is 
                        equal to 1.72;
                            ``(III) during fiscal year 1999, `c' is 
                        equal to 1.6;
                            ``(IV) during fiscal year 2000, `c' is 
                        equal to 1.47; and
                            ``(V) on or after October 1, 2000, `c' is 
                        equal to 1.35.''
            (2) No restandardization of payment amounts required.--
        Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
        amended by adding at the end the following: ``except that the 
        Secretary shall not take into account any reduction in the 
        amount of additional payments under paragraph (5)(B)(ii) 
        resulting from the amendment made by section 5446(a)(1) of the 
        Balanced Budget Act of 1997,''.
    (b) Limitation.--
            (1) In general.--Section 1886(d)(5)(B) (42 U.S.C. 
        1395ww(d)(5)(B)) is amended by adding after clause (iv) the 
        following:
                    ``(v) In determining the adjustment with respect to 
                a hospital for discharges occurring on or after October 
                1, 1997, the total number of full-time equivalent 
                interns and residents in either a hospital or 
                nonhospital setting may not exceed the number of such 
                full-time equivalent interns and residents in the 
                hospital with respect to the hospital's most recent 
                cost reporting period ending on or before December 31, 
                1996.
                    ``(vi) For purposes of clause (ii)--
                            ``(I) `r' may not exceed the ratio of the 
                        number of interns and residents as determined 
                        under clause (v) with respect to the hospital 
                        for its most recent cost reporting period 
                        ending on or before December 31, 1996, to the 
                        hospital's available beds (as defined by the 
                        Secretary) during that cost reporting period, 
                        and
                            ``(II) for the hospital's cost reporting 
                        periods beginning on or after October 1, 1997, 
subject to the limits described in clauses (iv) and (v), the total 
number of full-time equivalent residents for payment purposes shall 
equal the average of the actual full-time equivalent resident count for 
the cost reporting period and the preceding two cost reporting periods.
                In the case of the first cost reporting period 
                beginning on or after October 1, 1997, subclause (II) 
                shall be applied by using the average for such period 
                and the preceding cost reporting period.
                    ``(vii)(I) If a hospital is an applicable facility 
                under subclause (III) for any year with respect to any 
                approved medical residency training program described 
                in subsection (h)--
                            ``(aa) subject to the applicable annual 
                        limit under subclause (II), the Secretary may 
                        provide an additional amount of full-time 
                        equivalent interns and residents which may be 
                        taken into account with respect to such program 
                        under clauses (v) and (vi) for cost reporting 
                        periods beginning during such year, and
                            ``(bb) the averaging rules under clause 
                        (vi)(II) shall not apply for such year.
                    ``(II) The total of additional full-time equivalent 
                interns and residents which the Secretary may authorize 
                under subclause (I) for all applicable facilities for 
                any year shall not exceed the amount which would result 
                in the number of full-time equivalent interns or 
                residents for all hospitals exceeding such number for 
                the preceding year. In allocating such additional 
                residents, the Secretary shall give special 
                consideration to facilities that meet the needs of 
                underserved rural areas.
                    ``(III) For purposes of this clause, a hospital 
                shall be treated as an applicable facility with respect 
                to an approved medical residency training program only 
                during the first 5 years during which such program is 
                in existence. A hospital shall not be treated as such a 
                facility if the 5-year period described in the 
                preceding sentence ended on or before December 31, 
                1996.
                    ``(IV) For purposes of applying clause (v), the 
                number of full-time equivalent residents of an 
                applicable facility with respect to any approved 
                medical residency training program for the facility's 
                most recent cost reporting period ending on or before 
                December 31, 1996, shall be increased by the number of 
                such residents allocated to such facility under 
                subclause (I).
            ``(viii) If any cost reporting period beginning on or after 
        October 1, 1997, is not equal to twelve months, the Secretary 
        shall make appropriate modifications to ensure that the average 
        full-time equivalent residency count pursuant to subclause (II) 
        of clause (vi) is based on the equivalent of full twelve-month 
        cost reporting periods.''
            (2) Payment for interns and residents providing off-site 
        services.--Section 1886(d)(5)(B)(iv) (42 U.S.C. 
        1395ww(d)(5)(B)(iv)) is amended to read as follows:
            ``(iv) Effective for discharges occurring on or after 
        October 1, 1997, all the time spent by an intern or resident in 
        patient care activities under an approved medical residency 
        training program at an entity in a nonhospital setting shall be 
        counted towards the determination of full-time equivalency if 
        the hospital incurs all, or substantially all, of the costs for 
        the training program in that setting.''

  Subchapter C--Graduate Medical Education Payments for Managed Care 
                               Enrollees

SEC. 5451. DIRECT AND INDIRECT MEDICAL EDUCATION PAYMENTS TO HOSPITALS 
              FOR MANAGED CARE ENROLLEES.

    (a) Payments to Hospitals for Direct Costs of Graduate Medical 
Education.--Section 1886(h)(3) (42 U.S.C. 1395ww(h)(3)) is amended by 
adding after subparagraph (C) the following:
                    ``(D) Payment for medicare choice enrollees.--
                            ``(i) In general.--For portions of cost 
                        reporting periods occurring on or after January 
                        1, 1998, the Secretary shall provide for an 
                        additional payment amount under this subsection 
                        for services furnished to individuals who are 
                        enrolled under a risk-sharing contract with an 
                        eligible organization under section 1876 and 
                        who are entitled to part A or with a Medicare 
                        Choice organization under part C. The amount of 
                        such a payment shall equal the applicable 
                        percentage of the product of--
                                    ``(I) the aggregate approved amount 
                                (as defined in subparagraph (B)) for 
                                that period; and
                                    ``(II) the fraction of the total 
                                number of inpatient-bed days (as 
                                established by the Secretary) during 
                                the period which are attributable to 
                                such enrolled individuals.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage is--
                                    ``(I) 25 percent in 1998,
                                    ``(II) 50 percent in 1999,
                                    ``(III) 75 percent in 2000, and
                                    ``(IV) 100 percent in 2001 and 
                                subsequent years.
                            ``(iii) Special rule for hospitals under 
                        reimbursement system.--The Secretary shall 
                        establish rules for the application of this 
                        subparagraph to a hospital reimbursed under a 
                        reimbursement system authorized under section 
                        1814(b)(3) in the same manner as it would apply 
                        to the hospital if it were not reimbursed under 
                        such section.''
    (b) Payment to Hospitals of Indirect Medical Education Costs.--
Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by adding at the end 
the following:
            ``(11) Additional payments for managed care savings.--
                    ``(A) In general.--For portions of cost reporting 
                periods occurring on or after January 1, 1998, the 
                Secretary shall provide for an additional payment 
                amount for each applicable discharge of any subsection 
                (d) hospital (or any hospital reimbursed under a 
                reimbursement system authorized under section 
                1814(b)(3)) that has an approved medical residency 
                training program.
                    ``(B) Applicable discharge.--For purposes of this 
                paragraph, the term `applicable discharge' means the 
                discharge of any individual who is enrolled under a 
                risk-sharing contract with an eligible organization 
                under section 1876 and who is entitled to benefits 
                under part A or any individual who is enrolled with a 
                Medicare Choice organization under part C.
                    ``(C) Determination of amount.--The amount of the 
                payment under this paragraph with respect to any 
                applicable discharge shall be equal to the applicable 
                percentage (as defined in subsection (h)(3)(D)(ii)) of 
                the estimated average per discharge amount that would 
                otherwise have been paid under paragraph (1)(A) if the 
                individuals had not been enrolled as described in 
                subparagraph (B).''

SEC. 5452. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

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

                   CHAPTER 4--OTHER HOSPITAL PAYMENTS

SEC. 5461. DISPROPORTIONATE SHARE PAYMENTS TO HOSPITALS FOR MANAGED 
              CARE AND MEDICARE CHOICE ENROLLEES.

    Section 1886(d) (42 U.S.C. 1395ww(d)) (as amended by section 5451) 
is amended by adding at the end the following:
            ``(12) Additional payments for managed care and medicare 
        choice savings.--
                    ``(A) In general.--For portions of cost reporting 
                periods occurring on or after January 1, 1998, the 
                Secretary shall provide for an additional payment 
                amount for each applicable discharge of--
                            (i) any subsection (d) hospital that is a 
                        disproportionate share hospital (as described 
                        in paragraph (5)(F)(i)); or
                            (ii) any hospital reimbursed under a 
                        reimbursement system authorized under section 
                        1814(b)(3)) if such hospital would qualify as a 
                        disproportionate share hospital were it not so 
                        reimbursed.
                    ``(B) Applicable discharge.--For purposes of this 
                paragraph, the term `applicable discharge' means the 
                discharge of any individual who is enrolled under a 
                risk-sharing contract with an eligible organization 
                under section 1876 and who is entitled to benefits 
                under part A or any individual who is enrolled with a 
                Medicare Choice organization under part C.
                    ``(C) Determination of amount.--The amount of the 
                payment under this paragraph with respect to any 
                applicable discharge shall be equal to the applicable 
                percentage (as defined in subsection (h)(3)(D)(ii)) of 
                the estimated average per discharge amount that would 
                otherwise have been paid under paragraph (1)(A) if the 
                individuals had not been enrolled as described in 
                subparagraph (B).''.

SEC. 5462. REFORM OF DISPROPORTIONATE SHARE PAYMENTS TO HOSPITALS 
              SERVING VULNERABLE POPULATIONS.

    (a) In General.--Section 1886(d)(5)(F) of the Social Security Act 
(42 U.S.C. 1395ww(d)(5)(F)) is amended--
            (1) in clause (i), by inserting ``and before December 31, 
        1998,'' after ``May, 1, 1986,'';
            (2) in clause (ii), by striking ``The amount'' and 
        inserting ``Subject to clauses (ix) and (x), the amount''; and
            (3) by adding at the end the following:
            ``(ix) In the case of discharges occurring on or after 
        October 1, 1997, and before December 31, 1998, the additional 
        payment amount otherwise determined under clause (ii) shall be 
        reduced by 4 percent.
            ``(x)(I) In the case of discharges occurring during 
        calendar years 1999 and succeeding calendar years, the 
        additional payment amount shall be determined in accordance 
        with the formula established under subclause (II).
            ``(II) Not later than January 1, 1999, the Secretary shall 
        establish a formula for determining additional payment amounts 
        under this subparagraph. In determining such formula the 
        Secretary shall--
                    ``(aa) establish a single threshold for costs 
                incurred by hospitals in serving low-income patients,
                    ``(bb) consider the costs described in subclause 
                (III), and
                    ``(cc) ensure that such formula complies with the 
                requirement described in subclause (IV).
            ``(III) The costs described in this subclause are as 
        follows:
                    ``(aa) The costs incurred by the hospital during a 
                period (as determined by the Secretary) of furnishing 
                inpatient and outpatient hospital services to 
                individuals who are entitled to benefits under part A 
                of this title and are entitled to supplemental security 
                income benefits under title XVI (excluding any 
                supplementation of those benefits by a State under 
                section 1616).
                    ``(bb) The costs incurred by the hospital during a 
                period (as so determined) of furnishing inpatient and 
                outpatient hospital services to individuals who are 
                eligible for medical assistance under the State plan 
                under title XIX and are not entitled to benefits under 
                part A of this title (including individuals enrolled in 
a health maintenance organization (as defined in section 1903(m)(1)(A)) 
or any other managed care plan under such title, individuals who are 
eligible for medical assistance under such title pursuant to a waiver 
approved by the Secretary under section 1115, and individuals who are 
eligible for medical assistance under the State plan under title XIX 
(regardless of whether the State has provided reimbursement for any 
such assistance provided under such title)).
                    ``(cc) The costs incurred by the hospital during a 
                period (as so determined) of furnishing inpatient and 
                outpatient hospital services to individuals who are not 
                described in item (aa) or (bb) and who do not have 
                health insurance coverage (or any other source of third 
                party payment for such services) and for which the 
                hospital did not receive compensation.
            ``(IV)(aa) The requirement described in this subclause is 
        that for each calendar year for which the formula established 
        under this clause applies, the additional payment amount 
        determined for such calendar year under such formula shall not 
        exceed an amount equal to the additional payment amount that, 
        in the absence of such formula, would have been determined 
        under this subparagraph, reduced by the applicable percentage 
        for such calendar year.
            ``(bb) For purposes of subclause (aa), the applicable 
        percentage for--
                    ``(AA) calendar year 1999 is 8 percent;
                    ``(BB) calendar year 2000 is 12 percent;
                    ``(CC) calendar year 2001 is 16 percent;
                    ``(DD) calendar year 2002 is 20 percent;
                    ``(EE) calendar year 2003 and subsequent calendar 
                years, is 0 percent''.
    (b) Data Collection.--
            (1) In general.--In developing the formula under section 
        1886(g)(5)(F)(x) of the Social Security Act (42 U.S.C. 
        1395ww(g)(5)(F)(x)), as added by subsection (a), and in 
        implementing the provisions of and amendments made by this 
        section, the Secretary of Health and Human Services may require 
        any subsection (d) hospital (as defined in section 
        1886(d)(1)(B) of the Social Security Act (42 U.S.C. 
        1395ww(d)(1)(B))) receiving additional payments by reason of 
        section 1886(d)(5)(F) of that Act (42 U.S.C. 1395ww(d)(5)(F)) 
        (as amended by subsection (a) of this section) to submit to the 
        Secretary any information that the Secretary determines is 
        necessary to implement the provisions of and amendments made by 
        this section.
            (2) Failure to comply.--Any subsection (d) hospital (as so 
        defined) that fails to submit to the Secretary of Health and 
        Human Services any information requested under paragraph (1), 
        shall be deemed ineligible for an additional payment amount 
        under section 1886(d)(5)(F) of the Social Security Act (42 
        U.S.C. 1395ww(d)(5)(F)) (as amended by subsection (a) of this 
        section).
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to discharges occurring on and after October 1, 1997.

SEC. 5463. MEDICARE CAPITAL ASSET SALES PRICE EQUAL TO BOOK VALUE.

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

SEC. 5464. ELIMINATION OF IME AND DSH PAYMENTS ATTRIBUTABLE TO OUTLIER 
              PAYMENTS.

    (a) Indirect Medical Education.--Section 1886(d)(5)(B)(i)(I) (42 
U.S.C. 1395ww(d)(5)(B)(i)(I)) is amended by inserting ``, for cases 
qualifying for additional payment under subparagraph (A)(i),'' before 
``the amount paid to the hospital under subparagraph (A)''.
    (b) Disproportionate Share Adjustments.--Section 
1886(d)(5)(F)(ii)(I) (42 U.S.C. 1395ww(d)(5)(F)(ii)(I)) is amended by 
inserting ``, for cases qualifying for additional payment under 
subparagraph (A)(i),'' before ``the amount paid to the hospital under 
subparagraph (A)''.
    (c) Cost Outlier Payments.--Section 1886(d)(5)(A)(ii) (42 U.S.C. 
1395ww(d)(5)(A)(ii)) is amended by striking ``exceed the applicable DRG 
prospective payment rate'' and inserting ``exceed the sum of the 
applicable DRG prospective payment rate plus any amounts payable under 
subparagraphs (B) and (F) of subsection (d)(5)''.
    (d) Effective Date.--The amendments made by this section apply to 
discharges occurring after September 30, 1997.

SEC. 5465. TREATMENT OF TRANSFER CASES.

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

SEC. 5466. REDUCTIONS IN PAYMENTS FOR ENROLLEE BAD DEBT.

    Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
the end the following new subparagraph:
    ``(T) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which are 
attributable to the deductibles and coinsurance amounts under this 
title shall be reduced--
            ``(i) for cost reporting periods beginning on or after 
        October 1, 1997 and on or before December 31, 1998, by 25 
        percent of such amount otherwise allowable,
            ``(ii) for cost reporting periods beginning during calendar 
        year 1999, by 40 percent of such amount otherwise allowable, 
        and
            ``(iii) for cost reporting periods beginning during a 
        subsequent calendar year, by 50 percent of such amount 
        otherwise allowable.''.

SEC. 5467. FLOOR ON AREA WAGE INDEX.

    (a) In General.--For purposes of section 1886(d)(3)(E) of the 
Social Security Act (42 U.S.C. 1395ww(d)(3)(E)) for discharges 
occurring on or after October 1, 1997, the area wage index applicable 
under such section to any hospital which is not located in a rural area 
(as defined in section 1886(d)(2)(D) of such Act (42 U.S.C. 
1395ww(d)(2)(D)) may not be less than the average of the area wage 
indices applicable under such section to hospitals located in rural 
areas in the State in which the hospital is located.
    (b) Implementation.--The Secretary of Health and Human Services 
shall adjust the area wage indices referred to in subsection (a) for 
hospitals not described in such subsection in a manner which assures 
that the aggregate payments made under section 1886(d) of the Social 
Security Act (42 U.S.C. 1395ww(d)) in a fiscal year for the operating 
costs of inpatient hospital services are not greater or less than those 
which would have been made in the year if this section did not apply.

SEC. 4568. INCREASE BASE PAYMENT RATE TO PUERTO RICO HOSPITALS.

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

SEC. 5469. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

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

SEC. 5470. COVERAGE OF SERVICES IN RELIGIOUS NONMEDICAL HEALTH CARE 
              INSTITUTIONS UNDER THE MEDICARE AND MEDICAID PROGRAMS.

    (a) Medicare Coverage.--
            (1) In general.--Section 1861 of the Social Security Act 
        (42 U.S.C. 1395x) (as amended by section 5361) is amended--
            (1) in the sixth sentence of subsection (e)--
                    (A) by striking ``includes'' and all that follows 
                up to ``but only'' and inserting ``includes a religious 
                nonmedical health care institution (as defined in 
                subsection (rr)(1)),'', and
                    (B) by inserting ``consistent with section 1821'' 
                before the period;
            (2) in subsection (y)--
                    (A) by amending the heading to read as follows:

  ``Extended Care in Religious Nonmedical Health Care Institutions'',

                    (B) in paragraph (1), by striking ``includes'' and 
                all that follows up to ``but only'' and inserting 
                ``includes a religious nonmedical health care 
                institution (as defined in subsection (rr)(1)),'', and
                    (C) by inserting ``consistent with section 1821'' 
                before the period; and
            (3) by adding at the end the following:

             ``Religious Nonmedical Health Care Institution

    ``(rr)(1) The term `religious nonmedical health care institution' 
means an institution that--
                    ``(A) is described in subsection (c)(3) of section 
                501 of the Internal Revenue Code of 1986 and is exempt 
                from taxes under subsection (a) of such section;
                    ``(B) is lawfully operated under all applicable 
                Federal, State, and local laws and regulations;
                    ``(C) provides only nonmedical nursing items and 
                services exclusively to patients who choose to rely 
                solely upon a religious method of healing and for whom 
                the acceptance of medical health services would be 
                inconsistent with their religious beliefs;
                    ``(D) provides such nonmedical items and services 
                exclusively through nonmedical nursing personnel who 
                are experienced in caring for the physical needs of 
                such patients;
                    ``(E) provides such nonmedical items and services 
                to inpatients on a 24-hour basis;
                    ``(F) on the basis of its religious beliefs, does 
                not provide through its personnel or otherwise medical 
                items and services (including any medical screening, 
                examination, diagnosis, prognosis, treatment, or the 
                administration of drugs) for its patients;
                    ``(G) is not a part of, or owned by, or under 
                common ownership with, or affiliated through ownership 
                with, a health care facility that provides medical 
                services;
                    ``(H) has in effect a utilization review plan 
                which--
                            ``(i) provides for the review of admissions 
                        to the institution, of the duration of stays 
                        therein, of cases of continuous extended 
                        duration, and of the items and services 
                        furnished by the institution,
                            ``(ii) requires that such reviews be made 
                        by an appropriate committee of the institution 
                        that includes the individuals responsible for 
                        overall administration and for supervision of 
                        nursing personnel at the institution,
                            ``(iii) provides that records be maintained 
                        of the meetings, decisions, and actions of such 
                        committee, and
                            ``(iv) meets such other requirements as the 
                        Secretary finds necessary to establish an 
                        effective utilization review plan;
                    ``(I) provides the Secretary with such information 
                as the Secretary may require to implement section 1821, 
                to monitor quality of care, and to provide for coverage 
                determinations; and
                    ``(J) meets such other requirements as the 
                Secretary finds necessary in the interest of the health 
                and safety of individuals who are furnished services in 
                the institution.
    ``(2) If the Secretary finds that the accreditation of an 
institution by a State, regional, or national agency or association 
provides reasonable assurances that any or all of the requirements of 
paragraph (1) are met or exceeded, the Secretary shall, to the extent 
the Secretary deems it appropriate, treat such institution as meeting 
the condition or conditions with respect to which the Secretary made 
such finding.
    ``(3)(A)(i) In administering this subsection and section 1821, the 
Secretary shall not require any patient of a religious nonmedical 
health care institution to undergo any medical screening, examination, 
diagnosis, prognosis, or treatment or to accept any other medical 
health care service, if such patient (or legal representative of the 
patient) objects thereto on religious grounds.
    ``(ii) Clause (i) shall not be construed as preventing the 
Secretary from requiring under section 1821(a)(2) the provision of 
sufficient information regarding an individual's condition as a 
condition for receipt of benefits under part A for services provided in 
such an institution.
    ``(B)(i) In administering this subsection and section 1821, the 
Secretary shall not subject a religious nonmedical health care 
institution to any medical supervision, regulation, or control, insofar 
as such supervision, regulation, or control would be contrary to the 
religious beliefs observed by the institution.
    ``(ii) Clause (i) shall not be construed as preventing the 
Secretary from reviewing items and services billed by the institution 
to the extent the Secretary determines such review to be necessary to 
determine whether such items and services were not covered under part 
A, are excessive, or are fraudulent.''.
            (2) Conditions of coverage.--Part A of title XVIII of the 
        Social Security Act is amended by adding at the end the 
        following new section:

     ``conditions for coverage of religious nonmedical health care 
                         institutional services

    ``Sec. 1821. (a) In General.--Subject to subsections (c) and (d), 
payment under this part may be made for inpatient hospital services or 
post-hospital extended care services furnished an individual in a 
religious nonmedical health care institution only if--
            ``(1) the individual has an election in effect for such 
        benefits under subsection (b); and
            ``(2) the individual has a condition such that the 
        individual would qualify for benefits under this part for 
        inpatient hospital services or extended care services, 
        respectively, if the individual were an inpatient or resident 
        in a hospital or skilled nursing facility that was not such an 
        institution.
    ``(b) Election.--
            ``(1) In general.--An individual may make an election under 
        this subsection in a form and manner specified by the Secretary 
        consistent with this subsection. Unless otherwise provided, 
        such an election shall take effect immediately upon its 
        execution. Such an election, once made, shall continue in 
        effect until revoked.
            ``(2) Form.--The election form under this subsection shall 
        include the following:
                    ``(A) A statement, signed by the individual (or 
                such individual's legal representative), that--
                            ``(i) the individual is conscientiously 
                        opposed to acceptance of nonexcepted medical 
                        treatment; and
                            ``(ii) the individual's acceptance of 
                        nonexcepted medical treatment would be 
                        inconsistent with the individual's sincere 
                        religious beliefs.
                    ``(B) A statement that the receipt of non-excepted 
                medical services shall constitute a revocation of the 
                election and may limit further receipt of services 
                described in subsection (a).
            ``(3) Revocation.--An election under this subsection by an 
        individual may be revoked in a form and manner specified by the 
        Secretary and shall be deemed to be revoked if the individual 
        receives medicare reimbursable non-excepted medical treatment, 
        regardless of whether or not benefits for such treatment are 
        provided under this title.
            ``(4) Limitation on subsequent elections.--Once an 
        individual's election under this subsection has been made and 
        revoked twice--
                    ``(A) the next election may not become effective 
                until the date that is 1 year after the date of most 
                recent previous revocation, and
                    ``(B) any succeeding election may not become 
                effective until the date that is 5 years after the date 
                of the most recent previous revocation.
            ``(5) Excepted medical treatment.--For purposes of this 
        subsection:
                    ``(A) Excepted medical treatment.--The term 
                `excepted medical treatment' means medical care or 
                treatment (including medical and other health 
                services)--
                            ``(i) for the setting of fractured bones,
                            ``(ii) received involuntarily, or
                            ``(iii) required under Federal or State law 
                        or law of a political subdivision of a State.
                    ``(B) Non-excepted medical treatment.--The term 
                `nonexcepted medical treatment' means medical care or 
                treatment (including medical and other health services) 
                other than excepted medical treatment.
    ``(c) Monitoring and Safeguard Against Excessive Expenditures.--
            ``(1) Estimate of expenditures.--Before the beginning of 
        each fiscal year (beginning with fiscal year 2000), the 
        Secretary shall estimate the level of expenditures under this 
        part for services described in subsection (a)for that fiscal 
        year.
            ``(2) Adjustment in payments.--
                    ``(A) Proportional adjustment.--If the Secretary 
                determines that the level estimated under paragraph (1) 
                for a fiscal year will exceed the trigger level (as 
                defined in subparagraph (C)) for that fiscal year, the 
                Secretary shall, subject to subparagraph (B), provide 
                for such a proportional reduction in payment amounts 
                under this part for services described in subsection 
                (a) for the fiscal year involved as will assure that 
                such level (taking into account any adjustment under 
                subparagraph (B)) does not exceed the trigger level for 
                that fiscal year.
                    ``(B) Alternative adjustments.--The Secretary may, 
                instead of making some or all of the reduction 
                described in subparagraph (A), impose such other 
                conditions or limitations with respect to the coverage 
                of covered services (including limitations on new 
                elections of coverage and new facilities) as may be 
                appropriate to reduce the level of expenditures 
                described in paragraph (1) to the trigger level.
                    ``(C) Trigger level.--For purposes of this 
                subsection, subject to adjustment under paragraph 
                (3)(B), the `trigger level' for--
                            ``(i) fiscal year 1998, is $20,000,000, or
                            ``(ii) a succeeding fiscal year is the 
                        amount specified under this subparagraph for 
                        the previous fiscal year increased by the 
                        percentage increase in the consumer price index 
                        for all urban consumers (all items; United 
                        States city average) for the 12-month period 
                        ending with July preceding the beginning of the 
                        fiscal year.
                    ``(D) Prohibition of administrative and judicial 
                review.--There shall be no administrative or judicial 
                review under section 1869, 1878, or otherwise of the 
                estimation of expenditures under subparagraph (A) or 
                the application of reduction amounts under subparagraph 
                (B).
                    ``(E) Effect on billing.--Notwithstanding any other 
                provision of this title, in the case of a reduction in 
                payment provided under this subsection for services of 
                a religious nonmedical health care institution provided 
                to an individual, the amount that the institution is 
                otherwise permitted to charge the individual for such 
                services is increased by the amount of such reduction.
            ``(3) Monitoring expenditure level.--
                    ``(A) In general.--The Secretary shall monitor the 
                expenditure level described in paragraph (2)(A) for 
                each fiscal year (beginning with fiscal year 1999).
                    ``(B) Adjustment in trigger level.--If the 
                Secretary determines that such level for a fiscal year 
                exceeded, or was less than, the trigger level for that 
                fiscal year, then the trigger level for the succeeding 
                fiscal year shall be reduced, or increased, 
                respectively, by the amount of such excess or deficit.
    ``(d) Sunset.--If the Secretary determines that the level of 
expenditures described in subsection (c)(1) for 3 consecutive fiscal 
years (with the first such year being not earlier than fiscal year 
2002) exceeds the trigger level for such expenditures for such years 
(as determined under subsection (c)(2)), benefits shall be paid under 
this part for services described in subsection (a) and furnished on or 
after the first January 1 that occurs after such 3 consecutive years 
only with respect to an individual who has an election in effect under 
subsection (b) as of such January 1 and only during the duration of 
such election.
    ``(e) Annual Report.--At the beginning of each fiscal year 
(beginning with fiscal year 1999), the Secretary shall submit to the 
Committees on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate an annual report on coverage and 
expenditures for services described in subsection (a) under this part 
and under State plans under title XIX. Such report shall include--
            ``(1) level of expenditures described in subsection (c)(1) 
        for the previous fiscal year and estimated for the fiscal year 
        involved;
            ``(2) trends in such level; and
            ``(3) facts and circumstances of any significant change in 
        such level from the level in previous fiscal years.''.
    (b) Medicaid.--
            (1) The third sentence of section 1902(a) of such Act (42 
        U.S.C. 1396a(a)) is amended by striking all that follows 
        ``shall not apply'' and inserting ``to a religious nonmedical 
        health care institution (as defined in section 1861(rr)(1)).''.
            (2) Section 1908(e)(1) of such Act (42 U.S.C. 1396g-
        1(e)(1)) is amended by striking all that follows ``does not 
        include'' and inserting ``a religious nonmedical health care 
        institution (as defined in section 1861(rr)(1)).''.
    (c) Conforming Amendments.--
            (1) Section 1122(h) of such Act (42 U.S.C. 1320a-1(h)) is 
        amended by striking all that follows ``shall not apply to'' and 
        inserting ``a religious nonmedical health care institution (as 
        defined in section 1861(rr)(1)).''.
            (2) Section 1162 of such Act (42 U.S.C. 1320c-11) is 
        amended--
                    (A) by amending the heading to read as follows:

 ``exemptions for religious nonmedical health care institutions''; and

                    (B) by striking all that follows ``shall not apply 
                with respect to a'' and inserting ``religious 
                nonmedical health care institution (as defined in 
                section 1861(rr)(1)).''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and shall apply to 
items and services furnished on or after such date. By not later than 
July 1, 1998, the Secretary of Health and Human Services shall first 
issue regulations to carry out such amendments. Such regulations may be 
issued so they are effective on an interim basis pending notice and 
opportunity for public comment. For periods before the effective date 
of such regulations, such regulations shall recognize elections entered 
into in good faith in order to comply with the requirements of section 
1821(b) of the Social Security Act.

                CHAPTER 5--PAYMENTS FOR HOSPICE SERVICES

SEC. 5481. PAYMENT FOR HOME HOSPICE CARE BASED ON LOCATION WHERE CARE 
              IS FURNISHED.

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

SEC. 5482. HOSPICE CARE BENEFITS PERIODS.

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

SEC. 5483. OTHER ITEMS AND SERVICES INCLUDED IN HOSPICE CARE.

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

SEC. 5484. CONTRACTING WITH INDEPENDENT PHYSICIANS OR PHYSICIAN GROUPS 
              FOR HOSPICE CARE SERVICES PERMITTED.

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

SEC. 5485. WAIVER OF CERTAIN STAFFING REQUIREMENTS FOR HOSPICE CARE 
              PROGRAMS IN NON-URBANIZED AREAS.

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

SEC. 5486. LIMITATION ON LIABILITY OF BENEFICIARIES FOR CERTAIN HOSPICE 
              COVERAGE DENIALS.

    Section 1879 (42 U.S.C. 1395pp) is amended--
            (1) in subsection (a), in the matter following paragraph 
        (2), by inserting ``and except as provided in subsection (i),'' 
        after ``to the extent permitted by this title,'';
            (2) in subsection (g)--
                    (A) by redesignating paragraphs (1) and (2) as 
                subparagraphs (A) and (B), respectively, and indenting 
                such subparagraphs appropriately;
                    (B) by striking ``is,'' and inserting ``is--'';
                    (C) by making the remaining text of subsection (g) 
                (as amended) that follows ``is--'' a new paragraph (1) 
                and indenting that paragraph appropriately;
                    (D) by striking the period at the end and inserting 
                ``; and''; and
                    (E) by adding at the end the following:
            ``(2) with respect to the provision of hospice care to an 
        individual, a determination that the individual is not 
        terminally ill.''; and
            (3) by adding at the end the following:
    ``(i) In any case involving a coverage denial with respect to 
hospice care described in subsection (g)(2), only the individual that 
received such care shall, notwithstanding such determination, be 
indemnified for any payments that the individual made to a provider or 
other person for such care that would, but for such denial, otherwise 
be paid to the individual under part A or B of this title.''.

SEC. 5487. EXTENDING THE PERIOD FOR PHYSICIAN CERTIFICATION OF AN 
              INDIVIDUAL'S TERMINAL ILLNESS.

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

SEC. 5488. EFFECTIVE DATE.

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

             Subtitle G--Provisions Relating to Part B Only

   CHAPTER 1--PAYMENTS FOR PHYSICIANS AND OTHER HEALTH CARE PROVIDERS

SEC. 5501. ESTABLISHMENT OF SINGLE CONVERSION FACTOR FOR 1998.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) is 
amended to read as follows:
            ``(1) Establishment.--
                    ``(A) In general.--The conversion factor for each 
                year shall be the conversion factor established under 
                this subsection for the previous year, adjusted by the 
                update established under paragraph (3) for the year 
                involved.
                    ``(B) Special rule for 1998.--The single conversion 
                factor for 1998 shall be the conversion factor for 
                primary care services for 1997, increased by the 
                Secretary's estimate of the weighted average of the 3 
                separate updates that would otherwise occur but for the 
                enactment of chapter 1 of subtitle G of title V of the 
                Balanced Budget Act of 1997.
                    ``(C) Publication.--The Secretary shall, during the 
                last 15 days of October of each year, publish the 
                conversion factor which will apply to physicians' 
                services for the following year and the update 
                determined under paragraph (3) for such year.''
    (b) Conforming Amendment.--Section 1848(i)(1)(C) (42 U.S.C. 1395w-
4(i)(1)(C)) is amended by striking ``conversion factors'' and inserting 
``the conversion factor''.

SEC. 5502. ESTABLISHING UPDATE TO CONVERSION FACTOR TO MATCH SPENDING 
              UNDER SUSTAINABLE GROWTH RATE.

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

SEC. 5503. REPLACEMENT OF VOLUME PERFORMANCE STANDARD WITH SUSTAINABLE 
              GROWTH RATE.

    (a) In General.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is amended 
by striking paragraphs (2) through (5) and inserting the following:
            ``(2) Specification of growth rate.--The sustainable growth 
        rate for all physicians' services for a fiscal year (beginning 
        with fiscal year 1998) shall be equal to the product of--
                    ``(A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided by 100) 
                in the fees for all physicians' services in the fiscal 
                year involved,
                    ``(B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the average 
                number of individuals enrolled under this part (other 
                than Medicare Choice plan enrollees) from the previous 
                fiscal year to the fiscal year involved,
                    ``(C) 1 plus the Secretary's estimate of the 
                projected percentage growth in real gross domestic 
                product per capita (divided by 100) from the previous 
                fiscal year to the fiscal year involved, and
                    ``(D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in expenditures for 
                all physicians' services in the fiscal year (compared 
                with the previous fiscal year) which will result from 
                changes in law and regulations, determined without 
                taking into account estimated changes in expenditures 
                due to changes in the volume and intensity of 
                physicians' services resulting from changes in the 
                update to the conversion factor under subsection 
                (d)(3),
        minus 1 and multiplied by 100.
            ``(3) Definitions.--In this subsection:
                    ``(A) Services included in physicians' services.--
                The term `physicians' services' includes other items 
                and services (such as clinical diagnostic laboratory 
                tests and radiology services), specified by the 
                Secretary, that are commonly performed or furnished by 
                a physician or in a physician's office, but does not 
                include services furnished to a Medicare Choice plan 
                enrollee.
                    ``(B) Medicare choice plan enrollee.--The term 
                `Medicare Choice plan enrollee' means, with respect to 
                a fiscal year, an individual enrolled under this part 
                who has elected to receive benefits under this title 
                for the fiscal year through a Medicare Choice plan 
                offered under part C, and also includes an individual 
                who is receiving benefits under this part through 
                enrollment with an eligible organization with a risk-
                sharing contract under section 1876.''.
    (b) Conforming Amendments.--So much of section 1848(f) (42 U.S.C. 
1395w-4(f)) as precedes paragraph (2) is amended to read as follows:
    ``(f) Sustainable Growth Rate.--
            ``(1) Publication.--The Secretary shall cause to have 
        published in the Federal Register the sustainable growth rate 
        for each fiscal year beginning with fiscal year 1998. Such 
        publication shall occur in the last 15 days of October of the 
        year in which the fiscal year begins, except that such rate for 
        fiscal year 1998 shall be published not later than January 1, 
        1998.''

SEC. 5504. PAYMENT RULES FOR ANESTHESIA SERVICES.

    (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)), as 
amended by section 5501, is amended--
                    (A) in subparagraph (B), striking ``The single'' 
                and inserting ``Except as provided in subparagraph (C), 
                the single'';
                    (B) by redesignating subparagraph (C) as 
                subparagraph (D); and
                    (C) by inserting after subparagraph (B) the 
                following new subparagraph:
                    ``(C) Special rules for anesthesia services.--The 
                separate conversion factor for anesthesia services for 
                a year shall be equal to 46 percent of the single 
                conversion factor established for other physicians' 
                services, except as adjusted for changes in work, 
                practice expense, or malpractice relative value 
                units.''.
    (b) Classification of Anesthesia Services.--The first sentence of 
section 1848(j)(1) (42 U.S.C. 1395w-4(j)(1)) is amended--
            (1) by striking ``and including anesthesia services''; and
            (2) by inserting before the period the following: 
        ``(including anesthesia services)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to services furnished on or after January 1, 1998.

SEC. 5505. IMPLEMENTATION OF RESOURCE-BASED PHYSICIAN PRACTICE EXPENSE.

    (a) Adjustments to Relative Value Units for 1998.--Section 
1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended by adding at the end 
the following new subparagraph:
                    ``(G) Adjustments in relative value units for 
                1998.--
                            ``(i) In general.--The Secretary shall--
                                    ``(I) reduce the practice expense 
                                relative value units applied to any 
                                services described in clause (ii) 
                                furnished in 1998 to a number equal to 
                                110 percent of the number of work 
                                relative value units, and
                                    ``(II) increase the practice 
                                expense relative value units for 
                                primary care services provided in an 
                                office setting during 1998 by a uniform 
                                percentage which the Secretary 
                                estimates will result in an aggregate 
                                increase in payments for such services 
                                equal to the aggregate decrease in 
                                payments by reason of subclause (I).
                            ``(ii) Services covered.--For purposes of 
                        clause (i), the services described in this 
                        clause are physicians' services that are not 
                        described in clause (iii) and for which--
                                    ``(I) there are work relative value 
                                units, and
                                    ``(II) the number of practice 
                                expense relative value units 
                                (determined for 1998) exceeds 110 
                                percent of the number of work relative 
                                value units (determined for such year).
                            ``(iii) Excluded services.--For purposes of 
                        clause (ii), the services described in this 
                        clause are services which the Secretary 
                        determines at least 75 percent of which are 
                        provided under this title in an office 
                        setting.''
    (b) Phased-in Implementation.--Section 1848(c)(2) (42 U.S.C. 1395w-
4(c)(2)), as amended by subsection (a), is amended--
            (1) in subparagraph (C)(ii), in the matter following 
        subclause (II), by inserting ``, to the extent provided under 
        subparagraph (H),'' after ``based'', and
            (2) by adding at the end the following new subparagraph:
                    ``(H) Transitional rule for resource-based practice 
                expense units.--In applying subparagraph (C)(ii) for 
                1998, 1999, 2000, and any subsequent year, the number 
                of units under such subparagraph shall be based 75 
                percent, 50 percent, 25 percent, and 0 percent, 
                respectively, on the practice expense relative value 
                units in effect in 1997 (or the Secretary's imputation 
                of such units for new or revised codes) and the 
                remainder on the relative value expense resources 
                involved in furnishing the service.''
    (c) Review by Comptroller General.--The Comptroller General of the 
United States shall review and evaluate the proposed rule on resource-
based methodology for practice expenses issued by the Health Care 
Financing Administration. The Comptroller General shall, within 6 
months of the date of the enactment of this Act, report to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate the results of its evaluation, 
including an analysis of--
            (1) the adequacy of the data used in preparing the rule,
            (2) categories of allowable costs,
            (3) methods for allocating direct and indirect expenses,
            (4) the potential impact of the rule on beneficiary access 
        to services, and
            (5) any other matters related to the appropriateness of 
        resource-based methodology for practice expenses.
The Comptroller General shall consult with representatives of 
physicians' organizations with respect to matters of both data and 
methodology.
    (d) Consultation.--
            (1) In general.--The Secretary of Health and Human Services 
        shall assemble a group of physicians with expertise in both 
        surgical and nonsurgical areas (including primary care 
        physicians and academics), accounting experts, and the chair of 
        the Prospective Payment Review Commission (or its successor) to 
        solicit their individual views on whether sufficient data exist 
        to allow the Health Care Financing Administration to proceed 
        with implementation of the rule described in subsection (c). 
        After hearing the views of individual members of the group, the 
Secretary shall determine whether sufficient data exists to proceed 
with practice expense relative value determination and shall report on 
such views of the individual members to the committees described in 
subsection (c), including any recommendations for modifying such rule.
            (2) Action.--If the Secretary determines under paragraph 
        (1) that insufficient data exists or that the rule described in 
        subsection (c) needs to be revised, the Secretary shall provide 
        for additional data collection and such other actions to 
        correct any deficiencies.
    (e) Effective Date.--The amendments made by this section shall 
apply to years beginning on and after January 1, 1998.

SEC. 5506. INCREASED MEDICARE REIMBURSEMENT FOR NURSE PRACTITIONERS AND 
              CLINICAL NURSE SPECIALISTS.

    (a) Removal of Restrictions on Settings.--
            (1) In general.--Clause (ii) of section 1861(s)(2)(K) (42 
        U.S.C. 1395x(s)(2)(K)) is amended to read as follows:
            ``(ii) services which would be physicians' services if 
        furnished by a physician (as defined in subsection (r)(1)) and 
        which are performed by a nurse practitioner or clinical nurse 
        specialist (as defined in subsection (aa)(5)) working in 
        collaboration (as defined in subsection (aa)(6)) with a 
        physician (as defined in subsection (r)(1)) which the nurse 
        practitioner or clinical nurse specialist is legally authorized 
        to perform by the State in which the services are performed, 
        and such services and supplies furnished as an incident to such 
        services as would be covered under subparagraph (A) if 
        furnished incident to a physician's professional service, but 
        only if no facility or other provider charges or is paid any 
        amounts with respect to the furnishing of such services;''.
            (2) Conforming amendments.--(A) Section 1861(s)(2)(K) of 
        such Act (42 U.S.C. 1395x(s)(2)(K)) is further amended--
                    (i) in clause (i), by inserting ``and such services 
                and supplies furnished as incident to such services as 
                would be covered under subparagraph (A) if furnished 
                incident to a physician's professional service; and'' 
                after ``are performed,''; and
                    (ii) by striking clauses (iii) and (iv).
            (B) Section 1861(b)(4) (42 U.S.C. 1395x(b)(4)) is amended 
        by striking ``clauses (i) or (iii) of subsection (s)(2)(K)'' 
        and inserting ``subsection (s)(2)(K)''.
            (C) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended 
        by striking ``section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)'' 
        and inserting ``section 1861(s)(2)(K)''.
            (D) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
        amended by striking ``section 1861(s)(2)(K)(i) or 
        1861(s)(2)(K)(iii)'' and inserting ``section 1861(s)(2)(K)''.
            (E) Section 1888(e)(2)(A)(ii) (42 U.S.C. 
        1395yy(e)(2)(A)(ii)), as added by section 5301(a), is amended 
        by striking ``through (iii)'' and inserting ``and (ii)''.
    (b) Increased Payment.--
            (1) Fee schedule amount.--Clause (O) of section 1833(a)(1) 
        (42 U.S.C. 1395l(a)(1)) is amended to read as follows: ``(O) 
        with respect to services described in section 1861(s)(2)(K)(ii) 
        (relating to nurse practitioner or clinical nurse specialist 
        services), the amounts paid shall be equal to 80 percent of (i) 
        the lesser of the actual charge or 85 percent of the fee 
        schedule amount provided under section 1848, or (ii) in the 
        case of services as an assistant at surgery, the lesser of the 
        actual charge or 85 percent of the amount that would otherwise 
        be recognized if performed by a physician who is serving as an 
        assistant at surgery; and''.
            (2) Conforming amendments.--(A) Section 1833(r) (42 U.S.C. 
        1395l(r)) is amended--
                    (i) in paragraph (1), by striking ``section 
                1861(s)(2)(K)(iii) (relating to nurse practitioner or 
                clinical nurse specialist services provided in a rural 
                area)'' and inserting ``section 1861(s)(2)(K)(ii) 
                (relating to nurse practitioner or clinical nurse 
                specialist services)'';
                    (ii) by striking paragraph (2);
                    (iii) in paragraph (3), by striking ``section 
                1861(s)(2)(K)(iii)'' and inserting ``section 
                1861(s)(2)(K)(ii)''; and
                    (iv) by redesignating paragraph (3) as paragraph 
                (2).
            (B) Section 1842(b)(12)(A) (42 U.S.C. 1395u(b)(12)(A)) is 
        amended, in the matter preceding clause (i), by striking 
        ``clauses (i), (ii), or (iv) of section 1861(s)(2)(K) (relating 
        to a physician assistants and nurse practitioners)'' and 
        inserting ``section 1861(s)(2)(K)(i) (relating to physician 
        assistants)''.
    (c) Direct Payment for Nurse Practitioners and Clinical Nurse 
Specialists.--
            (1) In general.--Section 1832(a)(2)(B)(iv) (42 U.S.C. 
        1395k(a)(2)(B)(iv)) is amended by striking ``provided in a 
        rural area (as defined in section 1886(d)(2)(D))'' and 
        inserting ``but only if no facility or other provider charges 
        or is paid any amounts with respect to the furnishing of such 
        services''.
            (2) Conforming amendment.--Section 1842(b)(6)(C) (42 U.S.C. 
        1395u(b)(6)(C)) is amended--
                    (A) by striking ``clauses (i), (ii), or (iv)'' and 
                inserting ``clause (i)''; and
                    (B) by striking ``or nurse practitioner''.
    (d) Definition of Clinical Nurse Specialist Clarified.--Section 
1861(aa)(5) (42 U.S.C. 1395x(aa)(5)) is amended--
            (1) by inserting ``(A)'' after ``(5)'';
            (2) by striking ``The term `physician assistant''' and all 
        that follows through ``who performs'' and inserting ``The term 
        `physician assistant' and the term `nurse practitioner' mean, 
        for purposes of this title, a physician assistant or nurse 
        practitioner who performs''; and
            (3) by adding at the end the following new subparagraph:
    ``(B) The term `clinical nurse specialist' means, for purposes of 
this title, an individual who--
            ``(i) is a registered nurse and is licensed to practice 
        nursing in the State in which the clinical nurse specialist 
        services are performed; and
            ``(ii) holds a master's degree in a defined clinical area 
        of nursing from an accredited educational institution.''.
    (e) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 5507. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN ASSISTANTS.

    (a) Removal of Restriction on Settings.--Section 1861(s)(2)(K)(i) 
(42 U.S.C. 1395x(s)(2)(K)(i)), as amended by the section 5506, is 
amended--
            (1) by striking ``(I) in a hospital'' and all that follows 
        through ``shortage area,'', and
            (2) by adding at the end the following: ``but only if no 
        facility or other provider charges or is paid any amounts with 
        respect to the furnishing of such services,''.
    (b) Increased Payment.--Paragraph (12) of section 1842(b) (42 
U.S.C. 1395u(b)), as amended by section 5506(b)(2)(B), is amended to 
read as follows:
    ``(12) With respect to services described in section 
1861(s)(2)(K)(i)--
            ``(A) payment under this part may only be made on an 
        assignment-related basis; and
            ``(B) the amounts paid under this part shall be equal to 80 
        percent of (i) the lesser of the actual charge or 85 percent of 
        the fee schedule amount provided under section 1848 for the 
        same service provided by a physician who is not a specialist; 
        or (ii) in the case of services as an assistant at surgery, the 
        lesser of the actual charge or 85 percent of the amount that 
        would otherwise be recognized if performed by a physician who 
        is serving as an assistant at surgery.''.
    (c) Removal of Restriction on Employment Relationship.--Section 
1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by adding at the end the 
following new sentence: ``For purposes of clause (C) of the first 
sentence of this paragraph, an employment relationship may include any 
independent contractor arrangement, and employer status shall be 
determined in accordance with the law of the State in which the 
services described in such clause are performed.''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to services furnished and supplies provided on and 
after January 1, 1998.

SEC. 5508. CHIROPRACTIC SERVICES COVERAGE DEMONSTRATION PROJECT.

    (a) Demonstration.--The Secretary of Health and Human Services (in 
this section referred to as the ``Secretary'') shall conduct 
demonstration projects, for a period of 2 years, to begin not later 
than 1 year after the date of enactment of this Act, for the purpose of 
evaluating methods under which access to chiropractic services by 
individuals entitled to benefits under part A of title XVIII of the 
Social Security Act (42 U.S.C. 1395c et seq.) and enrolled under part B 
of such title (42 U.S.C. 1395j et seq.) (in this section referred to as 
``medicare beneficiaries'') would be provided, on a cost effective 
basis, as a benefit to medicare beneficiaries.
    (b) Elements of the Demonstration Project.--A demonstration project 
conducted under this section shall include the evaluation of the 
following elements:
            (l) The effect on the medicare program of allowing 
        chiropractors to order x-rays and to receive payment under the 
medicare program for providing such x-rays.
            (2) The effect on the medicare program of eliminating the 
        requirement for an x-ray under section 1861(r)(5) of such Act 
        (42 U.S.C. 1395x(r)(5)).
            (3) The effect on the medicare program of allowing 
        chiropractors, within the scope of their licensure, to provide 
        physicians' services (as defined in section 1861(q) of the 
        Social Security Act (42 U.S.C. l395x(q))) to medicare 
        beneficiaries.
            (4) The cost effectiveness of allowing a medicare 
        beneficiary who is enrolled with an eligible organization under 
        section 1876 of the Social Security Act (42 U.S.C. l395mm) or 
        with a Medicare Choice organization under part C of such Act to 
        have direct access to chiropractors.
In this section, the term ``direct access'' means allowing a medicare 
beneficiary to go directly to a chiropractor affiliated with the 
organizations referred to in paragraph (4) without prior approval from 
a physician (other than another chiropractor) or other entity.
    (c) Conduct of the Demonstration Project.--
            (1) Project locations.--A demonstration project (that 
        includes each element under subsection (b)) shall be conducted 
        in--
                    (A) 3 or more rural areas (as defined in section 
                1886(d)(2)(D) of the Social Security Act (42 U.S.C. 
                1395ww(d)(2)(D)));
                    (B) 3 or more urban areas (as defined in such 
                section); and
                    (C) 3 or more areas having a shortage of primary 
                medical care professionals (as designed under section 
                332 of the Public Health Service Act (42 U.S.C. 254e)).
            (2) Consultation.--For the design and conduct of the 
        demonstration project, the Secretary shall consult, on a 
        ongoing basis, with chiropractors, organizations representing 
        chiropractors, and representatives of medicare beneficiary 
        consumer groups.
            (3) Direct access element.--
                    (A) In general.--The Secretary shall study the 
                element to be evaluated under subsection (b)(4) by 
                involving at least l0 eligible organizations under 
                section 1876 of the Social Security Act (42 U.S.C. 
                l395mm) or Medicare Choice organizations under part C 
                of such title that have voluntarily elected to 
                participate in the demonstration project.
                    (B) Payment.--The Secretary shall provide a small 
                incentive payment to each such organization 
                participating in the demonstration project.
                    (C) Full scope of services.--Any such organization 
                may allow chiropractors to practice the full scope of 
                services for which they are licensed by the State in 
                which those services are furnished, as if those 
                services were both a covered benefit under the medicare 
                program and included in such organization's contract 
                under title XVIII of the Social Security Act (42 U.S.C. 
                1395 et seq.). The Secretary shall agree to as many of 
                such proposals as possible, giving due regard for the 
                overall design of the demonstration project.
    (d) Evaluation.--The Secretary shall evaluate the demonstration 
projects, taking into account the differences in demonstration project 
locations, in order to determine--
            (1) whether medicare beneficiaries who receive chiropractic 
        services use a lesser overall amount of items and services 
        under the medicare program than medicare beneficiaries who do 
        not receive chiropractic services;
            (2) the overall cost effects on medicare program spending 
        of the increased access of medicare beneficiaries to 
        chiropractors;
            (3) beneficiary satisfaction with chiropractic services, 
        including quality of care; and
            (4) such other matters as the Secretary deems appropriate.
    (e) Report to Congress.--
            (1) Preliminary report.--Not later than 2 years after the 
        date of enactment of this Act, the Secretary shall submit a 
        preliminary report to the Committee on Ways and Means and the 
        Committee on Commerce of the House of Representatives and to 
        the Committee on Finance of the Senate on the progress made in 
        the demonstration programs, including--
                    (A) a description of the locations in which the 
                demonstration projects under this section are being 
                conducted; and
                    (B) the chiropractic services being furnished in 
                each location.
            (2) Final report.--
                    (A) In general.--Not later than January l, 2001, 
                the Secretary shall submit a final report on the 
                demonstration project to the committees described in 
                paragraph (1).
                    (B) Contents.--The report submitted under 
                subparagraph (A) shall include a summary of the 
                evaluation prepared under subsection (d) and 
                recommendations for appropriate legislative changes.
                    (C) Recommended legislation.--The legislative 
                recommendations described in subparagraph (B) shall 
                include a legislative draft of specific amendments to 
                the Social Security Act that authorize payment under 
                the medicare program for elements described in 
                subsection (b) that the Secretary determines to be cost 
                effective, based on the results of the demonstration 
                projects.
    (f) Funding.--
            (1) In general.--The Secretary shall provide for the 
        transfer from the Federal Supplementary Insurance Trust Fund 
        under title XVIII of the Social Security Act (42 U.S.C. 1395t) 
        such funds as the Secretary determines to be necessary for the 
        costs of carrying out the demonstration projects under this 
        section.
            (2) Payments of amounts.--Grants and payments under 
        contracts for purposes of the demonstration project may be made 
        either in advance or by reimbursement, as determined by the 
        Secretary, and shall be made in such installments and on such 
        conditions as the Secretary finds necessary to carry out the 
        purpose of this section.
    (g) Waiver Authority.--The Secretary shall waive compliance with 
the requirements of titles XI, XVIII, and XIX of the Social Security 
Act (42 U.S.C. 1301 et seq., 1395 et seq., 1396 et seq.) to such extent 
and for such period as the Secretary determines is necessary to conduct 
demonstration projects under this section.
    (h) Implementing Expanded Coverage of Chiropractic Services.--As 
soon as possible after the submission of a final report under 
subsection (e), the Secretary shall issue regulations to implement, on 
a permanent basis, the elements of the demonstration project that are 
cost effective for the medicare program.

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

SEC. 5521. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
              DIAGNOSTIC LABORATORY TESTS; STUDY ON LABORATORY 
              SERVICES.

    (a) Change in Update.--Section 1833(h)(2)(A)(ii) (42 U.S.C. 
1395l(h)(2)(A)(ii)) is amended by striking ``and'' at the end of 
subclause (III), by striking the period at the end of subclause (IV) 
and inserting ``, and'', and by adding at the end the following:
                                    ``(V) the annual adjustment in the 
                                fee schedules determined under clause 
                                (i) for each of the years 1998 through 
                                2002 shall be reduced (but not below 
                                zero) by 2.0 percentage points.''
    (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
            (1) in clause (vi), by striking ``and'' at the end;
            (2) in clause (vii)--
                    (A) by inserting ``and before January 1, 1998,'' 
                after ``1995,'', and
                    (B) by striking the period at the end and inserting 
                ``, and''; and
            (3) by adding at the end the following new clause:
            ``(viii) after December 31, 1997, is equal to 74 percent of 
        such median.''.
    (c) Study and Report on Clinical Laboratory Services.--
            (1) In general.--The Secretary shall request the Institute 
        of Medicine of the National Academy of Sciences to conduct a 
        study of payments under part B of title XVIII of the Social 
        Security Act for clinical laboratory services. The study shall 
        include a review of the adequacy of the current methodology and 
        recommendations regarding alternative payment systems. The 
        study shall also analyze and discuss the relationship between 
        such payment systems and access to high quality laboratory 
        services for medicare beneficiaries, including availability and 
        access to new testing methodologies.
            (2) Report to congress.--The Secretary shall, not later 
        than 2 years after the date of enactment of this section, 
        report to the appropriate committees of Congress the results of 
        the study described in paragraph (1), including any 
        recommendations for legislation.

SEC. 5522. IMPROVEMENTS IN ADMINISTRATION OF LABORATORY SERVICES 
              BENEFIT.

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

SEC. 5523. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

    (a) Reduction in Payment Amounts for Items of Durable Medical 
Equipment.--
            (1) Freeze in update for covered items.--Section 
        1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended to read as 
        follows:
            ``(14) Covered item update.--In this subsection--
                    ``(A) In general.--The term `covered item update' 
                means, with respect to any year, the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. city average) for the 12-month period 
                ending with June of the previous year.
                    ``(B) Reduction for certain years.--In the case of 
                each of the years 1998 through 2002, the covered item 
update under subparagraph (A) shall be reduced (but not below zero) by 
2.0 percentage points.''
            (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended to read as 
        follows:
                    ``(A) the term `applicable percentage increase' 
                means, with respect to any year, the percentage 
                increase in the consumer price index for all urban 
                consumers (U.S. city average) for the 12-month period 
                ending with June of the previous year, except that in 
                each of the years 1998 through 2000, such increase 
                shall be reduced (but not below zero) by 2.0 percentage 
                points;''.
            (3) Effective date.--The amendments made by this subsection 
        applies to items furnished on and after January 1, 1998.
    (b) Reduction in Increase for Parenteral and Enteral Nutrients, 
Supplies, and Equipment.--The reasonable charge under part B of title 
XVIII of the Social Security Act for parenteral and enteral nutrients, 
supplies, and equipment furnished during each of the years 1998 through 
2002, shall not exceed the reasonable charge for such items furnished 
during the previous year (after application of this subsection), 
increased by the percentage increase in the consumer price index for 
all urban consumers (United States city average) for the 12-month 
period ending with June of the previous year reduced (but not below 
zero) by 2.0 percentage points.

SEC. 5524. OXYGEN AND OXYGEN EQUIPMENT.

    (a) In General.--Section 1834(a)(9)(B) (42 U.S.C. 1395m(a)(9)(B)) 
is amended--
            (1) by striking ``and'' at the end of clause (iii);
            (2) in clause (iv)--
                    (A) by striking ``a subsequent year'' and inserting 
                ``1995, 1996, and 1997'', and
                    (B) by striking the period at the end and inserting 
                a semicolon; and
            (3) by adding at the end the following new clauses:
                            ``(v) in 1998, 75 percent of the amount 
                        determined under this subparagraph for 1997;
                            ``(vi) in 1999, 62.5 percent of the amount 
                        determined under this subparagraph for 1997; 
                        and
                            ``(vii) for each subsequent year, the 
                        amount determined under this subparagraph for 
                        the preceding year increased by the covered 
                        item update for such subsequent year.''
    (b) Upgraded Durable Medical Equipment.--Section 1834(a) (42 U.S.C. 
1395m(a)) is amended by inserting after paragraph (15) the following 
new paragraph:
            ``(16) Certain upgraded items.--
                    ``(A) Individual's right to choose upgraded item.--
                Notwithstanding any other provision of law, effective 
                on the date on which the Secretary issues regulations 
                under subparagraph (C), an individual may purchase or 
                rent from a supplier an item of upgraded durable 
                medical equipment for which payment would be made under 
                this subsection if the item were a standard item.
                    ``(B) Payments to supplier.--In the case of the 
                purchase or rental of an upgraded item under 
                subparagraph (A)--
                            ``(i) the supplier shall receive payment 
                        under this subsection with respect to such item 
                        as if such item were a standard item; and
                            ``(ii) the individual purchasing or renting 
                        the item shall pay the supplier an amount equal 
                        to the difference between the supplier's charge 
                        and the amount under clause (i).
                In no event may the supplier's charge for an upgraded 
                item exceed the applicable fee schedule amount (if any) 
                for such item.
                    ``(C) Consumer protection safeguards.--The 
                Secretary shall issue regulations providing for 
                consumer protection standards with respect to the 
                furnishing of upgraded equipment under subparagraph 
                (A). Such regulations shall provide for--
                            ``(i) determination of fair market prices 
                        with respect to an upgraded item;
                            ``(ii) full disclosure of the availability 
                        and price of standard items and proof of 
                        receipt of such disclosure information by the 
                        beneficiary before the furnishing of the 
                        upgraded item;
                            ``(iii) conditions of participation for 
                        suppliers in the simplified billing 
                        arrangement;
                            ``(iv) sanctions of suppliers who are 
                        determined to engage in coercive or abusive 
                        practices, including exclusion; and
                            ``(v) such other safeguards as the 
                        Secretary determines are necessary.''
    (c) Establishment of Classes for Payment.--Section 1848(a)(9) (42 
U.S.C. 1395m(a)(9)) is amended by adding at the end the following:
                    ``(D) Authority to create classes.--
                            ``(i) In general.--Subject to clause (ii), 
                        the Secretary may establish separate classes 
                        for any item of oxygen and oxygen equipment and 
                        separate national limited monthly payment rates 
                        for each of such classes.
                            ``(ii) Budget neutrality.--The Secretary 
                        may take actions under clause (i) only to the 
                        extent such actions do not result in 
                        expenditures for any year to be more or less 
                        than the expenditures which would have been 
                        made if such actions had not been taken.''
    (d) Standards and Accreditation.--The Secretary shall as soon as 
practicable establish service standards and accreditation requirements 
for persons seeking payment under part B of title XVIII of the Social 
Security Act for the providing of oxygen and oxygen equipment to 
beneficiaries within their homes.
    (e) Access to Home Oxygen Equipment.--
            (1) Study.--The Comptroller General of the United States 
        shall study issues relating to access to home oxygen equipment 
        and shall, within 6 months after the date of the enactment of 
        this Act, report to the Committee on Ways and Means of the 
        House of Representatives and the Committee on Finance of the 
        Senate the results of the study, including recommendations (if 
        any) for legislation.
            (2) Peer review evaluation.--The Secretary of Health and 
        Human Services shall arrange for peer review organizations 
        established under section 1154 of the Social Security Act to 
        evaluate access to, and quality of, home oxygen equipment.
    (f) Demonstration Project.--Not later than 6 months after the date 
of enactment of this Act, the Secretary shall, in consultation with 
appropriate organizations, initiate a demonstration project in which 
the Secretary utilizes a competitive bidding process for the furnishing 
of home oxygen equipment to medicare beneficiaries under title XVIII of 
the Social Security Act.
    (g) Effective Date.--
            (1) Oxygen.--The amendments made by subsection (a) shall 
        apply to items furnished on and after January 1, 1998.
            (2) Other provisions.--The amendments made by this section 
        other than subsection (a) shall take effect on the date of the 
        enactment of this Act.

SEC. 5525. UPDATES FOR AMBULATORY SURGICAL SERVICES.

    Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is amended by 
inserting at the end the following: ``In each of the fiscal years 1998 
through 2002, the increase under this subparagraph shall be reduced 
(but not below zero) by 2.0 percentage points.''

SEC. 5526. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

    (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended by 
inserting after subsection (n) the following new subsection:
    ``(o)(1) If a physician's, supplier's, or any other person's bill 
or request for payment for services includes a charge for a drug or 
biological for which payment may be made under this part and the drug 
or biological is not paid on a cost or prospective payment basis as 
otherwise provided in this part, the amount payable for the drug or 
biological is equal to 95 percent of the average wholesale price, as 
specified by the Secretary.
    ``(2) In the case of any drug or biological for which payment was 
made under this part on May 1, 1997, the amount determined under 
paragraph (1) shall not exceed the amount payable under this part for 
such drug or biological on such date.
    ``(3) If payment for a drug or biological is made to a licensed 
pharmacy approved to dispense drugs or biologicals under this part, the 
Secretary shall pay a dispensing fee (less the applicable deductible 
and insurance amounts) to the pharmacy, as the Secretary determines 
appropriate.''
    (b) Effective Date.--The amendments made by subsection (a) apply to 
drugs and biologicals furnished on or after January 1, 1999.

            CHAPTER 3--PART B PREMIUM AND RELATED PROVISIONS

SEC. 5541. PART B PREMIUM.

    (a) In General.--Section 1839(a)(3) (42 U.S.C. 1395r(a)(3)) is 
amended by striking the first 3 sentences and inserting the following: 
``The Secretary, during September of each year, shall determine and 
promulgate a monthly premium rate for the succeeding calendar year that 
is equal to 50 percent of the monthly actuarial rate for enrollees age 
65 and over, determined according to paragraph (1), for that succeeding 
calendar year.''.
    (b) Conforming and Technical Amendments.--
            (1) Section 1839.--Section 1839 (42 U.S.C. 1395r) is 
        amended--
                    (A) in subsection (a)(2), by striking ``(b) and 
                (e)'' and inserting ``(b), (c), and (f)'',
                    (B) in the last sentence of subsection (a)(3)--
                            (i) by inserting ``rate'' after 
                        ``premium'', and
                            (ii) by striking ``and the derivation of 
                        the dollar amounts specified in this 
                        paragraph'',
                    (C) by striking subsection (e), and
                    (D) by redesignating subsection (g) as subsection 
                (e) and inserting that subsection after subsection (d).
            (2) Section 1844.--Subparagraphs (A)(i) and (B)(i) of 
        section 1844(a)(1) (42 U.S.C. 1395w(a)(1)) are each amended by 
        striking ``or 1839(e), as the case may be''.

SEC. 5542. INCOME-RELATED REDUCTION IN MEDICARE PART B DEDUCTIBLE TO 
              REFLECT RECAPTURE OF PART B SUBSIDY.

    (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended by 
adding at the end the following new subsection:
    ``(t) Income-Related Increase in Deductible.--
            ``(1) Increase in deduction.--
                    ``(A) In general.--In the case of an individual to 
                whom this subsection applies for any calendar year, the 
                $100 deductible under subsection (b) shall be increased 
                by an amount equal to the product of--
                            ``(i) the applicable percentage, and
                            ``(ii) 300 percent of an amount equal to 
                        the product of 12 times the monthly premium in 
                        effect under section 1839 for such calendar 
                        year.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage for any individual 
                for any calendar year is the percentage (not greater 
                than 100 percent) determined by dividing--
                            ``(i) the amount of the individual's 
                        modified adjusted gross income for the taxable 
                        year of the individual ending with or within 
                        the calendar year in excess of the threshold 
                        amount, by
                            ``(ii) $50,000.
            ``(2) Individuals to whom subsection applies.--This 
        subsection shall apply to any individual whose modified 
        adjusted gross income for a taxable year ending with or within 
        a calendar year (as initially determined under paragraph (4)) 
        exceeds the threshold amount.
            ``(3) Administration of increase.--
                    ``(A) Traditional fee-for-service medicare.--
                Notwithstanding any other provision of this part, the 
                Secretary shall provide for such adjustments in the 
                payment for items and services furnished under this 
                part to any individual to whom this subsection applies 
                so that the increase in the deductible under paragraph 
                (1) is reflected in such payments. The Secretary shall 
                also provide that such adjustments may be reflected in 
                the amount of any payment the individual is required to 
                make to the provider or supplier of such items and 
                services.
                    ``(B) Medicare choice.--Notwithstanding any other 
                provision of part C, the Secretary shall reduce any 
                payment under section 1853 to a Medicare Choice 
                organization with respect to an individual to whom this 
                subsection applies and who is enrolled in a Medicare 
                Choice plan offered by such organization by an amount 
                the Secretary determines (on the basis of actuarial 
                value) to be equivalent to the amount of the increase 
                in the deductible under paragraph (1). The Secretary 
                shall prescribe regulations which allow such Medicare 
                Choice organization to recoup the amount of the 
                reduction under this subparagraph.
            ``(4) Determination of amount of income.--For purposes of 
        this subsection, the Secretary shall make an initial 
        determination of the amount of an individual's modified 
        adjusted gross income for a taxable year ending with or within 
        a calendar year as follows:
                    ``(A) Not later than September 1 of the year 
                preceding the year, the Secretary shall provide notice 
                to each individual whom the Secretary finds (on the 
                basis of the individual's actual modified adjusted 
                gross income for the most recent taxable year for which 
                such information is available or other information 
                provided to the Secretary by the Secretary of the 
                Treasury) will be subject to an increase under this 
                subsection, and shall include in such notice the 
Secretary's estimate of the individual's modified adjusted gross income 
for the year.
                    ``(B) If, during the 30-day period beginning on the 
                date notice is provided to an individual under 
                subparagraph (A), the individual provides the Secretary 
                with information on the individual's anticipated 
                modified adjusted gross income for the year, the amount 
                initially determined by the Secretary under this 
                paragraph with respect to the individual shall be based 
                on the information provided by the individual.
                    ``(C) If an individual does not provide the 
                Secretary with information under subparagraph (B), the 
                amount initially determined by the Secretary under this 
                paragraph with respect to the individual shall be the 
                amount included in the notice provided to the 
                individual under subparagraph (A).
            ``(5) Correction of incorrect estimated amounts.--
                    ``(A) In general.--If the Secretary determines (on 
                the basis of final information provided by the 
                Secretary of the Treasury) that the amount of an 
                individual's actual modified adjusted gross income for 
                a taxable year ending with or within a calendar year is 
                less than or greater than the amount initially 
                determined by the Secretary under paragraph (4), the 
                Secretary shall properly adjust the amount of the 
                adjustments under paragraph (3) to reflect the change 
                in the amount of the increase in the deductible under 
                paragraph (1).
                    ``(B) Repayments.--In the case of an individual who 
                has paid in excess of the required deductible under 
                this part for any calendar year by reason of an 
                incorrect estimate of the individual's modified 
                adjusted gross income, the Secretary shall pay to such 
                individual the amount of such excess.
                    ``(C) Recovery.--In the case of an individual who 
                has paid less in deductibles than required under this 
                part for any calendar year by reason of an incorrect 
                estimate of the individual's modified adjusted gross 
                income, the Secretary shall take such steps as the 
                Secretary considers appropriate to recover from the 
                individual the amount by which the individual has 
                underpaid.
            ``(6) Definitions.--In this subsection, the following 
        definitions apply:
                    ``(A) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means adjusted gross 
                income (as defined in section 62 of the Internal 
                Revenue Code of 1986)--
                            ``(i) determined without regard to sections 
                        135, 911, 931, and 933 of such Code, and
                            ``(ii) increased by the amount of interest 
                        received or accrued by the taxpayer during the 
                        taxable year which is exempt from tax under 
                        such Code.
                    ``(B) Threshold amount.--The term `threshold 
                amount' means--
                            ``(i) except as otherwise provided in this 
                        paragraph, $50,000,
                            ``(ii) $75,000, in the case of a joint 
                        return (as defined in section 7701(a)(38) of 
                        such Code), and
                            ``(iii) zero in the case of a taxpayer 
                        who--
                                    ``(I) is married at the close of 
                                the taxable year but does not file a 
                                joint return (as so defined) for such 
                                year, and
                                    ``(II) does not live apart from his 
                                spouse at all times during the taxable 
                                year.
            ``(7) Transfer of payments to part a trust fund.--The 
        Secretary shall transfer amounts equal to the reduction in 
        payments under parts B and C by reason of the application of 
        this subsection to the Federal Hospital Insurance Trust Fund.''
    (b) Conforming Amendment.--Section 1833(b) (42 U.S.C. 1395l(b)) is 
amended by inserting ``except as provided in subsection (t),'' before 
``$100''.
    (c) Reporting Requirements for Secretary of the Treasury.--
            (1) In general.--Subsection (l) of section 6103 of the 
        Internal Revenue Code of 1986 (relating to confidentiality and 
        disclosure of returns and return information) is amended by 
        adding at the end the following new paragraph:
            ``(16) Disclosure of return information to carry out 
        income-related reduction in medicare part b premium.--
                    ``(A) In general.--The Secretary may, upon written 
                request from the Secretary of Health and Human 
                Services, disclose to officers and employees of the 
Health Care Financing Administration return information with respect to 
a taxpayer who is required to pay a monthly premium under section 1839 
of the Social Security Act. Such return information shall be limited 
to--
                            ``(i) taxpayer identity information with 
                        respect to such taxpayer,
                            ``(ii) the filing status of such taxpayer,
                            ``(iii) the adjusted gross income of such 
                        taxpayer,
                            ``(iv) the amounts excluded from such 
                        taxpayer's gross income under sections 135 and 
                        911,
                            ``(v) the interest received or accrued 
                        during the taxable year which is exempt from 
                        the tax imposed by chapter 1 to the extent such 
                        information is available, and
                            ``(vi) the amounts excluded from such 
                        taxpayer's gross income by sections 931 and 933 
                        to the extent such information is available.
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed under 
                subparagraph (A) may be used by officers and employees 
                of the Health Care Financing Administration only for 
                the purposes of, and to the extent necessary in, 
                carrying out their responsibilities under section 
                1833(t) of the Social Security Act.''
            (2) Conforming amendment.--Paragraphs (3)(A) and (4) of 
        section 6103(p) of such Code are each amended by striking ``or 
        (15)'' each place it appears and inserting ``(15), or (16)''.
    (d) Effective Date.--
            (1) In general.--The amendments made by subsections (a) and 
        (b) shall apply to deductibles under section 1833 of the Social 
        Security Act for months beginning with January 1998.
            (2) Information for prior years.--The Secretary of Health 
        and Human Services may request information under section 
        6013(l)(16) of the Social Security Act (as added by subsection 
        (c)) for taxable years beginning after December 31, 1994.

            Subtitle H--Provisions Relating to Parts A and B

                 CHAPTER 1--SECONDARY PAYOR PROVISIONS

SEC. 5601. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

    (a) Data Match.--
            (1) Elimination of medicare sunset.--Section 1862(b)(5)(C) 
        (42 U.S.C. 1395y(b)(5)(C)) is amended by striking clause (iii).
            (2) Elimination of internal revenue code sunset.--Section 
        6103(l)(12) of the Internal Revenue Code of 1986 is amended by 
        striking subparagraph (F).
    (b) Application to Disabled Individuals in Large Group Health 
Plans.--
            (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                    (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'';
                    (B) by striking clause (iii); and
                    (C) by redesignating clause (iv) as clause (iii).
            (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
    (c) Individuals With End Stage Renal Disease.--Section 
1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended--
            (1) in the last sentence by striking ``October 1, 1998'' 
        and inserting ``the date of enactment of the Balanced Budget 
        Act of 1997''; and
            (2) by adding at the end the following: ``Effective for 
        items and services furnished on or after the date of enactment 
        of the Balanced Budget Act of 1997, (with respect to periods 
        beginning on or after the date that is 18 months prior to such 
        date), clauses (i) and (ii) shall be applied by substituting 
        `30-month' for `12-month' each place it appears.''.

SEC. 5602. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

    (a) Permitting Recovery Against Third Party Administrators of 
Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
1395y(b)(2)(B)(ii)) is amended--
            (1) by striking ``under this subsection to pay'' and 
        inserting ``(directly, as a third-party administrator, or 
        otherwise) to make payment''; and
            (2) by adding at the end the following: ``The United States 
        may not recover from a third-party administrator under this 
        clause in cases where the third-party administrator would not 
        be able to recover the amount at issue from the employer or 
        group health plan for whom it provides administrative services 
        due to the insolvency or bankruptcy of the employer or plan.''.
    (b) Extension of Claims Filing Period.--Section 1862(b)(2)(B) (42 
U.S.C. 1395y(b)(2)(B)) is amended by adding at the end the following:
                            ``(v) Claims-filing period.--
                        Notwithstanding any other time limits that may 
                        exist for filing a claim under an employer 
                        group health plan, the United States may seek 
                        to recover conditional payments in accordance 
                        with this subparagraph where the request for 
                        payment is submitted to the entity required or 
                        responsible under this subsection to pay with 
                        respect to the item or service (or any portion 
                        thereof) under a primary plan within the 3-year 
                        period beginning on the date on which the item 
                        or service was furnished.''.
    (c) Effective Date.--The amendments made by this section apply to 
items and services furnished on or after the date of enactment of this 
Act.

                      CHAPTER 2--OTHER PROVISIONS

SEC. 5611. CONFORMING AGE FOR ELIGIBILITY UNDER MEDICARE TO RETIREMENT 
              AGE FOR SOCIAL SECURITY BENEFITS.

    (a) Entitlement to Hospital Insurance Benefits.--Section 226 (42 
U.S.C. 426) is amended by striking ``age 65'' each place such term 
appears and inserting ``retirement age''.
    (b) Hospital Insurance Benefits for the Aged.--Section 1811 (42 
U.S.C. 1395c) is amended by striking ``age 65'' each place such term 
appears and inserting ``retirement age (as such term is defined in 
section 216(l)(1))''.
    (c) Hospital Insurance Benefits for Uninsured Elderly Individuals 
Not Otherwise Eligible.--Section 1818 (42 U.S.C. 1395i-2) is amended--
            (1) in subsection (a)(1), by striking ``age of 65'' and 
        inserting ``retirement age (as such term is defined in section 
        216(l)(1))'';
            (2) in subsection (d)(1), by striking ``age 65'' and 
        inserting ``retirement age (as such term is defined in section 
        216(l)(1))''; and
            (3) in subsection (d)(3), by striking ``65'' and inserting 
        ``retirement age (as such term is defined in section 
        216(l)(1))''.
    (d) Hospital Insurance Benefits for Disabled Individuals Who Have 
Exhausted Other Entitlement.--Section 1818A(a)(1) (42 U.S.C. 1395i-
2a(a)(1)) is amended by striking ``the age of 65'' and inserting 
``retirement age (as such term is defined in section 216(l)(1))''.
    (e) Eligibility for Part B Benefits.--
            (1) In general.--Section 1836 (42 U.S.C. 1395o) is amended 
        by striking ``age 65'' each place such term appears and 
        inserting ``retirement age (as such term is defined in section 
        216(l)(1))''.
            (2) Enrollment periods.--Section 1837 (42 U.S.C. 1395p) is 
        amended by striking ``age 65'' and ``the age of 65'' each place 
        such terms appear and inserting ``retirement age (as such term 
        is defined in section 216(l)(1))''.
            (3) Coverage period.--Section 1838(c) (42 U.S.C. 1395q(c)) 
        is amended by striking ``the age of 65'' and inserting 
        ``retirement age (as such term is defined in section 
        216(l)(1))''.
            (4) Amounts of premiums.--Section 1839 (42 U.S.C. 1395r) is 
        amended by striking ``age 65'' and ``the age of 65'' each place 
        such terms appear and inserting ``retirement age (as such term 
        is defined in section 216(l)(1))''.
    (f) Appropriations to Cover Government Contributions and 
Contingency Reserve.--Section 1844(a)(1) (42 U.S.C. 1395w) is amended 
by striking ``age 65'' each place such term appears and inserting 
``retirement age''.
    (g) Medicare Secondary Payer.--Section 1862(b) (42 U.S.C. 1395y(b)) 
is amended by striking ``age 65'' each place such term appears and 
inserting ``retirement age (as such term is defined in section 
216(l)(1))''.
    (h) Medicare Supplemental Policies.--Section 1882(s)(2)(A) (42 
U.S.C. 1395ss(s)(2)(A)) is amended by striking ``65 years of age'' and 
inserting ``retirement age (as such term is defined in section 
216(l)(1))''.

SEC. 5612. INCREASED CERTIFICATION PERIOD FOR CERTAIN ORGAN PROCUREMENT 
              ORGANIZATIONS.

    Section 1138(b)(1)(A)(ii) (42 U.S.C. 1320b-8(b)(1)(A)(ii)) is 
amended by striking ``two years'' and inserting ``2 years (3 years if 
the Secretary determines appropriate for an organization on the basis 
of its past practices)''.

    DIVISION 2--MEDICAID AND CHILDREN'S HEALTH INSURANCE INITIATIVES

                          Subtitle I--Medicaid

                      CHAPTER 1--MEDICAID SAVINGS

                   Subchapter A--Managed Care Reforms

SEC. 5701. STATE OPTION FOR MANDATORY MANAGED CARE.

    (a) In General.--Title XIX is amended--
            (1) by inserting after the title heading the following:

                  ``Part A--General Provisions''; and

            (2) by adding at the end the following new part:

             ``Part B--Provisions Relating to Managed Care

``SEC. 1941. BENEFICIARY CHOICE; ENROLLMENT.

    ``(a) State Options for Enrollment of Beneficiaries in Managed Care 
Arrangements.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this part and notwithstanding paragraphs (1), (10)(B), and 
        (23)(A) of section 1902(a), a State may require an individual 
        who is eligible for medical assistance under the State plan 
        under this title and who is not a special needs individual (as 
        defined in subsection (e)) to enroll with a managed care entity 
        (as defined in section 1950(a)(1)) as a condition of receiving 
        such assistance (and, with respect to assistance furnished by 
        or under arrangements with such entity, to receive such 
        assistance through the entity), if the following provisions are 
        met:
                    ``(A) Entity meets requirements.--The entity meets 
                the applicable requirements of this part.
                    ``(B) Contract with state.--The entity enters into 
                a contract with the State to provide services for the 
                benefit of individuals eligible for benefits under this 
                title under which prepaid payments to such entity are 
                made on an actuarially sound basis. Such contract shall 
                specify benefits the provision (or arrangement) for 
                which the entity is responsible.
                    ``(C) Choice of coverage.--
                            ``(i) In general.--The State permits an 
                        individual to choose a managed care entity from 
                        managed care organizations and primary care 
                        case managers who meet the requirements of this 
                        part but not less than from--
                                    ``(I) 2 medicaid managed care 
                                organizations,
                                    ``(II) a medicaid managed care 
                                organization and a primary care case 
                                manager, or
                                    ``(III) a primary care case manager 
                                as long as an individual may choose 
                                between 2 primary care case managers.
                            ``(ii) State option.--At the option of the 
                        State, a State shall be considered to meet the 
                        requirements of clause (i) in the case of an 
                        individual residing in a rural area, if the 
                        State--
                                    ``(I) requires the individual to 
                                enroll with a medicaid managed care 
                                organization or a primary care case 
                                manager if such organization or entity 
                                permits the individual to receive such 
                                assistance through not less than 2 
                                physicians or case managers (to the 
                                extent that at least 2 physicians or 
                                case managers are available to provide 
                                such assistance in the area), and
                                    ``(II) permits the individual to 
                                obtain such assistance from any other 
                                provider in appropriate circumstances 
                                (as established by the State under 
                                regulations of the Secretary).
                    ``(D) Changes in enrollment.--The State--
                            ``(i) provides the individual with the 
                        opportunity to change enrollment among managed 
                        care entities once annually and notifies the 
                        individual of such opportunity not later than 
                        60 days prior to the first date on which the 
                        individual may change enrollment, and
                            ``(ii) permits individuals to terminate 
                        their enrollment as provided under paragraph 
                        (2).
                    ``(E) Enrollment priorities.--The State establishes 
                a method for establishing enrollment priorities in the 
                case of a managed care entity that does not have 
                sufficient capacity to enroll all such individuals 
                seeking enrollment under which individuals already 
                enrolled with the entity are given priority in 
                continuing enrollment with the entity.
                    ``(F) Default enrollment process.--The State 
                establishes a default enrollment process which meets 
                the requirements described in paragraph (3) and under 
which any such individual who does not enroll with a managed care 
entity during the enrollment period specified by the State shall be 
enrolled by the State with such an entity in accordance with such 
process.
                    ``(G) Sanctions.--The State establishes the 
                sanctions provided for in section 1949.
                    ``(H) Indian enrollment.--No individual who is an 
                Indian (as defined in section 4 of the Indian Health 
                Care Improvement Act of 1976) is required to enroll in 
                any entity that is not one of the following (and only 
                if such entity is participating under the plan):
                            ``(i) The Indian Health Service.
                            ``(ii) An Indian health program operated by 
                        an Indian tribe or tribal organization pursuant 
                        to a contract, grant, cooperative agreement, or 
                        compact with the Indian Health Service pursuant 
                        to the Indian Self-Determination Act (25 U.S.C. 
                        450 et seq.).
                            ``(iii) An urban Indian health program 
                        operated by an urban Indian organization 
                        pursuant to a grant or contract with the Indian 
                        Health Service pursuant to title V of the 
                        Indian Health Care Improvement Act (25 U.S.C. 
                        1601 et seq.).
            ``(2) Termination of enrollment.--
                    ``(A) In general.--The State, enrollment broker, 
                and managed care entity (if any) shall permit an 
                individual eligible for medical assistance under the 
                State plan under this title who is enrolled with the 
                entity to terminate such enrollment for cause at any 
                time, and without cause during the 90-day period 
                beginning on the date the individual receives notice of 
                enrollment and at least every 12 months thereafter, and 
                shall notify each such individual of the opportunity to 
                terminate enrollment under these conditions.
                    ``(B) Fraudulent inducement or coercion as grounds 
                for cause.--For purposes of subparagraph (A), an 
                individual terminating enrollment with a managed care 
                entity on the grounds that the enrollment was based on 
                fraudulent inducement or was obtained through coercion 
                or pursuant to the imposition against the managed care 
                entity of the sanction described in section 1949(b)(3) 
                shall be considered to terminate such enrollment for 
                cause.
                    ``(C) Notice of termination.--
                            ``(i) Notice to state.--
                                    ``(I) By individuals.--Each 
                                individual terminating enrollment with 
                                a managed care entity under 
                                subparagraph (A) shall do so by 
                                providing notice of the termination to 
                                an office of the State agency 
                                administering the State plan under this 
                                title, the State or local welfare 
                                agency, or an office of a managed care 
                                entity.
                                    ``(II) By organizations.--Any 
                                managed care entity which receives 
                                notice of an individual's termination 
                                of enrollment with such entity through 
                                receipt of such notice at an office of 
                                a managed care entity shall provide 
                                timely notice of the termination to the 
                                State agency administering the State 
                                plan under this title.
                            ``(ii) Notice to plan.--The State agency 
                        administering the State plan under this title 
                        or the State or local welfare agency which 
                        receives notice of an individual's termination 
                        of enrollment with a managed care entity under 
                        clause (i) shall provide timely notice of the 
                        termination to such entity.
            ``(3) Default enrollment process requirements.--The 
        requirements of a default enrollment process established by a 
        State under paragraph (1)(F) are as follows:
                    ``(A) The process shall provide that the State may 
                not enroll individuals with a managed care entity which 
                is not in compliance with the applicable requirements 
                of this part.
                    ``(B) The process shall provide (consistent with 
                subparagraph (A)) for enrollment of such an individual 
                with a medicaid managed care organization--
                            ``(i) that maintains existing provider-
                        individual relationships or that has entered 
                        into contracts with providers (such as 
                        Federally qualified health centers, rural 
                        health clinics, hospitals that qualify for 
                        disproportionate share hospital payments under 
                        section 1886(d)(5)(F), and hospitals described 
                        in section 1886(d)(1)(B)(iii)) that have 
                        traditionally served beneficiaries under this 
                        title, and
                            ``(ii) if there is no provider described in 
                        clause (i), in a manner that provides for an 
                        equitable distribution of individuals among all 
                        qualified managed care entities available to 
                        enroll individuals through such default 
                        enrollment process, consistent with the 
                        enrollment capacities of such entities.
                    ``(C) The process shall permit and assist an 
                individual enrolled with an entity under such process 
                to change such enrollment to another managed care 
                entity during a period (of at least 90 days) after the 
                effective date of the enrollment.
                    ``(D) The process may provide for consideration of 
                factors such as quality, geographic proximity, 
                continuity of providers, and capacity of the plan when 
                conducting such process.
    ``(b) Reenrollment of Individuals Who Regain Eligibility.--
            ``(1) In general.--If an individual eligible for medical 
        assistance under a State plan under this title and enrolled 
        with a managed care entity with a contract under subsection 
        (a)(1)(B) ceases to be eligible for such assistance for a 
        period of not greater than 2 months, the State may provide for 
        the automatic reenrollment of the individual with the entity as 
        of the first day of the month in which the individual is again 
        eligible for such assistance, and may consider factors such as 
        quality, geographic proximity, continuity of providers, and 
        capacity of the plan when conducting such reenrollment.
            ``(2) Conditions.--Paragraph (1) shall only apply if--
                    ``(A) the month for which the individual is to be 
                reenrolled occurs during the enrollment period covered 
                by the individual's original enrollment with the 
                managed care entity,
                    ``(B) the managed care entity continues to have a 
                contract with the State agency under subsection 
                (a)(1)(B) as of the first day of such month, and
                    ``(C) the managed care entity complies with the 
                applicable requirements of this part.
            ``(3) Notice of reenrollment.--The State shall provide 
        timely notice to a managed care entity of any reenrollment of 
        an individual under this subsection.
    ``(c) State Option of Minimum Enrollment Period.--
            ``(1) In general.--In the case of an individual who is 
        enrolled with a managed care entity under this part and who 
        would (but for this subsection) lose eligibility for benefits 
        under this title before the end of the minimum enrollment 
        period (defined in paragraph (2)), the State plan under this 
        title may provide, notwithstanding any other provision of this 
        title, that the individual shall be deemed to continue to be 
        eligible for such benefits until the end of such minimum 
        period, but, except for benefits furnished under section 
        1902(a)(23)(B), only with respect to such benefits provided to 
        the individual as an enrollee of such entity.
            ``(2) Minimum enrollment period defined.--For purposes of 
        paragraph (1), the term `minimum enrollment period' means, with 
        respect to an individual's enrollment with an entity under a 
        State plan, a period, established by the State, of not more 
        than 6 months beginning on the date the individual's enrollment 
        with the entity becomes effective, except that a State may 
        extend such period for up to a total of 12 months in the case 
        of an individual's enrollment with a managed care entity (as 
        defined in section 1950(a)(1)) so long as such extension is 
        done uniformly for all individuals enrolled with all such 
        entities.
    ``(d) Other Enrollment-Related Provisions.--
            ``(1) Nondiscrimination.--A managed care entity may not 
        discriminate on the basis of health status or anticipated need 
        for services in the enrollment, reenrollment, or disenrollment 
        of individuals eligible to receive medical assistance under a 
        State plan under this title or by discouraging enrollment 
        (except as permitted by this section) by eligible individuals.
            ``(2) Provision of information.--
                    ``(A) In general.--Each State, enrollment broker, 
                or managed care organization shall provide all 
                enrollment notices and informational and instructional 
                materials in a manner and form which may be easily 
                understood by enrollees of the entity who are eligible 
                for medical assistance under the State plan under this 
                title, including enrollees and potential enrollees who 
                are blind, deaf, disabled, or cannot read or understand 
                the English language.
                    ``(B) Information to health care providers, 
                enrollees, and potential enrollees.--Each medicaid 
                managed care organization shall--
                            ``(i) upon request, make the information 
                        described in section 1945(c)(1) available to 
                        enrollees and potential enrollees in the 
                        organization's service area, and
                            ``(ii) provide to enrollees and potential 
                        enrollees information regarding all items and 
                        services that are available to enrollees under 
                        the contract between the State and the 
                        organization that are covered either directly 
                        or through a method of referral and prior 
                        authorization.
    ``(e) Special Needs Individuals Described.--In this part, the term 
`special needs individual' means any of the following individuals:
            ``(1) Special needs child.--An individual who is under 19 
        years of age who--
                    ``(A) is eligible for supplemental security income 
                under title XVI;
                    ``(B) is described under section 501(a)(1)(D);
                    ``(C) is a child described in section 1902(e)(3); 
                or
                    ``(D) is not described in any preceding 
                subparagraph but is in foster care or otherwise in an 
                out-of-home placement.
            ``(2) Medicare beneficiaries.--A qualified medicare 
        beneficiary (as defined in section 1905(p)(1)) or an individual 
        otherwise eligible for benefits under title XVIII.
    ``(f) Rule of Construction.--Nothing in this part shall be 
construed as allowing a managed care entity that has entered into a 
contract with the State under this part to restrict the choice of an 
individual in receiving services described in section 1905(a)(4)(C).

``SEC. 1942. BENEFICIARY ACCESS TO SERVICES GENERALLY.

    ``(a) Access to Services.--
            ``(1) In general.--Each managed care entity shall provide 
        or arrange for the provision of all medically necessary medical 
        assistance under this title which is specified in the contract 
        entered into between such entity and the State under section 
        1941(a)(1)(B) for enrollees who are eligible for medical 
        assistance under the State plan under this title.
            ``(2) Primary-care-provider-to-enrollee ratio and maximum 
        travel time.--Each such entity shall assure adequate access to 
        primary care services by meeting standards, established by the 
        Secretary, relating to the maximum ratio of enrollees under 
        this title to full-time-equivalent primary care providers 
        available to serve such enrollees and to maximum travel time 
        for such enrollees to access such providers. The Secretary may 
        permit such a maximum ratio to vary depending on the area and 
        population served. Such standards shall be based on standards 
        commonly applied in the commercial market, commonly used in 
        accreditation of managed care organizations, and standards used 
        in the approval of waiver applications under section 1115, and 
        shall be consistent with the requirements of section 
        1876(c)(4)(A) and part C of title XVIII.
    ``(b) Referral to specialty care for enrollees requiring treatment 
by specialists.--
            ``(1) In general.--In the case of an enrollee under a 
        managed care entity and who has a condition or disease of 
        sufficient seriousness and complexity to require treatment by a 
        specialist, the entity shall make or provide for a referral to 
        a specialist who is available and accessible to provide the 
        treatment for such condition or disease.
            ``(2) Specialist defined.--For purposes of this subsection, 
        the term `specialist' means, with respect to a condition, a 
        health care practitioner, facility, or center (such as a center 
        of excellence) that has adequate expertise through appropriate 
        training and experience (including, in the case of a child, an 
        appropriate pediatric specialist) to provide high quality care 
        in treating the condition.
            ``(3) Care under referral.--Care provided pursuant to such 
        referral under paragraph (1) shall be--
                    ``(A) pursuant to a treatment plan (if any) 
                developed by the specialist and approved by the entity, 
                in consultation with the designated primary care 
                provider or specialist and the enrollee (or the 
                enrollee's designee), and
                    ``(B) in accordance with applicable quality 
                assurance and utilization review standards of the 
                entity.
        Nothing in this subsection shall be construed as preventing 
        such a treatment plan for an enrollee from requiring a 
        specialist to provide the primary care provider with regular 
        updates on the specialty care provided, as well as all 
        necessary medical information.
            ``(4) Referrals to participating providers.--An entity is 
        not required under paragraph (1) to provide for a referral to a 
        specialist that--
                    ``(A) is not a participating provider, unless the 
                entity does not have an appropriate specialist that is 
                available and accessible to treat the enrollee's 
                condition, and
                    ``(B) is a participating provider with respect to 
                such treatment.
            ``(5) Treatment of nonparticipating providers.--If an 
        entity refers an enrollee to a nonparticipating specialist, 
        services provided pursuant to the approved treatment plan shall 
        be provided at no additional cost to the enrollee beyond what 
        the enrollee would otherwise pay for services received by such 
        a specialist that is a participating provider.
    ``(c) Timely Delivery of Services.--Each managed care entity shall 
respond to requests from enrollees for the delivery of medical 
assistance in a manner which--
            ``(1) makes such assistance--
                    ``(A) available and accessible to each such 
                individual, within the area served by the entity, with 
                reasonable promptness and in a manner which assures 
                continuity; and
                    ``(B) when medically necessary, available and 
                accessible 24 hours a day and 7 days a week, and
            ``(2) with respect to assistance provided to such an 
        individual other than through the entity, or without prior 
        authorization, in the case of a primary care case manager, 
        provides for reimbursement to the individual (if applicable 
        under the contract between the State and the entity) if--
                    ``(A) the services were medically necessary and 
                immediately required because of an unforeseen illness, 
                injury, or condition and meet the requirements for 
                access to emergency care under section 1943; and
                    ``(B) it was not reasonable given the circumstances 
                to obtain the services through the entity, or, in the 
                case of a primary care case manager, with prior 
                authorization.
    ``(d) Internal Grievance Procedure.--Each medicaid managed care 
organization shall establish an internal grievance procedure under 
which an enrollee who is eligible for medical assistance under the 
State plan under this title, or a provider on behalf of such an 
enrollee, may challenge the denial of coverage of or payment for such 
assistance.
    ``(e) Information on Benefit Carve Outs.--Each managed care entity 
shall inform each enrollee, in a written and prominent manner, of any 
benefits to which the enrollee may be entitled to medical assistance 
under this title but which are not made available to the enrollee 
through the entity. Such information shall include information on where 
and how such enrollees may access benefits not made available to the 
enrollee through the entity.
    ``(f) Demonstration of Adequate Capacity and Services.--Each 
medicaid managed care organization shall provide the State and the 
Secretary with adequate assurances (as determined by the Secretary) 
that the organization, with respect to a service area--
            ``(1) has the capacity to serve the expected enrollment in 
        such service area,
            ``(2) offers an appropriate range of services for the 
        population expected to be enrolled in such service area, 
        including transportation services and translation services 
        consisting of the principal languages spoken in the service 
        area,
            ``(3) maintains a sufficient number, mix, and geographic 
        distribution of providers of services included in the contract 
        with the State to ensure that services are available to 
        individuals receiving medical assistance and enrolled in the 
        organization to the same extent that such services are 
        available to individuals enrolled in the organization who are 
        not recipients of medical assistance under the State plan under 
        this title,
            ``(4) maintains extended hours of operation with respect to 
        primary care services that are beyond those maintained during a 
        normal business day,
            ``(5) provides preventive and primary care services in 
        locations that are readily accessible to members of the 
        community,
            ``(6) provides information concerning educational, social, 
        health, and nutritional services offered by other programs for 
        which enrollees may be eligible, and
            ``(7) complies with such other requirements relating to 
        access to care as the Secretary or the State may impose.
    ``(g) Compliance With Certain Maternity and Mental Health 
Requirements.--Each medicaid managed care organization shall comply 
with the requirements of subpart 2 of part A of title XXVII of the 
Public Health Service Act insofar as such requirements apply with 
respect to a health insurance issuer that offers group health insurance 
coverage.
    ``(h) Treatment of Children With Special Health Care Needs.--
            ``(1) In general.--In the case of an enrollee of a managed 
        care entity who is a child described in section 1941(e)(1)--
                    ``(A) if any medical assistance specified in the 
                contract with the State is identified in a treatment 
                plan prepared for the enrollee, the managed care entity 
                shall provide (or arrange to be provided) such 
                assistance in accordance with the treatment plan 
                either--
                            ``(i) by referring the enrollee to a 
                        pediatric health care provider who is trained 
                        and experienced in the provision of such 
                        assistance and who has a contract with the 
                        managed care entity to provide such assistance; 
                        or
                            ``(ii) if appropriate services are not 
                        available through the managed care entity, 
                        permitting such enrollee to seek appropriate 
                        specialty services from pediatric health care 
                        providers outside of or apart from the managed 
                        care entity, and
                    ``(B) the managed care entity shall require each 
                health care provider with whom the managed care entity 
                has entered into an agreement to provide medical 
                assistance to enrollees to furnish the medical 
                assistance specified in such enrollee's treatment plan 
                to the extent the health care provider is able to carry 
                out such treatment plan.
            ``(2) Prior authorization.--An enrollee referred for 
        treatment under paragraph (1)(A)(i), or permitted to seek 
        treatment outside of or apart from the managed care entity 
        under paragraph (1)(A)(ii) shall be deemed to have obtained any 
        prior authorization required by the entity.

``SEC. 1943. REQUIREMENTS FOR ACCESS TO EMERGENCY CARE.

    ``(a) In General.--A managed care entity shall--
            ``(1) provide coverage for emergency services (as defined 
        in subsection (c)) without regard to prior authorization or the 
        emergency care provider's contractual relationship with the 
        organization; and
            ``(2) comply with such guidelines as the Secretary shall 
        prescribe relating to promoting efficient and timely 
        coordination of appropriate maintenance and post-stabilization 
        care of an enrollee after the enrollee has been determined to 
        be stable in accordance with section 1867.
    ``(b) Content of guidelines.--The guidelines prescribed under 
subsection (a) shall provide that--
            ``(1) a provider of emergency services shall make a 
        documented good faith effort to contact the managed care entity 
        in a timely fashion from the point at which the individual is 
        stabilized to request approval for medically necessary post-
        stabilization care,
            ``(2) the entity shall respond in a timely fashion to the 
        initial contact with the entity with a decision as to whether 
        the services for which approval is requested will be 
        authorized, and
            ``(3) if a denial of a request is communicated, the entity 
        shall, upon request from the treating physician, arrange for a 
        physician who is authorized by the entity to review the denial 
        to communicate directly with the treating physician in a timely 
        fashion.
    ``(c) Definition of emergency services.--In this section--
            ``(1) In general.--The term `emergency services' means, 
        with respect to an individual enrolled with a managed care 
        entity, covered inpatient and outpatient services that--
                    ``(A) are furnished by a provider that is qualified 
                to furnish such services under this title, and
                    ``(B) are needed to evaluate or stabilize an 
                emergency medical condition (as defined in subparagraph 
                (B)).
            ``(2) Emergency medical condition based on prudent 
        layperson.--The term `emergency medical condition' means a 
        medical condition manifesting itself by acute symptoms of 
        sufficient severity (including severe pain) such that a prudent 
        layperson, who possesses an average knowledge of health and 
        medicine, could reasonably expect the absence of immediate 
        medical attention to result in--
                    ``(A) placing the health of the individual (or, 
                with respect to a pregnant woman, the health of the 
                woman or her unborn child) in serious jeopardy,
                    ``(B) serious impairment to bodily functions, or
                    ``(C) serious dysfunction of any bodily organ or 
                part.

``SEC. 1944. OTHER BENEFICIARY PROTECTIONS.

    ``(a) Protecting Enrollees Against the Insolvency of Managed Care 
Entities and Against the Failure of the State to Pay Such Entities.--
Each managed care entity shall provide that an individual eligible for 
medical assistance under the State plan under this title who is 
enrolled with the entity may not be held liable--
            ``(1) for the debts of the managed care entity, in the 
        event of the entity's insolvency,
            ``(2) for services provided to the individual--
                    ``(A) in the event of the entity failing to receive 
                payment from the State for such services; or
                    ``(B) in the event of a health care provider with a 
                contractual or other arrangement with the entity 
                failing to receive payment from the State or the 
                managed care entity for such services, or
            ``(3) for the debts of any health care provider with a 
        contractual or other arrangement with the entity to provide 
        services to the individual, in the event of the insolvency of 
        the health care provider.
    ``(b) Protection of Beneficiaries Against Balance Billing Through 
Subcontractors.--
            ``(1) In general.--Any contract between a managed care 
        entity that has an agreement with a State under this title and 
        another entity under which the other entity (or any other 
        entity pursuant to the contract) provides directly or 
        indirectly for the provision of services to beneficiaries under 
        the agreement with the State shall include such provisions as 
        the Secretary may require in order to assure that the other 
        entity complies with balance billing limitations and other 
        requirements of this title (such as limitation on withholding 
        of services) as they would apply to the managed care entity if 
        such entity provided such services directly and not through a 
        contract with another entity.
            ``(2) Application of sanctions for violations.--The 
        provisions of section 1128A(b)(2)(B) and 1128B(d)(1) shall 
        apply with respect to entities contracting directly or 
        indirectly with a managed care entity (with a contract with a 
        State under this title) for the provision of services to 
        beneficiaries under such a contract in the same manner as such 
        provisions would apply to the managed care entity if it 
        provided such services directly and not through a contract with 
        another entity.

``SEC. 1945. ASSURING QUALITY CARE.

    ``(a) External Independent Review of Managed Care Entity 
Activities.--
            ``(1) Review of medicaid managed care organization 
        contract.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), each medicaid managed care organization shall be 
                subject to an annual external independent review of the 
                quality outcomes and timeliness of, and access to, the 
                items and services specified in such organization's 
                contract with the State under section 1941(a)(1)(B). 
                Such review shall specifically evaluate the extent to 
                which the medicaid managed care organization provides 
                such services in a timely manner.
                    ``(B) Contents of review.--An external independent 
                review conducted under this subsection shall include--
                            ``(i) a review of the entity's medical 
                        care, through sampling of medical records or 
                        other appropriate methods, for indications of 
                        quality of care and inappropriate utilization 
                        (including overutilization) and treatment,
                            ``(ii) a review of enrollee inpatient and 
                        ambulatory data, through sampling of medical 
                        records or other appropriate methods, to 
                        determine trends in quality and appropriateness 
                        of care,
                            ``(iii) notification of the entity and the 
                        State when the review under this paragraph 
                        indicates inappropriate care, treatment, or 
                        utilization of services (including 
                        overutilization), and
                            ``(iv) other activities as prescribed by 
                        the Secretary or the State.
                    ``(C) Use of protocols.--An external independent 
                review conducted under this subsection on and after 
                January 1, 1999, shall use protocols that have been 
                developed, tested, and validated by the Secretary and 
                that are at least as rigorous as those used by the 
                National Committee on Quality Assurance as of the date 
                of the enactment of this section.
                    ``(D) Availability of results.--The results of each 
                external independent review conducted under this 
                paragraph shall be available to participating health 
                care providers, enrollees, and potential enrollees of 
                the medicaid managed care organization, except that the 
                results may not be made available in a manner that 
                discloses the identity of any individual patient.
            ``(2) Deemed compliance.--
                    ``(A) Medicare organizations.--The requirements of 
                paragraph (1) shall not apply with respect to a 
                medicaid managed care organization if the organization 
                is an eligible organization with a contract in effect 
                under section 1876 or under part C of title XVIII.
                    ``(B) Private accreditation.--
                            ``(i) In general.--The requirements of 
                        paragraph (1) shall not apply with respect to a 
                        medicaid managed care organization if--
                                    ``(I) the organization is 
                                accredited by an organization meeting 
                                the requirements described in 
                                subparagraph (C)), and
                                    ``(II) the standards and process 
                                under which the organization is 
                                accredited meet such requirements as 
                                are established under clause (ii), 
                                without regard to whether or not the 
                                time requirement of such clause is 
                                satisfied.
                            ``(ii) Standards and process.--Not later 
                        than 180 days after the date of the enactment 
                        of this section, the Secretary shall specify 
                        requirements for the standards and process 
                        under which a medicaid managed care 
                        organization is accredited by an organization 
                        meeting the requirements of subparagraph (B).
                    ``(C) Accrediting organization.--An accrediting 
                organization meets the requirements of this 
                subparagraph if the organization--
                            ``(i) is a private, nonprofit organization,
                            ``(ii) exists for the primary purpose of 
                        accrediting managed care organizations or 
                        health care providers, and
                            ``(iii) is independent of health care 
                        providers or associations of health care 
                        providers.
            ``(3) Review of primary care case manager contract.--Each 
        primary care case manager shall be subject to an annual 
        external independent review of the quality and timeliness of, 
        and access to, the items and services specified in the contract 
        entered into between the State and the primary care case 
        manager under section 1941(a)(1)(B).
            ``(4) Use of validation surveys.--The Secretary shall 
        conduct surveys each year to validate external reviews of the 
        number of managed care entities in the year. In conducting such 
        surveys the Secretary shall use the same protocols as were used 
        in preparing the external reviews. If an external review finds 
        that an individual managed care entity meets applicable 
        requirements, but the Secretary determines that the entity does 
        not meet such requirements, the Secretary's determination as to 
        the entity's noncompliance with such requirements is binding 
        and supersedes that of the previous survey.
    ``(b) Federal Monitoring Responsibilities.--The Secretary shall 
review the external independent reviews conducted pursuant to 
subsection (a) and shall monitor the effectiveness of the State's 
monitoring of managed care entities and any followup activities 
required under this part. If the Secretary determines that a State's 
monitoring and followup activities are not adequate to ensure that the 
requirements of such section are met, the Secretary shall undertake 
appropriate followup activities to ensure that the State improves its 
monitoring and followup activities.
    ``(c) Providing Information on Services.--
            ``(1) Requirements for medicaid managed care 
        organizations.--Each medicaid managed care organization shall 
        provide to the State complete and timely information concerning 
        the following:
                    ``(A) The services that the organization provides 
                to (or arranges to be provided to) individuals eligible 
                for medical assistance under the State plan under this 
                title.
                    ``(B) The identity, locations, qualifications, and 
                availability of participating health care providers.
                    ``(C) The rights and responsibilities of enrollees.
                    ``(D) The services provided by the organization 
                which are subject to prior authorization by the 
                organization as a condition of coverage (in accordance 
                with subsection (d)).
                    ``(E) The procedures available to an enrollee and a 
                health care provider to appeal the failure of the 
                organization to cover a service.
                    ``(F) The performance of the organization in 
                serving individuals eligible for medical assistance 
                under the State plan under this title.
        Such information shall be provided in a form consistent with 
        the reporting of similar information by eligible organizations 
        under section 1876 or under part C of title XVIII.
            ``(2) Requirements for primary care case managers.--Each 
        primary care case manager shall--
                    ``(A) provide to the State (at least at such 
                frequency as the Secretary may require), complete and 
                timely information concerning the services that the 
                primary care case manager provides to (or arranges to 
                be provided to) individuals eligible for medical 
                assistance under the State plan under this title,
                    ``(B) make available to enrollees and potential 
                enrollees information concerning services available to 
                the enrollee for which prior authorization by the 
                primary care case manager is required,
                    ``(C) provide enrollees and potential enrollees 
                information regarding all items and services that are 
                available to enrollees under the contract between the 
                State and the primary care case manager that are 
                covered either directly or through a method of referral 
                and prior authorization, and
                    ``(D) provide assurances that such entities and 
                their professional personnel are licensed as required 
                by State law and qualified to provide case management 
                services, through methods such as ongoing monitoring of 
                compliance with applicable requirements and providing 
                information and technical assistance.
            ``(3) Requirements for both medicaid managed care 
        organizations and primary care case managers.--Each managed 
        care entity shall provide the State with aggregate encounter 
        data for all items and services, including early and periodic 
        screening, diagnostic, and treatment services under section 
        1905(r) furnished to individuals under 21 years of age. Any 
        such data provided may be audited by the State.
    ``(d) Conditions for Prior Authorization.--Subject to section 1943, 
a managed care entity may require the approval of medical assistance 
for nonemergency services before the assistance is furnished to an 
enrollee only if the system providing for such approval provides that 
such decisions are made in a timely manner, depending upon the urgency 
of the situation.
    ``(e) Patient Encounter Data.--Each medicaid managed care 
organization shall maintain sufficient patient encounter data to 
identify the health care provider who delivers services to patients and 
to otherwise enable the State plan to meet the requirements of section 
1902(a)(27) and shall submit such data to the State or the Secretary 
upon request. The medicaid managed care organization shall incorporate 
such information in the maintenance of patient encounter data with 
respect to such health care provider.
    ``(f) Incentives for High Quality Managed Care Entities.--The 
Secretary and the State may establish a program to reward, through 
public recognition, incentive payments, or enrollment of additional 
individuals (or combinations of such rewards), managed care entities 
that provide the highest quality care to individuals eligible for 
medical assistance under the State plan under this title who are 
enrolled with such entities. For purposes of section 1903(a)(7), proper 
expenses incurred by a State in carrying out such a program shall be 
considered to be expenses necessary for the proper and efficient 
administration of the State plan under this title.
    ``(g) Quality assurance standards.--Any contract between a State 
and a managed care entity shall provide--
            ``(1) that the State agency will develop and implement a 
        State specific quality assessment and improvement strategy, 
        consistent with standards that the Secretary, in consultation 
        with the States, shall establish and monitor (but that shall 
        not preempt any State standards that are more stringent than 
        the standards established under this paragraph), and that 
        includes--
                    ``(A) standards for access to care so that covered 
                services are available within reasonable timeframes and 
                in a manner that ensures continuity of care and 
                adequate primary care and specialized services 
                capacity; and
                    ``(B) procedures for monitoring and evaluating the 
                quality and appropriateness of care and services to 
                beneficiaries that reflect the full spectrum of 
                populations enrolled in the plan and that include--
                            ``(i) requirements for provision of quality 
                        assurance data to the State using the data and 
                        information set that the Secretary, in 
                        consultation with the States, shall specify 
                        with respect to entities contracting under 
                        section 1876 or under part C of title XVIII or 
                        alternative data requirements approved by the 
                        Secretary;
                            ``(ii) if necessary, an annual examination 
                        of the scope and content of the quality 
                        improvement strategy; and
                            ``(iii) other aspects of care and service 
                        directly related to the improvement of quality 
                        of care (including grievance procedures and 
                        marketing and information standards),
            ``(2) that entities entering into such agreements under 
        which payment is made on a prepaid capitated or other risk 
        basis shall be required--
                    ``(A) to submit to the State agency information 
                that demonstrates significant improvement in the care 
                delivered to members;
                    ``(B) to maintain an internal quality assurance 
                program consistent with paragraph (1), and meeting 
                standards that the Secretary, in consultation with the 
                States, shall establish in regulations; and
                    ``(C) to provide effective procedures for hearing 
                and resolving grievances between the entity and members 
                enrolled with the entity under this section, and
            ``(3) that provision is made, consistent with State law or 
        with regulations under State law, with respect to the solvency 
        of those entities, financial reporting by those entities, and 
        avoidance of waste, fraud, and abuse.

``SEC. 1946. PROTECTIONS FOR PROVIDERS.

    ``(a) Timeliness of Payment.--A medicaid managed care organization 
shall make payment to health care providers for items and services 
which are subject to the contract under section 1941(a)(1)(B) and which 
are furnished to individuals eligible for medical assistance under the 
State plan under this title who are enrolled with the entity on a 
timely basis consistent with section 1943 and under the claims payment 
procedures described in section 1902(a)(37)(A), unless the health care 
provider and the managed care entity agree to an alternate payment 
schedule.
    ``(b) Physician Incentive Plans.--Each medicaid managed care 
organization shall require that any physician incentive plan covering 
physicians who are participating in the medicaid managed care 
organization shall meet the requirements of section 1876(i)(8) and 
comparable requirements under part C of title XVIII.
    ``(c) Written Provider Participation Agreements for Certain 
Providers.--
            ``(1) In general.--Each medicaid managed care organization 
        that enters into a written provider participation agreement 
        with a provider described in paragraph (2) shall--
                    ``(A) include terms and conditions that are no more 
                restrictive than the terms and conditions that the 
                medicaid managed care organization includes in its 
                agreements with other participating providers with 
                respect to--
                            ``(i) the scope of covered services for 
                        which payment is made to the provider;
                            ``(ii) the assignment of enrollees by the 
                        organization to the provider;
                            ``(iii) the limitation on financial risk or 
                        availability of financial incentives to the 
                        provider;
                            ``(iv) accessibility of care;
                            ``(v) professional credentialing and 
                        recredentialing;
                            ``(vi) licensure;
                            ``(vii) quality and utilization management;
                            ``(viii) confidentiality of patient 
                        records;
                            ``(ix) grievance procedures; and
                            ``(x) indemnification arrangements between 
                        the organizations and providers; and
                    ``(B) provide for payment to the provider on a 
                basis that is comparable to the basis on which other 
                providers are paid.
            ``(2) Providers described.--The providers described in this 
        paragraph are the following:
                    ``(A) Rural health clinics, as defined in section 
                1905(l)(1).
                    ``(B) Federally-qualified health centers, as 
                defined in section 1905(l)(2)(B).
                    ``(C) Clinics which are eligible to receive payment 
                for services provided under title X of the Public 
                Health Service Act.
    ``(d) Payments to Rural Health Clinics and Federally-Qualified 
Health Centers.--Each medicaid managed care organization that has a 
contract under this title with respect to the provision of services of 
a rural health clinic or a Federally-qualified health center shall 
provide, at the election of such clinic or center, that the 
organization shall provide payments to such a clinic or center for 
services described in 1905(a)(2)(C) at the rates of payment specified 
in section 1902(a)(13)(E).
    ``(e) Antidiscrimination.--A managed care entity shall not 
discriminate with respect to participation, reimbursement, or 
indemnification as to any provider who is acting within the scope of 
the provider's license or certification under applicable State law, 
solely on the basis of such license or certification. This subsection 
shall not be construed to prohibit a managed care entity from including 
providers only to the extent necessary to meet the needs of the 
entity's enrollees or from establishing any measure designed to 
maintain quality and control costs consistent with the responsibilities 
of the entity.

``SEC. 1947. ASSURING ADEQUACY OF PAYMENTS TO MEDICAID MANAGED CARE 
              ORGANIZATIONS AND ENTITIES.

    A State shall find, determine, and make assurances satisfactory to 
the Secretary that the rates it pays a managed care entity for 
individuals eligible under the State plan have been determined by an 
independent actuary that meets the standards for qualification and 
practice established by the Actuarial Standards Board, to be sufficient 
and not excessive with respect to the estimated costs of the services 
provided.

``SEC. 1948. FRAUD AND ABUSE.

    ``(a) Provisions Applicable to Managed Care Entities.--
            ``(1) Prohibiting affiliations with individuals debarred by 
        Federal agencies.--
                    ``(A) In general.--A managed care entity may not 
                knowingly--
                            ``(i) have a person described in 
                        subparagraph (C) as a director, officer, 
                        partner, or person with beneficial ownership of 
                        more than 5 percent of the entity's equity, or
                            ``(ii) have an employment, consulting, or 
                        other agreement with a person described in such 
                        subparagraph for the provision of items and 
                        services that are significant and material to 
                        the entity's obligations under its contract 
                        with the State.
                    ``(B) Effect of noncompliance.--If a State finds 
                that a managed care entity is not in compliance with 
                clause (i) or (ii) of subparagraph (A), the State--
                            ``(i) shall notify the Secretary of such 
                        noncompliance,
                            ``(ii) may continue an existing agreement 
                        with the entity unless the Secretary (in 
                        consultation with the Inspector General of the 
                        Department of Health and Human Services) 
                        directs otherwise, and
                            ``(iii) may not renew or otherwise extend 
                        the duration of an existing agreement with the 
                        entity unless the Secretary (in consultation 
                        with the Inspector General of the Department of 
                        Health and Human Services) provides to the 
                        State and to the Congress a written statement 
                        describing compelling reasons that exist for 
                        renewing or extending the agreement.
                    ``(C) Persons described.--A person is described in 
                this subparagraph if such person--
                            ``(i) is debarred, suspended, or otherwise 
                        excluded from participating in procurement 
                        activities under any Federal procurement or 
                        nonprocurement program or activity, as provided 
                        for in the Federal Acquisition Streamlining Act 
                        of 1994 (Public Law 103-355; 108 Stat. 3243), 
                        or
                            ``(ii) is an affiliate (as defined in such 
                        Act) of a person described in clause (i).
            ``(2) Restrictions on marketing.--
                    ``(A) Distribution of materials.--
                            ``(i) In general.--A managed care entity 
                        may not distribute directly or through any 
                        agent or independent contractor marketing 
                        materials within any State--
                                    ``(I) without the prior approval of 
                                the State, and
                                    ``(II) that contain false or 
                                materially misleading information.
                            ``(ii) Consultation in review of market 
                        materials.--In the process of reviewing and 
                        approving such materials, the State shall 
                        provide for consultation with a medical care 
                        advisory committee.
                            ``(iii) Prohibition.--The State may not 
                        enter into or renew a contract with a managed 
                        care entity for the provision of services to 
                        individuals enrolled under the State plan under 
                        this title if the State determines that the 
                        entity distributed directly or through any 
                        agent or independent contractor marketing 
                        materials in violation of clause (i).
                    ``(B) Service market.--A managed care entity shall 
                distribute marketing materials to the entire service 
                area of such entity.
                    ``(C) Prohibition of tie-ins.--A managed care 
                entity, or any agency of such entity, may not seek to 
                influence an individual's enrollment with the entity in 
                conjunction with the sale of any other insurance.
                    ``(D) Prohibiting marketing fraud.--Each managed 
                care entity shall comply with such procedures and 
                conditions as the Secretary prescribes in order to 
                ensure that, before an individual is enrolled with the 
                entity, the individual is provided accurate oral and 
                written and sufficient information to make an informed 
                decision whether or not to enroll.
                    ``(E) Prohibition of cold call marketing.--Each 
                managed care entity shall not, directly or indirectly, 
                conduct door-to-door, telephonic, or other `cold call' 
                marketing of enrollment under this title.
    ``(b) Provisions Applicable Only to Medicaid Managed Care 
Organizations.--
            ``(1) State conflict-of-interest safeguards in medicaid 
        risk contracting.--A medicaid managed care organization may not 
        enter into a contract with any State under section 
        1941(a)(1)(B) unless the State has in effect conflict-of-
        interest safeguards with respect to officers and employees of 
        the State with responsibilities relating to contracts with such 
        organizations or to the default enrollment process described in 
        section 1941(a)(1)(F) that are at least as effective as the 
        Federal safeguards provided under section 27 of the Office of 
        Federal Procurement Policy Act (41 U.S.C. 423), against 
        conflicts of interest that apply with respect to Federal 
        procurement officials with comparable responsibilities with 
        respect to such contracts.
            ``(2) Requiring disclosure of financial information.--In 
        addition to any requirements applicable under paragraph (27) or 
        (35) of section 1902(a), a medicaid managed care organization 
        shall--
                    ``(A) report to the State such financial 
                information as the State may require to demonstrate 
                that--
                            ``(i) the organization has the ability to 
                        bear the risk of potential financial losses and 
                        otherwise has a fiscally sound operation;
                            ``(ii) the organization uses the funds paid 
                        to it by the State for activities consistent 
                        with the requirements of this title and the 
                        contract between the State and organization; 
                        and
                            ``(iii) the organization does not place an 
                        individual physician, physician group, or other 
                        health care provider at substantial risk for 
                        services not provided by such physician, group, 
                        or health care provider, by providing adequate 
                        protection to limit the liability of such 
                        physician, group, or health care provider, 
                        through measures such as stop loss insurance or 
                        appropriate risk corridors,
                    ``(B) agree that the Secretary and the State (or 
                any person or organization designated by either) shall 
                have the right to audit and inspect any books and 
                records of the organization (and of any subcontractor) 
                relating to the information reported pursuant to 
                subparagraph (A) and any information required to be 
                furnished under section paragraphs (27) or (35) of 
                section 1902(a),
                    ``(C) make available to the Secretary and the State 
                a description of each transaction described in 
                subparagraphs (A) through (C) of section 1318(a)(3) of 
                the Public Health Service Act between the organization 
                and a party in interest (as defined in section 1318(b) 
                of such Act),
                    ``(D) agree to make available to its enrollees upon 
                reasonable request--
                            ``(i) the information reported pursuant to 
                        subparagraph (A); and
                            ``(ii) the information required to be 
                        disclosed under sections 1124 and 1126,
                    ``(E) comply with subsections (a) and (c) of 
                section 1318 of the Public Health Service Act (relating 
                to disclosure of certain financial information) and 
                with the requirement of section 1301(c)(8) of such Act 
                (relating to liability arrangements to protect 
                members), and
                    ``(F) notify the State of loans and other special 
                financial arrangements which are made between the 
                organization and subcontractors, affiliates, and 
                related parties.
        Each State is required to conduct audits on the books and 
        records of at least 1 percent of the number of medicaid managed 
        care organizations operating in the State.
            ``(3) Adequate provision against risk of insolvency.--
                    ``(A) Establishment of standards.--The Secretary 
                shall establish standards, including appropriate equity 
                standards, under which each medicaid managed care 
                organization shall make adequate provision against the 
                risk of insolvency.
                    ``(B) Consideration of other standards.--In 
                establishing the standards described in subparagraph 
                (A), the Secretary shall consider solvency standards 
                applicable to eligible organizations with a risk-
                sharing contract under section 1876 or under part C of 
                title XVIII.
                    ``(C) Model contract on solvency.--At the earliest 
                practicable time after the date of the enactment of 
                this section, the Secretary shall issue guidelines 
                concerning solvency standards for risk contracting 
                entities and subcontractors of such risk contracting 
                entities. Such guidelines shall take into account 
                characteristics that may differ among risk contracting 
                entities, including whether such an entity is at risk 
                for inpatient hospital services.
            ``(4) Requiring report on net earnings and additional 
        benefits.--Each medicaid managed care organization shall submit 
        a report to the State not later than 12 months after the close 
        of a contract year containing the most recent audited financial 
        statement of the organization's net earnings and consistent 
        with generally accepted accounting principles.
    ``(c) Disclosure of Ownership and Related Information.--Each 
medicaid managed care organization shall provide for disclosure of 
information in accordance with section 1124.
    ``(d) Disclosure of Transaction Information.--
            ``(1) In general.--Each medicaid managed care organization 
        which is not a qualified health maintenance organization (as 
        defined in section 1310(d) of the Public Health Service Act) 
        shall report to the State and, upon request, to the Secretary, 
        the Inspector General of the Department of Health and Human 
        Services, and the Comptroller General, a description of 
        transactions between the organization and a party in interest 
        (as defined in section 1318(b) of such Act), including the 
        following transactions:
                    ``(A) Any sale or exchange, or leasing of any 
                property between the organization and such a party.
                    ``(B) Any furnishing for consideration of goods, 
                services (including management services), or facilities 
                between the organization and such a party, but not 
                including salaries paid to employees for services 
                provided in the normal course of their employment.
                    ``(C) Any lending of money or other extension of 
                credit between the organization and such a party.
        The State or Secretary may require that information reported 
        respecting an organization which controls, or is controlled by, 
        or is under common control with, another entity be in the form 
        of a consolidated financial statement for the organization and 
        such entity.
            ``(2) Disclosure to enrollees.--Each such organization 
        shall make the information reported pursuant to paragraph (1) 
        available to its enrollees upon reasonable request.
    ``(e) Contract Oversight.--
            ``(1) In general.--The Secretary must provide prior review 
        and approval for contracts under this part with a medicaid 
        managed care organization providing for expenditures under this 
        title in excess of $1,000,000.
            ``(2) Inspector general review.--As part of such approval 
        process, the Inspector General in the Department of Health and 
        Human Services, effective October 1, 1997, shall make a 
        determination (to the extent practicable) as to whether persons 
        with an ownership interest (as defined in section 1124(a)(3)) 
        or an officer, director, agent, or managing employee (as 
        defined in section 1126(b)) of the organization are or have 
        been described in subsection (a)(1)(C) based on a ground 
        relating to fraud, theft, embezzlement, breach of fiduciary 
        responsibility, or other financial misconduct or obstruction of 
        an investigation.
    ``(f) Limitation on Availability of FFP for Use of Enrollment 
Brokers.--Amounts expended by a State for the use of an enrollment 
broker in marketing managed care entities to eligible individuals under 
this title shall be considered, for purposes of section 1903(a)(7), to 
be necessary for the proper and efficient administration of the State 
plan but only if the following conditions are met with respect to the 
broker:
            ``(1) The broker is independent of any such entity and of 
        any health care providers (whether or not any such provider 
        participates in the State plan under this title) that provide 
        coverage of services in the same State in which the broker is 
        conducting enrollment activities.
            ``(2) No person who is an owner, employee, consultant, or 
        has a contract with the broker either has any direct or 
        indirect financial interest with such an entity or health care 
        provider or has been excluded from participation in the program 
        under this title or title XVIII or debarred by any Federal 
        agency, or subject to a civil money penalty under this Act.
    ``(g) Use of Unique Physician Identifier for Participating 
Physicians.--Each medicaid managed care organization shall require each 
physician providing services to enrollees eligible for medical 
assistance under the State plan under this title to have a unique 
identifier in accordance with the system established under section 
1173(b).
    ``(h) Secretarial Recovery of FFP for Capitation Payments for 
Insolvent Managed Care Entities.--The Secretary shall provide for the 
recovery and offset against any amount owed a State under section 
1903(a)(1) in an amount equal to the amounts paid to the State for 
medical assistance provided under such section, for expenditures for 
capitation payments to a managed care entity that becomes insolvent or 
for services contracted for with, but not provided by, such 
organization.

``SEC. 1949. SANCTIONS FOR NONCOMPLIANCE BY MANAGED CARE ENTITIES.

    ``(a) Use of Intermediate Sanctions by the State To Enforce 
Requirements.--
            ``(1) In general.--Each State shall establish intermediate 
        sanctions, which may include any of the types described in 
        subsection (b) other than the termination of a contract with a 
        managed care entity, which the State may impose against a 
        managed care entity with a contract under section 1941(a)(1)(B) 
        if the entity--
                    ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under such entity's contract with the State) to 
                be provided to an enrollee covered under the contract,
                    ``(B) imposes premiums or charges on enrollees in 
                excess of the premiums or charges permitted under this 
                title,
                    ``(C) acts to discriminate among enrollees on the 
                basis of their health status or requirements for health 
                care services, including expulsion or refusal to 
                reenroll an individual, except as permitted by this 
                part, or engaging in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment with the entity by eligible 
                individuals whose medical condition or history 
                indicates a need for substantial future medical 
                services,
                    ``(D) misrepresents or falsifies information that 
                is furnished--
                            ``(i) to the Secretary or the State under 
                        this part; or
                            ``(ii) to an enrollee, potential enrollee, 
                        or a health care provider under such sections, 
                        or
                    ``(E) fails to comply with the requirements of 
                section 1876(i)(8) (or comparable requirements under 
                part C of title XVIII) or this part.
            ``(2) Rule of Construction.--For purposes of paragraph 
        (1)(A), the term `medically necessary' shall not be construed 
        as requiring an abortion be performed for any individual, 
        except if necessary to save the life of the mother or if a 
        pregnancy is the result of an act of rape or incest.
    ``(b) Intermediate Sanctions.--The sanctions described in this 
subsection are as follows:
            ``(1) Civil money penalties as follows:
                    ``(A) Except as provided in subparagraph (B), (C), 
                or (D), not more than $25,000 for each determination 
                under subsection (a).
                    ``(B) With respect to a determination under 
                paragraph (3) or (4)(A) of subsection (a), not more 
                than $100,000 for each such determination.
                    ``(C) With respect to a determination under 
                subsection (a)(2), double the excess amount charged in 
                violation of such subsection (and the excess amount 
                charged shall be deducted from the penalty and returned 
                to the individual concerned).
                    ``(D) Subject to subparagraph (B), with respect to 
                a determination under subsection (a)(3), $15,000 for 
                each individual not enrolled as a result of a practice 
                described in such subsection.
            ``(2) The appointment of temporary management--
                    ``(A) to oversee the operation of the medicaid-only 
                managed care entity upon a finding by the State that 
                there is continued egregious behavior by the plan, or
                    ``(B) to assure the health of the entity's 
                enrollees, if there is a need for temporary management 
                while--
                            ``(i) there is an orderly termination or 
                        reorganization of the managed care entity; or
                            ``(ii) improvements are made to remedy the 
                        violations found under subsection (a),
        except that temporary management under this paragraph may not 
        be terminated until the State has determined that the managed 
        care entity has the capability to ensure that the violations 
        shall not recur.
            ``(3) Permitting individuals enrolled with the managed care 
        entity to terminate enrollment without cause, and notifying 
        such individuals of such right to terminate enrollment.
            ``(4) Suspension or default of all enrollment of 
        individuals under this title after the date the Secretary or 
        the State notifies the entity of a determination of a violation 
        of any requirement of this part.
            ``(5) Suspension of payment to the entity under this title 
        for individuals enrolled after the date the Secretary or State 
        notifies the entity of such a determination and until the 
        Secretary or State is satisfied that the basis for such 
        determination has been corrected and is not likely to recur.
    ``(c) Treatment of Chronic Substandard Entities.--In the case of a 
managed care entity which has repeatedly failed to meet the 
requirements of sections 1942 through 1946, the State shall (regardless 
of what other sanctions are provided) impose the sanctions described in 
paragraphs (2) and (3) of subsection (b).
    ``(d) Authority To Terminate Contract.--In the case of a managed 
care entity which has failed to meet the requirements of this part, the 
State shall have the authority to terminate its contract with such 
entity under section 1941(a)(1)(B) and to enroll such entity's 
enrollees with other managed care entities (or to permit such enrollees 
to receive medical assistance under the State plan under this title 
other than through a managed care entity).
    ``(e) Availability of Sanctions to the Secretary.--
            ``(1) Intermediate sanctions.--In addition to the sanctions 
        described in paragraph (2) and any other sanctions available 
        under law, the Secretary may provide for any of the sanctions 
        described in subsection (b) if the Secretary determines that a 
        managed care entity with a contract under section 1941(a)(1)(B) 
        fails to meet any of the requirements of this part.
            ``(2) Denial of payments to the state.--The Secretary may 
        deny payments to the State for medical assistance furnished 
        under the contract under section 1941(a)(1)(B) for individuals 
        enrolled after the date the Secretary notifies a managed care 
        entity of a determination under subsection (a) and until the 
        Secretary is satisfied that the basis for such determination 
        has been corrected and is not likely to recur.
    ``(f) Due Process for Managed Care Entities.--
            ``(1) Availability of hearing prior to termination of 
        contract.--A State may not terminate a contract with a managed 
        care entity under section 1941(a)(1)(B) unless the entity is 
        provided with a hearing prior to the termination.
            ``(2) Notice to enrollees of termination hearing.--A State 
        shall notify all individuals enrolled with a managed care 
        entity which is the subject of a hearing to terminate the 
        entity's contract with the State of the hearing and that the 
        enrollees may immediately disenroll with the entity without 
        cause.
            ``(3) Other protections for managed care entities against 
        sanctions imposed by state.--Before imposing any sanction 
        against a managed care entity other than termination of the 
        entity's contract, the State shall provide the entity with 
        notice and such other due process protections as the State may 
        provide, except that a State may not provide a managed care 
        entity with a pre-termination hearing before imposing the 
        sanction described in subsection (b)(2).
            ``(4) Imposition of civil monetary penalties by 
        secretary.--The provisions of section 1128A (other than 
        subsections (a) and (b)) shall apply with respect to a civil 
        money penalty imposed by the Secretary under subsection (b)(1) 
        in the same manner as such provisions apply to a penalty or 
        proceeding under section 1128A.

``SEC. 1950. DEFINITIONS; MISCELLANEOUS PROVISIONS.

    ``(a) Definitions.--For purposes of this title:
            ``(1) Managed care entity.--The term `managed care entity' 
        means--
                    ``(A) a medicaid managed care organization; or
                    ``(B) a primary care case manager.
            ``(2) Medicaid managed care organization.--The term 
        `medicaid managed care organization' means a health maintenance 
        organization, an eligible organization with a contract under 
        section 1876 or under part C of title XVIII, a provider 
        sponsored network, or any other organization which is organized 
        under the laws of a State, has made adequate provision (as 
        determined under standards established for purposes of eligible 
        organizations under section 1876 or under part C of title 
        XVIII, and through its capitalization or otherwise) against the 
        risk of insolvency, and provides or arranges for the provision 
        of one or more items and services to individuals eligible for 
        medical assistance under the State plan under this title in 
        accordance with a contract with the State under section 
        1941(a)(1)(B).
            ``(3) Primary care case manager.--
                    ``(A) In general.--The term `primary care case 
                manager' has the meaning given such term in section 
                1905(t)(2).''.
    (b) Studies and Reports.--
            (1) Report on public health services.--
                    (A) In general.--Not later than January 1, 1998, 
                the Secretary of Health and Human Services (in this 
                subsection referred to as the ``Secretary'') shall 
                report to the Committee on Finance of the Senate and 
                the Committee on Commerce of the House of 
                Representatives on the effect of managed care entities 
                (as defined in section 1950(a)(1) of the Social 
                Security Act) on the delivery of and payment for the 
                services traditionally provided through providers 
                described in section 1941(a)(2)(B)(i) of such Act.
                    (B) Contents of report.--The report referred to in 
                subparagraph (A) shall include--
                            (i) information on the extent to which 
                        enrollees with eligible managed care entities 
                        seek services at local health departments, 
                        public hospitals, and other facilities that 
                        provide care without regard to a patient's 
                        ability to pay;
                            (ii) information on the extent to which the 
                        facilities described in clause (i) provide 
                        services to enrollees with eligible managed 
                        care entities without receiving payment;
                            (iii) information on the effectiveness of 
                        systems implemented by facilities described in 
                        clause (i) for educating such enrollees on 
                        services that are available through eligible 
                        managed care entities with which such enrollees 
                        are enrolled;
                            (iv) to the extent possible, identification 
                        of the types of services most frequently sought 
                        by such enrollees at such facilities; and
                            (v) recommendations about how to ensure the 
                        timely delivery of the services traditionally 
                        provided through providers described in section 
                        1941(a)(2)(B)(i) of the Social Security Act to 
                        enrollees of managed care entities and how to 
                        ensure that local health departments, public 
                        hospitals, and other facilities are adequately 
                        compensated for the provision of such services 
                        to such enrollees.
            (2) Report on payments to hospitals.--
                    (A) In general.--Not later than October 1 of each 
                year, beginning with October 1, 1998, the Secretary and 
                the Comptroller General shall analyze and submit a 
                report to the Committee on Finance of the Senate and 
                the Committee on Commerce of the House of 
                Representatives on rates paid for hospital services 
                under managed care entities under contracts under 
                section 1941(a)(1)(B) of the Social Security Act.
                    (B) Contents of report.--The information in the 
                report described in subparagraph (A) shall--
                            (i) be organized by State, type of 
                        hospital, type of service; and
                            (ii) include a comparison of rates paid for 
                        hospital services under managed care entities 
                        with rates paid for hospital services furnished 
                        to individuals who are entitled to benefits 
                        under a State plan under title XIX of the 
                        Social Security Act and are not enrolled with 
                        such entities.
            (3) Reports by states.--Each State shall transmit to the 
        Secretary, at such time and in such manner as the Secretary 
        determines appropriate, the information on hospital rates 
        submitted to such State under section 1947(b)(2) of the Social 
        Security Act.
            (4) Independent study and report on quality assurance and 
        accreditation standards.--The Institute of Medicine of the 
        National Academy of Sciences shall conduct a study and analysis 
        of the quality assurance programs and accreditation standards 
        applicable to managed care entities operating in the private 
        sector or to such entities that operate under contracts under 
        the medicare program under title XVIII of the Social Security 
        Act to determine if such programs and standards include 
        consideration of the accessibility and quality of the health 
        care items and services delivered under such contracts to low-
        income individuals.
    (c) Conforming Amendments.--
            (1) Repeal of current requirements.--
                    (A) In general.--Except as provided in subparagraph 
                (B), section 1903(m) (42 U.S.C. 1396b(m)) is repealed 
                on the date of the enactment of this Act.
                    (B) Existing contracts.--In the case of any 
                contract under section 1903(m) of such Act which is in 
                effect on the day before the date of the enactment of 
                this Act, the provisions of such section shall apply to 
                such contract until the earlier of--
                            (i) the day after the date of the 
                        expiration of the contract; or
                            (ii) the date which is 1 year after the 
                        date of the enactment of this Act.
            (2) Federal financial participation.--
                    (A) Clarification of application of ffp denial 
                rules to payments made pursuant to managed care 
                entities.--Section 1903(i) (42 U.S.C. 1396b(i)) is 
                amended by adding at the end the following new 
                sentence: ``Paragraphs (1)(A), (1)(B), (2), (5), and 
                (12) shall apply with respect to items or services 
                furnished and amounts expended by or through a managed 
                care entity (as defined in section 1950(a)(1)) in the 
                same manner as such paragraphs apply to items or 
                services furnished and amounts expended directly by the 
                State.''.
                    (B) FFP for external quality review 
                organizations.--Section 1903(a)(3)(C) (42 U.S.C. 
                1396b(a)(3)(C)) is amended--
                            (i) by inserting ``(i)'' after ``(C)'', and
                            (ii) by adding at the end the following new 
                        clause:
                    ``(ii) 75 percent of the sums expended with respect 
                to costs incurred during such quarter (as found 
                necessary by the Secretary for the proper and efficient 
                administration of the State plan) as are attributable 
                to the performance of independent external reviews of 
                managed care entities (as defined in section 
                1950(a)(1)) by external quality review organizations, 
                but only if such organizations conduct such reviews 
                under protocols approved by the Secretary and only in 
                the case of such organizations that meet standards 
                established by the Secretary relating to the 
                independence of such organizations from agencies 
                responsible for the administration of this title or 
                eligible managed care entities; and''.
            (3) Exclusion of certain individuals and entities from 
        participation in program.--Section 1128(b)(6)(C) (42 U.S.C. 
        1320a-7(b)(6)(C)) is amended--
                    (A) in clause (i), by striking ``a health 
                maintenance organization (as defined in section 
                1903(m))'' and inserting ``a managed care entity, as 
                defined in section 1950(a)(1),''; and
                    (B) in clause (ii), by inserting ``section 1115 
                or'' after ``approved under''.
            (4) State plan requirements.--Section 1902 (42 U.S.C. 
        1396a) is amended--
                    (A) in subsection (a)(30)(C), by striking ``section 
                1903(m)'' and inserting ``section 1941(a)(1)(B)''; and
                    (B) in subsection (a)(57), by striking ``health 
                maintenance organization (as defined in section 
                1903(m)(1)(A))'' and inserting ``managed care entity, 
                as defined in section 1950(a)(1)'';
                    (C) in subsection (e)(2)(A), by striking ``or with 
                an entity described in paragraph (2)(B)(iii), (2)(E), 
                (2)(G), or (6) of section 1903(m) under a contract 
                described in section 1903(m)(2)(A)'' and inserting ``or 
                with a managed care entity, as defined in section 
                1950(a)(1);
                    (D) in subsection (p)(2)--
                            (i) by striking ``a health maintenance 
                        organization (as defined in section 1903(m))'' 
                        and inserting ``a managed care entity, as 
                        defined in section 1950(a)(1),'';
                            (ii) by striking ``an organization'' and 
                        inserting ``an entity''; and
                            (iii) by striking ``any organization'' and 
                        inserting ``any entity''; and
                    (E) in subsection (w)(1), by striking ``sections 
                1903(m)(1)(A) and'' and inserting ``section''.
            (5) Payment to states.--Section 1903(w)(7)(A)(viii) (42 
        U.S.C. 1396b(w)(7)(A)(viii)) is amended to read as follows:
                            ``(viii) Services of a managed care entity 
                        with a contract under section 1941(a)(1)(B).''.
            (6) Use of enrollment fees and other charges.--Section 1916 
        (42 U.S.C. 1396o) is amended in subsections (a)(2)(D) and 
        (b)(2)(D) by striking ``a health maintenance organization (as 
        defined in section 1903(m))'' and inserting ``a managed care 
        entity, as defined in section 1950(a)(1),'' each place it 
        appears.
            (7) Extension of eligibility for medical assistance.--
        Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-6(b)(4)(D)(iv)) is 
        amended to read as follows:
                            ``(iv) Enrollment with managed care 
                        entity.--Enrollment of the caretaker relative 
                        and dependent children with a managed care 
                        entity, as defined in section 1950(a)(1), less 
                        than 50 percent of the membership (enrolled on 
                        a prepaid basis) of which consists of 
individuals who are eligible to receive benefits under this title 
(other than because of the option offered under this clause). The 
option of enrollment under this clause is in addition to, and not in 
lieu of, any enrollment option that the State might offer under 
subparagraph (A)(i) with respect to receiving services through a 
managed care entity in accordance with part B.''.
            (8) Payment for covered outpatient drugs.--Section 
        1927(j)(1) (42 U.S.C. 1396r-8(j)(1)) is amended by striking 
        ``***Health Maintenance Organizations, including those 
        organizations that contract under section 1903(m),'' and 
        inserting ``health maintenance organizations and medicaid 
        managed care organizations, as defined in section 
        1950(a)(2),''.
            (9) Application of sanctions for balanced billing through 
        subcontractors.--(A) Section 1128A(b)(2)(B) (42 U.S.C. 1320a-
        7a(b)) is amended by inserting ``, including section 1944(b)'' 
        after ``title XIX''.
            (B) Section 1128B(d)(1) (42 U.S.C. 1320a-7b(d)(1)) is 
        amended by inserting ``or, in the case of an individual 
        enrolled with a managed care entity under part B of title XIX, 
        the applicable rates established by the entity under the 
        agreement with the State agency under such part'' after 
        ``established by the State''.
            (10) Repeal of certain restrictions on obstetrical and 
        pediatric providers.--Section 1903(i) (42 U.S.C. 1396b(i)) is 
        amended by striking paragraph (12).
            (11) Demonstration projects to study effect of allowing 
        states to extend medicaid coverage for certain families.--
        Section 4745(a)(5)(A) of the Omnibus Budget Reconciliation Act 
        of 1990 (42 U.S.C. 1396a note) is amended by striking ``(except 
        section 1903(m)'' and inserting ``(except part B)''.
            (12) Conforming amendment for disclosure requirements for 
        managed care entities.--Section 1124(a)(2)(A) (42 U.S.C. 1320a-
        3(a)(2)(A)) is amended by inserting ``managed care entity under 
        title XIX,'' after ``renal dialysis facility,''.
            (13) Elimination of regulatory payment cap.--The Secretary 
        of Health and Human Services may not, under the authority of 
        section 1902(a)(30)(A) of the Social Security Act or any other 
        provision of title XIX of such Act, impose a limit by 
        regulation on the amount of the capitation payments that a 
        State may make to qualified entities under such title, and 
        section 447.361 of title 42, Code of Federal Regulations 
        (relating to upper limits of payment: risk contracts), is 
        hereby nullified.
            (14) Continuation of eligibility.--Section 1902(e)(2) (42 
        U.S.C. 1396a(e)(2)) is amended to read as follows:
    ``(2) For provision providing for extended liability in the case of 
certain beneficiaries enrolled with managed care entities, see section 
1941(c).''.
            (15) Conforming amendments to freedom-of-choice 
        provisions.--Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)) is 
        amended--
                    (A) in the matter preceding subparagraph (A), by 
                striking ``subsection (g) and in section 1915'' and 
                inserting ``subsection (g), section 1915, and section 
                1941,''; and
                    (B) in subparagraph (B), by striking ``a health 
                maintenance organization, or a'' and inserting ``or 
                with a managed care entity, as defined in section 
                1950(a)(1), or''.
    (d) Effective Date; Status of Waivers.--
            (1) Effective date.--Except as provided in paragraph (2), 
        the amendments made by this section shall apply to medical 
        assistance furnished--
                    (A) during quarters beginning on or after October 
                1, 1997; or
                    (B) in the case of assistance furnished under a 
                contract described in subsection (c)(1)(B), during 
                quarters beginning after the earlier of--
                            (i) the date of the expiration of the 
                        contract; or
                            (ii) the expiration of the 1-year period 
                        which begins on the date of the enactment of 
                        this Act.
            (2) Application to waivers.--If any waiver granted to a 
        State under section 1115 or 1915 of the Social Security Act (42 
        U.S.C. 1315, 1396n), or otherwise, which relates to the 
        provision of medical assistance under a State plan under title 
        XIX of the such Act (42 U.S.C. 1396 et seq.), is in effect or 
        approved by the Secretary of Health and Human Services as of 
        the applicable effective date described in paragraph (1), the 
        amendments made by this section shall not apply with respect to 
        the State before the expiration (determined without regard to 
        any extensions) of the waiver to the extent such amendments are 
        inconsistent with the terms of the waiver.

SEC. 5702. PRIMARY CARE CASE MANAGEMENT SERVICES AS STATE OPTION 
              WITHOUT NEED FOR WAIVER.

    (a) Optional Coverage As Part of Medical Assistance.--
            (1) In general.--Section 1905(a) (42 U.S.C. 1396d(a)) is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (24);
                    (B) by redesignating paragraph (25) as paragraph 
                (26); and
                    (C) by inserting after paragraph (24) the following 
                new paragraph:
            ``(25) primary care case management services (as defined in 
        subsection (t)); and''.
            (2) Conforming amendments.--
                    (A) Section 1902(a)(10)(C)(iv) (42 U.S.C. 
                1396a(a)(10)(C)(iv)) is amended by striking ``through 
                (24)'' and inserting ``through (25)''.
                    (B) Section 1902(j) (42 U.S.C. 1396a(j)) is amended 
                by striking ``through (25)'' and inserting ``through 
                (26)''.
    (b) Primary care case management services defined.--Section 1905 
(42 U.S.C. 1396d)) is amended by adding at the end the following new 
subsection:
    ``(t)(1) The term `primary care case management services' means 
case-management related services (including coordination and monitoring 
of health care services) provided by a primary care case manager under 
a primary care case management contract.
    ``(2)(A) The term `primary care case manager' means, with respect 
to a primary care case management contract, a provider described in 
subparagraph (B).
    ``(B) A provider described in this subparagraph is--
            ``(i) a physician, a physician group practice, or an entity 
        employing or having other arrangements with physicians who 
        provide case management services; or
            ``(ii) at State option--
                    ``(I) a nurse practitioner (as described in section 
                1905(a)(21));
                    ``(II) a certified nurse-midwife (as defined in 
                section 1861(gg)(2)); or
                    ``(III) a physician assistant (as defined in 
                section 1861(aa)(5)).
    ``(3) The term `primary care case management contract' means a 
contract with a State agency under which a primary care case manager 
undertakes to locate, coordinate, and monitor covered primary care, 
covered primary care (and such other covered services as may be 
specified under the contract) to all individuals enrolled with the 
primary care case manager, and that provides for--
            ``(A) reasonable and adequate hours of operation, including 
        24-hour availability of information, referral, and treatment 
        with respect to medical emergencies;
            ``(B) restriction of enrollment to individuals residing 
        sufficiently near a service delivery site of the entity to be 
        able to reach that site within a reasonable time using 
        available and affordable modes of transportation;
            ``(C) employment of, or contracts or other arrangements 
        with, sufficient numbers of physicians and other appropriate 
        health care professionals to ensure that services under the 
        contract can be furnished to enrollees promptly and without 
        compromise to quality of care;
            ``(D) a prohibition on discrimination on the basis of 
        health status or requirements for health services in the 
        enrollment or disenrollment of individuals eligible for medical 
        assistance under this title; and
            ``(E) a right for an enrollee to terminate enrollment 
        without cause during the first month of each enrollment period, 
        which period shall not exceed 6 months in duration, and to 
        terminate enrollment at any time for cause.
    ``(4) For purposes of this subsection, the term `primary care' 
includes all health care services customarily provided in accordance 
with State licensure and certification laws and regulations, and all 
laboratory services customarily provided by or through, a general 
practitioner, family medicine physician, internal medicine physician, 
obstetrician/gynecologist, or pediatrician.''.
    (c) Conforming Amendment.--Section 1915(b)(1) (42 U.S.C. 
1396n(b)(1)) is repealed.
    (d) Effective Date.--The amendments made by this section apply to 
primary care case management services furnished on or after October 1, 
1997.

SEC. 5703. ADDITIONAL REFORMS TO EXPAND AND SIMPLIFY MANAGED CARE.

    (a) Elimination of 75:25 Restriction on Risk Contracts.--
            (1) 75 percent limit on medicare and medicaid enrollment.--
                    (A) In general.--Section 1903(m)(2)(A) (42 U.S.C. 
                1396b(m)(2)(A)) is amended by striking clause (ii).
                    (B) Conforming amendments.--
                            (i) Section 1903(m)(2) (42 U.S.C. 
                        1396b(m)(2)) is amended--
                                    (I) by striking subparagraphs (C), 
                                (D), and (E); and
                                    (II) in subparagraph (G), by 
                                striking ``clauses (i) and (ii)'' and 
                                inserting ``clause (i)''.
                            (ii) Section 1902(e)(2)(A) (42 U.S.C. 
                        1396a(e)(2)(A)) is amended by striking 
                        ``(2)(E),''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall apply on and after June 20, 1997.
    (b) Elimination of Prohibition on Copayments for Services Furnished 
by Health Maintenance Organizations.--Section 1916 (42 U.S.C. 1396o) is 
amended--
            (1) in subsection (a)(2)(D), by striking ``or services 
        furnished'' and all that follows through ``enrolled,''; and
            (2) in subsection (b)(2)(D), by striking ``or (at the 
        option'' and all that follows through ``enrolled,''.

              Subchapter B--Management Flexibility Reforms

SEC. 5711. ELIMINATION OF BOREN AMENDMENT REQUIREMENTS FOR PROVIDER 
              PAYMENT RATES.

    (a) Plan Amendments.--Section 1902(a)(13) is amended--
            (1) by striking all that precedes subparagraph (D) and 
        inserting the following:
            ``(13) provide--
                    ``(A) for a public process for determination of 
                rates of payment under the plan for hospital services 
                (and which, in the case of hospitals, take into account 
                the situation of hospitals which serve a 
                disproportionate number of low income patients with 
                special needs), nursing facility services, services 
                provided in intermediate care facilities for the 
                mentally retarded, and home and community-based 
                services, under which--
            ``(i) proposed rates, the methodologies underlying the 
        establishment of such rates, and a description of how such 
        methodologies will affect access to services, quality of 
        services, and safety of beneficiaries are published, and 
        providers, beneficiaries and their representatives, and other 
        concerned State residents are given a reasonable opportunity 
        for review and comment on such proposed rates, methodologies, 
        and description; and
            ``(ii) final rates, the methodologies underlying the 
        establishment of such rates, and justifications for such rates 
        (that may take into account public comments received by the 
        State (if any) are published in 1 or more daily newspapers of 
        general circulation in the State or in any publication used by 
        the State to publish State statutes or rules); and'';
            (2) by redesignating subparagraphs (D) and (E) as 
        subparagraphs (B) and (C), respectively;
            (3) in subparagraph (B), as so redesignated, by adding 
        ``and'' at the end; and
            (4) by striking subparagraph (F).
    (b) Study and Report.--
            (1) Study.--The Secretary of Health and Human Services 
        shall study the effect on access to services, the quality of 
        services, and the safety of services provided to beneficiaries 
        of the rate-setting methods used by States pursuant to section 
        1902(a)(13) of the Social Security Act (42 U.S.C. 1396a(a)(13), 
        as amended by subsection (a).
            (2) Report.--Not later than 4 years after the date of 
        enactment of this Act, the Secretary of Health and Human 
        Services shall submit a report to the appropriate committees of 
        Congress on the conclusions of the study conducted under 
        paragraph (1), together with any recommendations for 
        legislation as a result of such conclusions.
    (c) Conforming Amendments.--
            (1) Section 1903(m)(2)(A)(ix) (42 U.S.C. 
        1396b(m)(2)(A)(ix)) is amended by striking ``1902(a)(13)(E)'' 
        each place it appears and inserting ``1902(a)(13)(C)''.
            (2) Section 1905(o)(3) (42 U.S.C. 1396d(o)(3)) is amended 
        by striking ``amount described in section 1902(a)(13)(D)'' and 
        inserting ``amount determined in section 1902(a)(13)(B)''.
            (3) Section 1913(b)(3) (42 U.S.C. 1396l(b)(3)) is amended 
        by striking ``1902(a)(13)(A)'' and inserting ``1902(a)(13)''.
            (4) Section 1923 (42 U.S.C. 1396r-4) is amended in 
        subsections (a)(1) and (e)(1), by striking ``1902(a)(13)(A)'' 
        each place it appears and inserting ``1902(a)(13)''.

SEC. 5712. MEDICAID PAYMENT RATES FOR QUALIFIED MEDICARE BENEFICIARIES.

    (a) In General.--Section 1902(n) (42 U.S.C. 1396a(n)) is amended--
            (1) by inserting ``(1)'' after ``(n)'', and
            (2) by adding at the end the following:
    ``(2) In carrying out paragraph (1), a State is not required to 
provide any payment for any expenses incurred relating to payment for a 
coinsurance or copayment for medicare cost-sharing if the amount of the 
payment under title XVIII for the service exceeds the payment amount 
that otherwise would be made under the State plan under this title for 
such service.
    ``(3) In the case in which a State's payment for medicare cost-
sharing for a qualified medicare beneficiary with respect to an item or 
service is reduced or eliminated through the application of paragraph 
(1) or (2) of this subsection--
            ``(A) for purposes of applying any limitation under title 
        XVIII on the amount that the beneficiary may be billed or 
        charged for the service, the amount of payment made under title 
        XVIII plus the amount of payment (if any) under the State plan 
        shall be considered to be payment in full for the service,
            ``(B) the beneficiary shall not have any legal liability to 
        make payment to the provider for the service, and
            ``(C) any lawful sanction that may be imposed upon a 
        provider for excess charges under this title or title XVIII 
        shall apply to the imposition of any charge on the individual 
        in such case.
This paragraph shall not be construed as preventing payment of any 
medicare cost-sharing by a medicare supplemental policy or an employer 
retiree health plan on behalf of an individual.''.
    (b) Limitation in Medicare Provider Agreements.--Section 
1866(a)(1)(A) (42 U.S.C. 1395cc(a)(1)(A)) is amended--
            (1) by inserting ``(i)'' after ``(A)'', and
            (2) by inserting before the comma at the end the following: 
        ``, and (ii) not to impose any charge that may not be charged 
        under section 1902(n)(3)''.
    (c) Limitation on Nonparticipating Providers.--Section 
1848(g)(3)(A) (42 U.S.C. 1395w-4(g)(3)(A)) is amended by inserting 
before the period at the end the following: ``and the provisions of 
section 1902(n)(3)(A) apply to further limit permissible charges under 
this section''.
    (d) Effective Date.--The amendments made by this section shall 
apply to payment for items and services furnished on or after the later 
of--
            (1) October 1, 1997; or
            (2) the termination date of a provider agreement under the 
        medicare program under title XVIII or under a State plan under 
        title XIX that is in effect on the date of the enactment of 
        this Act.

SEC. 5713. NO WAIVER REQUIRED FOR PROVIDER SELECTIVITY.

    Section 1915(a) (42 U.S.C. 1396n(a)) is amended--
            (1) in paragraph (1), by striking ``or'' at the end;
            (2) in paragraph (2), by striking the period and inserting 
        ``; or''; and
            (3) by adding at the end the following:
            ``(3) contracts, on a capitated or other negotiated basis, 
        with selected health care plans, individual health care 
        providers, managed care entities, as defined in section 
        1950(a)(1), or other entities for the provision or arrangement 
        of medical assistance, for case management services, or for 
        coordination of medical assistance provided under the State 
        plan this title.''.

   Subchapter C--Reduction of Disproportionate Share Hospital (DSH) 
                                Payments

SEC. 5721. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS.

    (a) Reduction of Payments.--Section 1923(f) (42 U.S.C. 1396r-4(f)) 
is amended to read as follows:
    ``(f) Limitation on Federal Financial Participation.--
            ``(1) In general.--Beginning with fiscal year 1998, payment 
        under section 1903(a) shall not be made to a State with respect 
        to any payment adjustment made under this section for hospitals 
        in a State for quarters in a fiscal year in excess of the 
        disproportionate share hospital (in this subsection referred to 
        as `DSH') allotment for the State for the fiscal year, as 
        specified in paragraphs (2), (3), (4), and (5).
            ``(2) Determination of state dsh allotments for fiscal year 
        1998.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B) and paragraph (4), the DSH allotment 
                for a State for fiscal year 1998 is equal to the State 
                1995 DSH spending amount.
                    ``(B) High dsh states.--In the case of any State 
                that is a high DSH State, the DSH allotment for that 
                State for fiscal year 1998 is equal to the sum of--
                            ``(i) the Federal share of payment 
                        adjustments made to hospitals in the State 
                        under subsection (c) that are attributable to 
                        the 1995 DSH allotment for inpatient hospital 
                        services provided (based on reporting data 
                        specified by the State on HCFA Form 64 as 
                        inpatient DSH); and
                            ``(ii) 70 percent of the Federal share of 
                        payment adjustments made to hospitals in the 
                        State under subsection (c) that are 
                        attributable to the 1995 DSH allotment for 
                        services provided by institutions for mental 
                        diseases and other mental health facilities 
                        (based on reporting data specified by the State 
                        on HCFA Form 64 as mental health DSH).
            ``(3) Determination of state dsh allotments for fiscal 
        years 1999 through 2002.--
                    ``(A) Non high dsh states.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (B) and paragraph (4), the DSH 
                        allotment for a State for each of fiscal years 
                        1999 through 2002 is equal to the applicable 
                        percentage of the State 1995 DSH spending 
                        amount.
                            ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage with 
                        respect to a State described in that clause 
                        is--
                    ``(A) for fiscal year 1999, 98 percent;
                    ``(B) for fiscal year 2000, 95 percent;
                    ``(C) for fiscal year 2001, 90 percent; and
                    ``(D) for fiscal year 2002, 85 percent.
                    ``(B) High dsh states.--
                            ``(i) In general.--In the case of any State 
                        that is a high DSH State, the DSH allotment for 
                        that State for each of fiscal years 1999 
                        through 2002 is equal to the applicable 
                        reduction percentage of the high DSH State 
                        modified 1995 spending amount for that fiscal 
                        year.
                            ``(ii) High dsh state modified 1995 
                        spending amount.--
                                    ``(I) In general.--For purposes of 
                                clause (i), the high DSH State modified 
                                1995 spending amount means, with 
                                respect to a State and a fiscal year, 
                                the sum of--
                                            ``(aa) the Federal share of 
                                        payment adjustments made to 
                                        hospitals in the State under 
                                        subsection (c) that are 
                                        attributable to the 1995 DSH 
                                        allotment for inpatient 
                                        hospital services provided 
                                        (based on reporting data 
                                        specified by the State on HCFA 
                                        Form 64 as inpatient DSH); and
                                            ``(bb) the applicable 
                                        mental health percentage for 
                                        such fiscal year of the Federal 
                                        share of payment adjustments 
                                        made to hospitals in the State 
                                        under subsection (c) that are 
                                        attributable to the 1995 DSH 
                                        allotment for services provided 
                                        by institutions for mental 
                                        diseases and other mental 
                                        health facilities (based on 
                                        reporting data specified by the 
                                        State on HCFA Form 64 as mental 
                                        health DSH).
                                    ``(II) Applicable mental health 
                                percentage.--For purposes of subclause 
                                (I)(bb), the applicable mental health 
                                percentage for such fiscal year is--
                                            ``(aa) for fiscal year 
                                        1999, 50 percent;
                                            ``(bb) for fiscal year 
                                        2000, 20 percent; and
                                            ``(cc) for fiscal years 
                                        2001 and 2002, 0 percent.
                            ``(iii) Applicable reduction percentage.--
                        For purposes of clause (i), the applicable 
                        reduction percentage described in that clause 
                        is--
                    ``(A) for fiscal year 1999, 86 percent; and
                    ``(B) for fiscal years 2000 through 2002, 80 
                percent.
            ``(4) Exceptions.--
                    ``(A) Certain states without 1995 mental health dsh 
                spending.--In the case of any State with a State 1995 
                DSH spending amount that exceeds 12 percent of the 
                Federal medical assistance percentage of expenditures 
                made under the State plan under this title for medical 
                assistance during fiscal year 1995 and that, during 
                such fiscal year, did not make any payment adjustments 
                to hospitals in the State under subsection (c) that are 
                attributable to the 1995 DSH allotment for services 
                provided by institutions for mental diseases and other 
                mental health facilities (based on reporting data 
                specified by the State on HCFA Form 64 as mental health 
                DSH), the DSH allotment for that State for each of 
                fiscal years 1998 through 2002 is equal to the average 
                of the State 1995 DSH spending amount and the State 
                1996 DSH spending amount.
                    ``(B) States with low state 1995 dsh spending 
                amounts.--In the case of any State with a State 1995 
                DSH spending amount that is less than 3 percent of the 
                Federal medical assistance percentage of expenditures 
                made under the State plan under this title for medical 
                assistance during fiscal year 1995, the DSH allotment 
                for that State for each of fiscal years 1998 through 
                2002 is equal to the State 1995 DSH spending amount.
                    ``(C) States with state 1995 dsh spending amounts 
                below 12 percent.--In the case of any State with a 
                State 1995 DSH spending amount that is less than 12 
                percent but more than 3 percent of the Federal medical 
                assistance percentage of expenditures made under the 
                State plan under this title for medical assistance 
                during fiscal year 1995, the DSH allotment for that 
                State for each of fiscal years 1999 through 2002 is 
                equal to the greater of--
                            ``(i) the amount otherwise determined for 
                        such State under paragraph (3); or
                            ``(ii) 50 percent of the State 1995 DSH 
                        spending amount.
            ``(5) Determination of state dsh allotments for fiscal year 
        2003 and thereafter.--The DSH allotment for any State for 
        fiscal year 2003 and each fiscal year thereafter is equal to 
        the DSH allotment for the State for the preceding fiscal year, 
        increased by the estimated percentage change in the consumer 
        price index for medical services (as determined by the Bureau 
        of Labor Statistics).
            ``(6) Definitions.--
                    ``(A) High dsh state.--The term `high DSH State' 
                means a State that, with respect to fiscal year 1997, 
                had a State base allotment under this section that 
                exceeded 12 percent of the Federal medical assistance 
                percentage of expenditures made under the State plan 
                under this title for medical assistance during such 
                fiscal year, as determined using the preliminary State 
                DSH allotment for the State for fiscal year 1997, as 
                published in the Federal Register on January 31, 1997.
                    ``(B) State.--In this subsection, the term `State' 
                means the 50 States and the District of Columbia.''.
                    ``(C) State 1995 dsh spending amount.--The term 
                `State 1995 DSH spending amount' means, with respect to 
                a State, the Federal medical assistance percentage of 
                payment adjustments made under subsection (c) under the 
                State plan during fiscal year 1995 as reported by the 
                State not later than January 1, 1997, on HCFA Form 64, 
                and as approved by the Secretary.
                    ``(D) State 1996 dsh spending amount.--The term 
                `State 1996 DSH spending amount' means, with respect to 
                a State, the Federal share of payment adjustments made 
                under subsection (c) under the State plan during fiscal 
                year 1996 as reported by the State not later than 
                December 31, 1997, on HCFA Form 64, and as approved by 
                the Secretary.''.
    (b) Limitation on Payments to Institutions For Mental Diseases.--
Section 1923 of the Social Security Act (42 U.S.C. 1396r-4) is amended 
by adding at the end the following:
    ``(h) Limitation on Certain State DSH Expenditures.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, payment under section 1903(a) shall not be made 
        to a State with respect to any payment adjustments made under 
        this section for quarters in a fiscal year to institutions for 
        mental diseases or other mental health facilities, in excess 
        of--
                    ``(A) the total State expenditures incurred for 
                fiscal year 1995 for providing services under the State 
                plan under this title to individuals who were patients 
                in institutions for mental diseases; or
                    ``(B) the amount of such payment adjustment which 
                is equal to the applicable percentage of the Federal 
                share of payment adjustments made to hospitals in the 
                State under subsection (c) that are attributable to the 
                1995 DSH allotment for services provided by 
                institutions for mental diseases and other mental 
                health facilities (based on reporting data specified by 
                the State on HCFA Form 64 as mental health DSH).
            ``(2) Applicable percentage.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the applicable percentage with respect to a fiscal year 
                is the lesser of the percentage determined under 
                subparagraph (B) or--
                            ``(i) for fiscal year 2000, 50 percent;
                            ``(ii) for fiscal year 2001, 40 percent; 
                        and
                            ``(iii) for fiscal year 2002, 33 percent.
                    ``(B) 1995 percentage.--The percentage determined 
                under this subparagraph is the ratio (determined as a 
                percentage) of the Federal share of payment adjustments 
                made to hospitals in the State under subsection (c) 
                that are attributable to the 1995 DSH allotment for 
                services provided by institutions for mental diseases 
                and other mental health facilities, to the State 1995 
                DSH spending amount, as defined under subsection 
                (f)(6)(C).''.
    (c) Targeting Payments.--Section 1923(a)(2) (42 U.S.C. 1396r-
4(a)(2)) is amended by adding at the end the following:
            ``(D) A State plan under this title shall not be considered 
        to meet the requirements of section 1902(a)(13)(A) (insofar as 
        it requires payments to hospitals to take into account the 
        situation of hospitals that serve a disproportionate number of 
        low-income patients with special needs), as of October 1, 1998, 
        unless the State has provided assurances to the Secretary that 
        the State has developed a methodology for prioritizing payments 
        to disproportionate share hospitals, including children's 
        hospitals, on the basis of the proportion of low-income and 
        medicaid patients served by such hospitals. In making such 
        assurances, the State plan shall provide a definition of high-
        volume disproportionate share hospitals and a detailed 
        description of the specific methodology to be used to provide 
        disproportionate share payments to such hospitals. The State 
        shall provide an annual report to the Secretary describing the 
        disproportionate share payments to such high-volume 
        disproportionate share hospitals.''.
    (d) Effective Date.--The amendments made by this section apply on 
and after October 1, 1997.

              CHAPTER 2--EXPANSION OF MEDICAID ELIGIBILITY

SEC. 5731. STATE OPTION TO PERMIT WORKERS WITH DISABILITIES TO BUY INTO 
              MEDICAID.

    Section 1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) is 
amended--
            (1) in subclause (XI), by striking ``or'' at the end;
            (2) in subclause (XII), by adding ``or'' at the end; and
            (3) by adding at the end the following:
                                    ``(XIII) who are in families whose 
                                income is less than 250 percent of the 
                                income official poverty line (as 
                                defined by the Office of Management and 
                                Budget, and revised annually in 
                                accordance with section 673(2) of the 
                                Omnibus Budget Reconciliation Act of 
                                1981) applicable to a family of the 
                                size involved, and who but for earnings 
                                in excess of the limit established 
                                under section 1619(b), would be 
                                considered to be receiving supplemental 
                                security income (subject, 
                                notwithstanding section 1916, to 
                                payment of premiums or other charges 
                                (set on a sliding scale based on 
                                income) that the State may 
                                determine);''.

SEC. 5732. 12-MONTH CONTINUOUS ELIGIBILITY FOR CHILDREN.

    (a) In General.--Section 1902(e) (42 U.S.C. 1396a(e)) is amended by 
adding at the end the following:
    ``(12) At the option of the State, the State plan may provide that 
an individual who is under an age specified by the State (not to exceed 
19 years of age) and who is determined to be eligible for benefits 
under a State plan approved under this title under subsection 
(a)(10)(A) shall remain eligible for those benefits until the earlier 
of--
            ``(A) the end of the 12-month period following the 
        determination; or
            ``(B) the date that the individual exceeds that age.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to medical assistance for items and services furnished on or 
after October 1, 1997.

    CHAPTER 3--PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)

SEC. 5741. ESTABLISHMENT OF PACE PROGRAM AS MEDICAID STATE OPTION.

    (a) In General.--Title XIX is amended--
            (1) in section 1905(a) (42 U.S.C. 1396d(a)), as amended by 
        section 5702(a)(1)--
                    (A) by striking ``and'' at the end of paragraph 
                (25);
                    (B) by redesignating paragraph (26) as paragraph 
                (27); and
                    (C) by inserting after paragraph (25) the following 
                new paragraph:
            ``(26) services furnished under a PACE program under 
        section 1932 to PACE program eligible individuals enrolled 
        under the program under such section; and'';
            (2) by redesignating section 1932 as section 1933; and
            (3) by inserting after section 1931 the following new 
        section:

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

    ``Sec. 1932. (a) State Option.--
            ``(1) In general.--A State may elect to provide medical 
        assistance under this section with respect to PACE program 
        services to PACE program eligible individuals who are eligible 
        for medical assistance under the State plan and who are 
        enrolled in a PACE program under a PACE program agreement. Such 
        individuals need not be eligible for benefits under part A, or 
        enrolled under part B, of title XVIII to be eligible to enroll 
        under this section. In the case of an individual enrolled with 
        a PACE program pursuant to such an election--
                    ``(A) the individual shall receive benefits under 
                the plan solely through such program, and
                    ``(B) the PACE provider shall receive payment in 
                accordance with the PACE program agreement for 
                provision of such benefits.
            ``(2) PACE program defined.--For purposes of this section 
        and section 1894, the term `PACE program' means a program of 
        all-inclusive care for the elderly that meets the following 
        requirements:
                    ``(A) Operation.--The entity operating the program 
                is a PACE provider (as defined in paragraph (3)).
                    ``(B) Comprehensive benefits.--The program provides 
                comprehensive health care services to PACE program 
                eligible individuals in accordance with the PACE 
                program agreement and regulations under this section.
                    ``(C) Transition.--In the case of an individual who 
                is enrolled under the program under this section and 
                whose enrollment ceases for any reason (including that 
                the individual no longer qualifies as a PACE program 
                eligible individual, the termination of a PACE program 
                agreement, or otherwise), the program provides 
                assistance to the individual in obtaining necessary 
                transitional care through appropriate referrals and 
                making the individual's medical records available to 
                new providers.
            ``(3) PACE provider defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `PACE provider' means an entity that--
                            ``(i) subject to subparagraph (B), is (or 
                        is a distinct part of) a public entity or a 
                        private, nonprofit entity organized for 
                        charitable purposes under section 501(c)(3) of 
                        the Internal Revenue Code of 1986, and
                            ``(ii) has entered into a PACE program 
                        agreement with respect to its operation of a 
                        PACE program.
                    ``(B) Treatment of private, for-profit providers.--
                Clause (i) of subparagraph (A) shall not apply--
                            ``(i) to entities subject to a 
                        demonstration project waiver under subsection 
                        (h); and
                            ``(ii) after the date the report under 
                        section 5743(b) of the Balanced Budget Act of 
                        1997 is submitted, unless the Secretary 
                        determines that any of the findings described 
                        in subparagraph (A), (B), (C), or (D) of 
                        paragraph (2) of such section are true.
            ``(4) PACE program agreement defined.--For purposes of this 
        section, the term `PACE program agreement' means, with respect 
        to a PACE provider, an agreement, consistent with this section, 
        section 1894 (if applicable), and regulations promulgated to 
        carry out such sections, among the PACE provider, the 
        Secretary, and a State administering agency for the operation 
        of a PACE program by the provider under such sections.
            ``(5) PACE program eligible individual defined.--For 
        purposes of this section, the term `PACE program eligible 
        individual' means, with respect to a PACE program, an 
        individual who--
                    ``(A) is 55 years of age or older;
                    ``(B) subject to subsection (c)(4), is determined 
                under subsection (c) to require the level of care 
                required under the State medicaid plan for coverage of 
                nursing facility services;
                    ``(C) resides in the service area of the PACE 
                program; and
                    ``(D) meets such other eligibility conditions as 
                may be imposed under the PACE program agreement for the 
                program under subsection (e)(2)(A)(ii).
            ``(6) PACE protocol.--For purposes of this section, the 
        term `PACE protocol' means the Protocol for the Program of All-
        inclusive Care for the Elderly (PACE), as published by On Lok, 
        Inc., as of April 14, 1995, or any successor protocol that may 
        be agreed upon between the Secretary and On Lok, Inc.
            ``(7) PACE demonstration waiver program defined.--For 
        purposes of this section, the term `PACE demonstration waiver 
        program' means a demonstration program under either of the 
        following sections (as in effect before the date of their 
        repeal):
                    ``(A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21), as extended by 
                section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    ``(B) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            ``(8) State administering agency defined.--For purposes of 
        this section, the term `State administering agency' means, with 
        respect to the operation of a PACE program in a State, the 
        agency of that State (which may be the single agency 
        responsible for administration of the State plan under this 
        title in the State) responsible for administering PACE program 
        agreements under this section and section 1894 in the State.
            ``(9) Trial period defined.--
                    ``(A) In general.--For purposes of this section, 
                the term `trial period' means, with respect to a PACE 
                program operated by a PACE provider under a PACE 
                program agreement, the first 3 contract years under 
                such agreement with respect to such program.
                    ``(B) Treatment of entities previously operating 
                pace demonstration waiver programs.--Each contract year 
                (including a year occurring before the effective date 
                of this section) during which an entity has operated a 
                PACE demonstration waiver program shall be counted 
                under subparagraph (A) as a contract year during which 
                the entity operated a PACE program as a PACE provider 
                under a PACE program agreement.
            ``(10) Regulations.--For purposes of this section, the term 
        `regulations' refers to interim final or final regulations 
        promulgated under subsection (f) to carry out this section and 
        section 1894.
    ``(b) Scope of Benefits; Beneficiary Safeguards.--
            ``(1) In general.--Under a PACE program agreement, a PACE 
        provider shall--
                    ``(A) provide to PACE program eligible individuals, 
                regardless of source of payment and directly or under 
                contracts with other entities, at a minimum--
                            ``(i) all items and services covered under 
                        title XVIII (for individuals enrolled under 
                        section 1894) and all items and services 
                        covered under this title, but without any 
                        limitation or condition as to amount, duration, 
                        or scope and without application of 
                        deductibles, copayments, coinsurance, or other 
                        cost-sharing that would otherwise apply under 
                        such title or this title, respectively; and
                            ``(ii) all additional items and services 
                        specified in regulations, based upon those 
                        required under the PACE protocol;
                    ``(B) provide such enrollees access to necessary 
                covered items and services 24 hours per day, every day 
                of the year;
                    ``(C) provide services to such enrollees through a 
                comprehensive, multidisciplinary health and social 
                services delivery system which integrates acute and 
                long-term care services pursuant to regulations; and
                    ``(D) specify the covered items and services that 
                will not be provided directly by the entity, and to 
                arrange for delivery of those items and services 
                through contracts meeting the requirements of 
                regulations.
            ``(2) Quality assurance; patient safeguards.--The PACE 
        program agreement shall require the PACE provider to have in 
        effect at a minimum--
                    ``(A) a written plan of quality assurance and 
                improvement, and procedures implementing such plan, in 
                accordance with regulations, and
                    ``(B) written safeguards of the rights of enrolled 
                participants (including a patient bill of rights and 
                procedures for grievances and appeals) in accordance 
                with regulations and with other requirements of this 
                title and Federal and State law designed for the 
                protection of patients.
    ``(c) Eligibility Determinations.--
            ``(1) In general.--The determination of--
                    ``(A) whether an individual is a PACE program 
                eligible individual shall be made under and in 
                accordance with the PACE program agreement, and
                    ``(B) who is entitled to medical assistance under 
                this title shall be made (or who is not so entitled, 
                may be made) by the State administering agency.
            ``(2) Condition.--An individual is not a PACE program 
        eligible individual (with respect to payment under this 
        section) unless the individual's health status has been 
        determined by the Secretary or the State administering agency, 
        in accordance with regulations, to be comparable to the health 
        status of individuals who have participated in the PACE 
        demonstration waiver programs. Such determination shall be 
        based upon information on health status and related indicators 
        (such as medical diagnoses and measures of activities of daily 
        living, instrumental activities of daily living, and cognitive 
        impairment) that are part of a uniform minimum data set 
        collected by PACE providers on potential eligible individuals.
            ``(3) Annual eligibility recertifications.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                determination described in subsection (a)(5)(B) for an 
                individual shall be reevaluated at least annually.
                    ``(B) Exception.--The requirement of annual 
                reevaluation under subparagraph (A) may be waived 
                during a period in accordance with regulations in those 
                cases in which the State administering agency 
                determines that there is no reasonable expectation of 
                improvement or significant change in an individual's 
                condition during the period because of the advanced 
                age, severity of the advanced age, severity of chronic 
                condition, or degree of impairment of functional 
                capacity of the individual involved.
            ``(4) Continuation of eligibility.--An individual who is a 
        PACE program eligible individual may be deemed to continue to 
        be such an individual notwithstanding a determination that the 
        individual no longer meets the requirement of subsection 
        (a)(5)(B) if, in accordance with regulations, in the absence of 
        continued coverage under a PACE program the individual 
        reasonably would be expected to meet such requirement within 
        the succeeding 6-month period.
            ``(5) Enrollment; disenrollment.--The enrollment and 
        disenrollment of PACE program eligible individuals in a PACE 
        program shall be pursuant to regulations and the PACE program 
        agreement and shall permit enrollees to voluntarily disenroll 
        without cause at any time. Such regulations and agreement shall 
        provide that the PACE program may not disenroll a PACE program 
        eligible individual on the ground that the individual has 
        engaged in noncompliant behavior if such behavior is related to 
        a mental or physical condition of the individual. For purposes 
        of the preceding sentence, the term `noncompliant behavior' 
        includes repeated noncompliance with medical advice and 
        repeated failure to appear for appointments.
    ``(d) Payments to PACE Providers on a Capitated Basis.--
            ``(1) In general.--In the case of a PACE provider with a 
        PACE program agreement under this section, except as provided 
        in this subsection or by regulations, the State shall make 
        prospective monthly payments of a capitation amount for each 
        PACE program eligible individual enrolled under the agreement 
        under this section.
            ``(2) Capitation amount.--The capitation amount to be 
        applied under this subsection for a provider for a contract 
        year shall be an amount specified in the PACE program agreement 
        for the year. Such amount shall be an amount, specified under 
        the PACE agreement, which is less than the amount that would 
        otherwise have been made under the State plan if the 
        individuals were not so enrolled and shall be adjusted to take 
        into account the comparative frailty of PACE enrollees and such 
        other factors as the Secretary determines to be appropriate. 
        The payment under this section shall be in addition to any 
        payment made under section 1894 for individuals who are 
        enrolled in a PACE program under such section.
    ``(e) PACE Program Agreement.--
            ``(1) Requirement.--
                    ``(A) In general.--The Secretary, in close 
                cooperation with the State administering agency, shall 
                establish procedures for entering into, extending, and 
                terminating PACE program agreements for the operation 
                of PACE programs by entities that meet the requirements 
                for a PACE provider under this section, section 1894, 
                and regulations.
                    ``(B) Numerical limitation.--
                            ``(i) In general.--The Secretary shall not 
                        permit the number of PACE providers with which 
                        agreements are in effect under this section or 
                        under section 9412(b) of the Omnibus Budget 
                        Reconciliation Act of 1986 to exceed--
                                    ``(I) 40 as of the date of the 
                                enactment of this section, or
                                    ``(II) as of each succeeding 
                                anniversary of such date, the numerical 
                                limitation under this subparagraph for 
                                the preceding year plus 20.
                        Subclause (II) shall apply without regard to 
                        the actual number of agreements in effect as of 
                        a previous anniversary date.
                            ``(ii) Treatment of certain private, for-
                        profit providers.--The numerical limitation in 
                        clause (i) shall not apply to a PACE provider 
                        that--
                                    ``(I) is operating under a 
                                demonstration project waiver under 
                                subsection (h), or
                                    ``(II) was operating under such a 
                                waiver and subsequently qualifies for 
                                PACE provider status pursuant to 
                                subsection (a)(3)(B)(ii).
            ``(2) Service area and eligibility.--
                    ``(A) In general.--A PACE program agreement for a 
                PACE program--
                            ``(i) shall designate the service area of 
                        the program;
                            ``(ii) may provide additional requirements 
                        for individuals to qualify as PACE program 
                        eligible individuals with respect to the 
                        program;
                            ``(iii) shall be effective for a contract 
                        year, but may be extended for additional 
                        contract years in the absence of a notice by a 
                        party to terminate, and is subject to 
                        termination by the Secretary and the State 
                        administering agency at any time for cause (as 
                        provided under the agreement);
                            ``(iv) shall require a PACE provider to 
                        meet all applicable State and local laws and 
                        requirements; and
                            ``(v) shall have such additional terms and 
                        conditions as the parties may agree to, 
                        provided that such terms and conditions are 
                        consistent with this section and regulations.
                    ``(B) Service area overlap.--In designating a 
                service area under a PACE program agreement under 
                subparagraph (A)(i), the Secretary (in consultation 
                with the State administering agency) may exclude from 
                designation an area that is already covered under 
                another PACE program agreement, in order to avoid 
                unnecessary duplication of services and avoid impairing 
                the financial and service viability of an existing 
                program.
            ``(3) Data collection; development of outcome measures.--
                    ``(A) Data collection.--
                            ``(i) In general.--Under a PACE program 
                        agreement, the PACE provider shall--
                                    ``(I) collect data;
                                    ``(II) maintain, and afford the 
                                Secretary and the State administering 
                                agency access to, the records relating 
                                to the program, including pertinent 
                                financial, medical, and personnel 
                                records; and
                                    ``(III) submit to the Secretary and 
                                the State administering agency such 
                                reports as the Secretary finds (in 
                                consultation with State administering 
                                agencies) necessary to monitor the 
                                operation, cost, and effectiveness of 
                                the PACE program.
                            ``(ii) Requirements during trial period.--
                        During the first 3 years of operation of a PACE 
                        program (either under this section or under a 
                        PACE demonstration waiver program), the PACE 
                        provider shall provide such additional data as 
                        the Secretary specifies in regulations in order 
                        to perform the oversight required under 
                        paragraph (4)(A).
                    ``(B) Development of outcome measures.--Under a 
                PACE program agreement, the PACE provider, the 
                Secretary, and the State administering agency shall 
                jointly cooperate in the development and implementation 
                of health status and quality of life outcome measures 
                with respect to PACE program eligible individuals.
            ``(4) Oversight.--
                    ``(A) Annual, close oversight during trial 
                period.--During the trial period (as defined in 
                subsection (a)(9)) with respect to a PACE program 
                operated by a PACE provider, the Secretary (in 
                cooperation with the State administering agency) shall 
                conduct a comprehensive annual review of the operation 
                of the PACE program by the provider in order to assure 
                compliance with the requirements of this section and 
                regulations. Such a review shall include--
                            ``(i) an onsite visit to the program site;
                            ``(ii) comprehensive assessment of a 
                        provider's fiscal soundness;
                            ``(iii) comprehensive assessment of the 
                        provider's capacity to provide all PACE 
                        services to all enrolled participants;
                            ``(iv) detailed analysis of the entity's 
                        substantial compliance with all significant 
                        requirements of this section and regulations; 
                        and
                            ``(v) any other elements the Secretary or 
                        the State administering agency considers 
                        necessary or appropriate.
                    ``(B) Continuing oversight.--After the trial 
                period, the Secretary (in cooperation with the State 
                administering agency) shall continue to conduct such 
                review of the operation of PACE providers and PACE 
                programs as may be appropriate, taking into account the 
                performance level of a provider and compliance of a 
                provider with all significant requirements of this 
                section and regulations.
                    ``(C) Disclosure.--The results of reviews under 
                this paragraph shall be reported promptly to the PACE 
                provider, along with any recommendations for changes to 
                the provider's program, and shall be made available to 
                the public upon request.
            ``(5) Termination of pace provider agreements.--
                    ``(A) In general.--Under regulations--
                            ``(i) the Secretary or a State 
                        administering agency may terminate a PACE 
                        program agreement for cause, and
                            ``(ii) a PACE provider may terminate such 
                        an agreement after appropriate notice to the 
                        Secretary, the State administering agency, and 
                        enrollees.
                    ``(B) Causes for termination.--In accordance with 
                regulations establishing procedures for termination of 
                PACE program agreements, the Secretary or a State 
                administering agency may terminate a PACE program 
                agreement with a PACE provider for, among other 
                reasons, the fact that--
                            ``(i) the Secretary or State administering 
                        agency determines that--
                                    ``(I) there are significant 
                                deficiencies in the quality of care 
                                provided to enrolled participants; or
                                    ``(II) the provider has failed to 
                                comply substantially with conditions 
                                for a program or provider under this 
                                section or section 1894; and
                            ``(ii) the entity has failed to develop and 
                        successfully initiate, within 30 days of the 
                        date of the receipt of written notice of such a 
                        determination, a plan to correct the 
                        deficiencies, or has failed to continue 
                        implementation of such a plan.
                    ``(C) Termination and transition procedures.--An 
                entity whose PACE provider agreement is terminated 
                under this paragraph shall implement the transition 
                procedures required under subsection (a)(2)(C).
            ``(6) Secretary's oversight; enforcement authority.--
                    ``(A) In general.--Under regulations, if the 
                Secretary determines (after consultation with the State 
                administering agency) that a PACE provider is failing 
                substantially to comply with the requirements of this 
                section and regulations, the Secretary (and the State 
                administering agency) may take any or all of the 
                following actions:
                            ``(i) Condition the continuation of the 
                        PACE program agreement upon timely execution of 
                        a corrective action plan.
                            ``(ii) Withhold some or all further 
                        payments under the PACE program agreement under 
                        this section or section 1894 with respect to 
                        PACE program services furnished by such 
                        provider until the deficiencies have been 
                        corrected.
                            ``(iii) Terminate such agreement.
                    ``(B) Application of intermediate sanctions.--Under 
                regulations, the Secretary may provide for the 
                application against a PACE provider of remedies 
                described in section 1857(f)(2) (or, for periods before 
                January 1, 1999, section 1876(i)(6)(B)) or 
                1903(m)(5)(B) in the case of violations by the provider 
                of the type described in section 1857(f)(1) (or 
                1876(i)(6)(A) for such periods) or 1903(m)(5)(A), 
                respectively (in relation to agreements, enrollees, and 
                requirements under section 1894 or this section, 
                respectively).
            ``(7) Procedures for termination or imposition of 
        sanctions.--Under regulations, the provisions of section 
        1857(g) (or for periods before January 1, 1999, section 
        1876(i)(9)) shall apply to termination and sanctions respecting 
        a PACE program agreement and PACE provider under this 
        subsection in the same manner as they apply to a termination 
        and sanctions with respect to a contract and a Medicare Choice 
        organization under part C of title XVIII (or for such periods 
        an eligible organization under section 1876).
            ``(8) Timely consideration of applications for pace program 
        provider status.--In considering an application for PACE 
        provider program status, the application shall be deemed 
        approved unless the Secretary, within 90 days after the date of 
        the submission of the application to the Secretary, either 
        denies such request in writing or informs the applicant in 
        writing with respect to any additional information that is 
        needed in order to make a final determination with respect to 
        the application. After the date the Secretary receives such 
        additional information, the application shall be deemed 
        approved unless the Secretary, within 90 days of such date, 
        denies such request.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall issue interim final 
        or final regulations to carry out this section and section 
        1894.
            ``(2) Use of pace protocol.--
                    ``(A) In general.--In issuing such regulations, the 
                Secretary shall, to the extent consistent with the 
                provisions of this section, incorporate the 
                requirements applied to PACE demonstration waiver 
                programs under the PACE protocol.
                    ``(B) Flexibility.--In order to provide for 
                reasonable flexibility in adapting the PACE service 
                delivery model to the needs of particular organizations 
                (such as those in rural areas or those that may 
                determine it appropriate to use nonstaff physicians 
                according to State licensing law requirements) under 
                this section and section 1894, the Secretary (in close 
                consultation with State administering agencies) may 
                modify or waive provisions of the PACE protocol so long 
                as any such modification or waiver is not inconsistent 
                with and would not impair the essential elements, 
                objectives, and requirements of this section, but may 
                not modify or waive any of the following provisions:
                            ``(i) The focus on frail elderly qualifying 
                        individuals who require the level of care 
                        provided in a nursing facility.
                            ``(ii) The delivery of comprehensive, 
                        integrated acute and long-term care services.
                            ``(iii) The interdisciplinary team approach 
                        to care management and service delivery.
                            ``(iv) Capitated, integrated financing that 
                        allows the provider to pool payments received 
                        from public and private programs and 
                        individuals.
                            ``(v) The assumption by the provider of 
                        full financial risk.
            ``(3) Application of certain additional beneficiary and 
        program protections.--
                    ``(A) In general.--In issuing such regulations and 
                subject to subparagraph (B), the Secretary may apply 
                with respect to PACE programs, providers, and 
                agreements such requirements of part C of title XVIII 
                (or, for periods before January 1, 1999, section 1876) 
                and section 1903(m) relating to protection of 
                beneficiaries and program integrity as would apply to 
                Medicare Choice organizations under such part C (or for 
                such periods eligible organizations under risk-sharing 
                contracts under section 1876) and to health maintenance 
                organizations under prepaid capitation agreements under 
                section 1903(m).
                    ``(B) Considerations.--In issuing such regulations, 
                the Secretary shall--
                            ``(i) take into account the differences 
                        between populations served and benefits 
                        provided under this section and under part C of 
                        title XVIII (or, for periods before January 1, 
                        1999, section 1876) and section 1903(m);
                            ``(ii) not include any requirement that 
                        conflicts with carrying out PACE programs under 
                        this section; and
                            ``(iii) not include any requirement 
                        restricting the proportion of enrollees who are 
                        eligible for benefits under this title or title 
                        XVIII.
    ``(g) Waivers of Requirements.--With respect to carrying out a PACE 
program under this section, the following requirements of this title 
(and regulations relating to such requirements) shall not apply:
            ``(1) Section 1902(a)(1), relating to any requirement that 
        PACE programs or PACE program services be provided in all areas 
        of a State.
            ``(2) Section 1902(a)(10), insofar as such section relates 
        to comparability of services among different population groups.
            ``(3) Sections 1902(a)(23) and 1915(b)(4), relating to 
        freedom of choice of providers under a PACE program.
            ``(4) Section 1903(m)(2)(A), insofar as it restricts a PACE 
        provider from receiving prepaid capitation payments.
    ``(h) Demonstration Project for For-Profit Entities.--
            ``(1) In general.--In order to demonstrate the operation of 
        a PACE program by a private, for-profit entity, the Secretary 
        (in close consultation with State administering agencies) shall 
        grant waivers from the requirement under subsection (a)(3) that 
        a PACE provider may not be a for-profit, private entity.
            ``(2) Similar terms and conditions.--
                    ``(A) In general.--Except as provided under 
                subparagraph (B), and paragraph (1), the terms and 
                conditions for operation of a PACE program by a 
                provider under this subsection shall be the same as 
                those for PACE providers that are nonprofit, private 
                organizations.
                    ``(B) Numerical limitation.--The number of programs 
                for which waivers are granted under this subsection 
                shall not exceed 10. Programs with waivers granted 
                under this subsection shall not be counted against the 
                numerical limitation specified in subsection (e)(1)(B).
    ``(i) Post-Eligibility Treatment of Income.--A State may provide 
for post-eligibility treatment of income for individuals enrolled in 
PACE programs under this section in the same manner as a State treats 
post-eligibility income for individuals receiving services under a 
waiver under section 1915(c).
    ``(j) Miscellaneous Provisions.--Nothing in this section or 1894 
shall be construed as preventing a PACE provider from entering into 
contracts with other governmental or nongovernmental payers for the 
care of PACE program eligible individuals who are not eligible for 
benefits under part A, or enrolled under part B, of title XVIII or 
eligible for medical assistance under this title.''.
    (b) Conforming Amendments.--
            (1) Section 1902(j) (42 U.S.C. 1396a(j)), as amended by 
        section 5702(a)(2)(B), is amended by striking ``(26)'' and 
        inserting ``(27)''.
            (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
        amended--
                    (A) in the heading, by striking ``from 
                organizations receiving certain waivers'' and inserting 
                ``under pace programs''; and
                    (B) by striking ``from any organization'' and all 
                that follows and inserting ``under a PACE demonstration 
                waiver program (as defined in section 1932(a)(7)) or 
                under a PACE program under section 1932 or 1894.''.
            (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) is 
        amended by inserting ``or who is a PACE program eligible 
        individual enrolled in a PACE program under section 1932,'' 
        after ``section 1902(a)(10)(A),''.

SEC. 5742. EFFECTIVE DATE; TRANSITION.

    (a) Timely Issuance of Regulations; Effective Date.--The Secretary 
of Health and Human Services shall promulgate regulations to carry out 
this chapter in a timely manner. Such regulations shall be designed so 
that entities may establish and operate PACE programs under sections 
1894 and 1932 of the Social Security Act (as added by sections 5011 and 
5741 of this Act) for periods beginning not later than 1 year after the 
date of the enactment of this Act.
    (b) Expansion and Transition for PACE Demonstration Project 
Waivers.--
            (1) Expansion in current number and extension of 
        demonstration projects.--Section 9412(b) of the Omnibus Budget 
        Reconciliation Act of 1986, as amended by section 4118(g) of 
        the Omnibus Budget Reconciliation Act of 1987, is amended--
                    (A) in paragraph (1), by inserting before the 
                period at the end the following: ``, except that the 
                Secretary shall grant waivers of such requirements to 
                up to the applicable numerical limitation specified in 
                section 1933(e)(1)(B) of the Social Security Act''; and
                    (B) in paragraph (2)--
                            (i) in subparagraph (A), by striking ``, 
                        including permitting the organization to assume 
                        progressively (over the initial 3-year period 
                        of the waiver) the full financial risk''; and
                            (ii) in subparagraph (C), by adding at the 
                        end the following: ``In granting further 
                        extensions, an organization shall not be 
                        required to provide for reporting of 
                        information which is only required because of 
                        the demonstration nature of the project.''.
            (2) Elimination of replication requirement.--Section 
        9412(b)(2)(B) of such Act, as so amended, shall not apply to 
        waivers granted under such section after the date of the 
        enactment of this Act.
            (3) Timely consideration of applications.--In considering 
        an application for waivers under such section before the 
        effective date of the repeals under subsection (d), subject to 
        the numerical limitation under the amendment made by paragraph 
        (1), the application shall be deemed approved unless the 
        Secretary of Health and Human Services, within 90 days after 
        the date of its submission to the Secretary, either denies such 
        request in writing or informs the applicant in writing with 
        respect to any additional information which is needed in order 
        to make a final determination with respect to the application. 
        After the date the Secretary receives such additional 
        information, the application shall be deemed approved unless 
        the Secretary, within 90 days of such date, denies such 
        request.
    (c) Priority and Special Consideration in Application.--During the 
3-year period beginning on the date of the enactment of this Act:
            (1) Provider status.--The Secretary of Health and Human 
        Services shall give priority in processing applications of 
        entities to qualify as PACE programs under section 1894 or 1932 
        of the Social Security Act--
                    (A) first, to entities that are operating a PACE 
                demonstration waiver program (as defined in section 
                1932(a)(7) of such Act), and
                    (B) then to entities that have applied to operate 
                such a program as of May 1, 1997.
            (2) New waivers.--The Secretary shall give priority, in the 
        awarding of additional waivers under section 9412(b) of the 
        Omnibus Budget Reconciliation Act of 1986--
                    (A) to any entities that have applied for such 
                waivers under such section as of May 1, 1997; and
                    (B) to any entity that, as of May 1, 1997, has 
                formally contracted with a State to provide services 
                for which payment is made on a capitated basis with an 
                understanding that the entity was seeking to become a 
                PACE provider.
            (3) Special consideration.--The Secretary shall give 
        special consideration, in the processing of applications 
        described in paragraph (1) and the awarding of waivers 
        described in paragraph (2), to an entity which as of May 1, 
        1997, through formal activities (such as entering into 
        contracts for feasibility studies) has indicated a specific 
        intent to become a PACE provider.
    (d) Repeal of Current PACE Demonstration Project Waiver 
Authority.--
            (1) In general.--Subject to paragraph (2), the following 
        provisions of law are repealed:
                    (A) Section 603(c) of the Social Security 
                Amendments of 1983 (Public Law 98-21).
                    (B) Section 9220 of the Consolidated Omnibus Budget 
                Reconciliation Act of 1985 (Public Law 99-272).
                    (C) Section 9412(b) of the Omnibus Budget 
                Reconciliation Act of 1986 (Public Law 99-509).
            (2) Delay in application.--
                    (A) In general.--Subject to subparagraph (B), the 
                repeals made by paragraph (1) shall not apply to 
                waivers granted before the initial effective date of 
                regulations described in subsection (a).
                    (B) Application to approved waivers.--Such repeals 
                shall apply to waivers granted before such date only 
                after allowing such organizations a transition period 
                (of up to 24 months) in order to permit sufficient time 
                for an orderly transition from demonstration project 
                authority to general authority provided under the 
                amendments made by this chapter.

SEC. 5743. STUDY AND REPORTS.

    (a) Study.--
            (1) In general.--The Secretary of Health and Human Services 
        (in close consultation with State administering agencies, as 
        defined in section 1932(a)(8) of the Social Security Act) shall 
        conduct a study of the quality and cost of providing PACE 
        program services under the medicare and medicaid programs under 
        the amendments made by this chapter.
            (2) Study of private, for-profit providers.--Such study 
        shall specifically compare the costs, quality, and access to 
        services by entities that are private, for-profit entities 
        operating under demonstration projects waivers granted under 
        section 1932(h) of the Social Security Act with the costs, 
        quality, and access to services of other PACE providers.
    (b) Report.--
            (1) In general.--Not later than 4 years after the date of 
        the enactment of this Act, the Secretary shall provide for a 
        report to Congress on the impact of such amendments on quality 
        and cost of services. The Secretary shall include in such 
        report such recommendations for changes in the operation of 
        such amendments as the Secretary deems appropriate.
            (2) Treatment of private, for-profit providers.--The report 
        shall include specific findings on whether any of the following 
        findings is true:
                    (A) The number of covered lives enrolled with 
                entities operating under demonstration project waivers 
                under section 1932(h) of the Social Security Act is 
                fewer than 800 (or such lesser number as the Secretary 
                may find statistically sufficient to make 
                determinations respecting findings described in the 
                succeeding subparagraphs).
                    (B) The population enrolled with such entities is 
                less frail than the population enrolled with other PACE 
                providers.
                    (C) Access to or quality of care for individuals 
                enrolled with such entities is lower than such access 
                or quality for individuals enrolled with other PACE 
                providers.
                    (D) The application of such section has resulted in 
                an increase in expenditures under the medicare or 
                medicaid programs above the expenditures that would 
                have been made if such section did not apply.
    (c) Information Included in Annual Recommendations.--The Physician 
Payment Review Commission shall include in its annual recommendations 
under section 1845(b) of the Social Security Act (42 U.S.C. 1395w-1), 
and the Prospective Payment Review Commission shall include in its 
annual recommendations reported under section 1886(e)(3)(A) of such Act 
(42 U.S.C. 1395ww(e)(3)(A)), recommendations on the methodology and 
level of payments made to PACE providers under section 1894(d) of such 
Act and on the treatment of private, for-profit entities as PACE 
providers. References in the preceding sentence to the Physician 
Payment Review Commission and the Prospective Payment Review Commission 
shall be deemed to be references to the Medicare Payment Advisory 
Commission (MedPAC) established under section 5022(a) after the 
termination of the Physician Payment Review Commission and the 
Prospective Payment Review Commission provided for in section 
5022(c)(2).

           CHAPTER 4--MEDICAID MANAGEMENT AND PROGRAM REFORMS

SEC. 5751. ELIMINATION OF REQUIREMENT TO PAY FOR PRIVATE INSURANCE.

    (a) Repeal of State Plan Provision.--Section 1902(a)(25) (42 U.S.C. 
1396a(a)(25)) is amended--
            (1) by striking subparagraph (G); and
            (2) by redesignating subparagraphs (H) and (I) as 
        subparagraphs (G) and (H), respectively.
    (b) Repeal of Enrollment Requirements.--Section 1906 (42 U.S.C. 
1396e) is repealed.
    (c) Reinstatement of State Option.--Section 1905(a) (42 U.S.C. 
1396a(a)) is amended, in the matter preceding clause (i), by inserting 
``(including, at State option, through purchase or payment of enrollee 
costs of health insurance)'' after ``The term `medical assistance' 
means payment''.

SEC. 5752. ELIMINATION OF OBSTETRICAL AND PEDIATRIC PAYMENT RATE 
              REQUIREMENTS.

    (a) In General.--Section 1926 (42 U.S.C. 1396r-7) is repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to services furnished on or after October 1, 1997.

SEC. 5753. PHYSICIAN QUALIFICATION REQUIREMENTS.

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

SEC. 5754. EXPANDED COST-SHARING REQUIREMENTS.

    Section 1916 (42 U.S.C. 1396o) is amended by adding at the end the 
following:
    ``(g)(1) Notwithstanding any other provision of this title, the 
State plan may impose cost-sharing with respect to any medical 
assistance provided to an individual who is not described in section 
1902(a)(10)(A)(i) in accordance with the provisions of this subsection.
    ``(2) Any cost-sharing imposed under this subsection shall be 
pursuant to a public schedule and shall reflect such economic factors, 
employment status, and family size with respect to each such individual 
as the State determines appropriate.
    ``(3) In the case of any family whose income is less than 150 
percent of the income official poverty line (as defined by the Office 
of Management and Budget, and revised annually in accordance with 
section 673(2) of the Omnibus Budget Reconciliation Act of 1981) 
applicable to a family of the size involved, the total annual amount of 
cost-sharing that may be imposed for such family shall not exceed 3 
percent of the family's average gross monthly earnings (less the 
average monthly costs for such child care as is necessary for the 
employment of the caretaker relative) for such period.
    ``(4) In the case of any family whose income exceeds 150 percent, 
but does not exceed 200 percent of, such poverty line, paragraph (3) 
shall be applied by substituting `5 percent' for `3 percent'.
    ``(5) Nothing in this subsection shall be construed as preventing a 
State from imposing cost-sharing with respect to individuals eligible 
for medical assistance under the State plan, or with respect to items 
or services provided as medical assistance under such plan, if the 
provisions of this title otherwise allow the State to do so or if the 
State has received a waiver that authorizes such cost-sharing.
    ``(6) In this subsection, the term `cost-sharing' includes 
copayments, deductibles, coinsurance, enrollment fees, premiums, and 
other charges for the provision of health care services.''.

SEC. 5755. PENALTY FOR FRAUDULENT ELIGIBILITY.

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

SEC. 5756. ELIMINATION OF WASTE, FRAUD, AND ABUSE.

    (a) Ban on Spending for Nonhealth Related Items.--Section 1903(i) 
(42 U.S.C. 1396b(i)) is amended--
            (1) in paragraphs (2) and (15), by striking the period at 
        the end and inserting ``; or'';
            (2) in paragraphs (10)(B), (11), and (13), by adding ``or'' 
        at the end; and
            (3) by inserting after paragraph (15), the following:
            ``(16) with respect to any amount expended for roads, 
        bridges, stadiums, or any other item or service not covered 
        under a State plan under this title.''.
    (b) Disclosure of Information and Surety Bond Requirement for 
Suppliers of Durable Medical Equipment.--
            (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)), is 
        amended--
                    (A) by striking ``and'' at the end of paragraph 
                (62);
                    (B) by striking the period at the end of paragraph 
                (63) and inserting ``; and''; and
                    (C) by inserting after paragraph (63) the 
                following:
            ``(64) provide that the State shall not issue or renew a 
        provider number for a supplier of medical assistance consisting 
        of durable medical equipment, as defined in section 1861(n), 
        for purposes of payment under this part for such assistance 
        that is furnished by the supplier, unless the supplier provides 
        the State agency on a continuing basis with--
                    ``(A)(i) full and complete information as to the 
                identity of each person with an ownership or control 
                interest (as defined in section 1124(a)(3)) in the 
                supplier or in any subcontractor (as defined by the 
                Secretary in regulations) in which the supplier 
                directly or indirectly has a 5 percent or more 
                ownership interest; and
                    (ii) to the extent determined to be feasible under 
                regulations of the Secretary, the name of any 
                disclosing entity (as defined in section 1124(a)(2)) 
                with respect to which a person with such an ownership 
                or control interest in the supplier is a person with 
                such an ownership or control interest in the disclosing 
                entity; and
                    ``(B) a surety bond in a form specified by the 
                State and in an amount that is not less than 
                $50,000.''.
            (2) Effective Date.--The amendment made by paragraph (1) 
        shall apply to suppliers of medical assistance consisting of 
        durable medical equipment furnished on or after January 1, 
        1998.
    (c) Surety Bond Requirement for Home Health Agencies.--
            (1) In general.--Section 1905(a)(7) (42 U.S.C. 1396d(a)(7) 
        is amended by inserting ``, provided that the agency or 
        organization providing such services provides the State agency 
        on a continuing basis with a surety bond in a form specified by 
        the State and in an amount that is not less than $50,000'' 
        after ``services''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to home health agencies with respect to services 
        furnished on or after January 1, 1998.
    (d) Conflict of Interest Safeguards.--Section 1902(a)(4) (42 U.S.C. 
1396a(a)(4)) is amended to read as follows:
            ``(4) provide--
                    ``(A) such methods of administration (including 
                methods relating to the establishment and maintenance 
                of personnel standards on a merit basis, except that 
                the Secretary shall exercise no authority with respect 
                to the selection, tenure of office, and compensation of 
                any individual employed in accordance with such 
                methods, and including provision for utilization of 
                professional medical personnel in the administration 
                and, where administered locally, supervision of 
                administration of the plan) as are found by the 
                Secretary to be necessary for the proper and efficient 
                operation of the plan;
                    ``(B) for the training and effective use of paid 
                subprofessional staff, with particular emphasis on the 
                full-time or part-time employment of recipients and 
                other persons of low income, as community service 
                aides, in the administration of the plan and for the 
                use of nonpaid or partially paid volunteers in a social 
                service volunteer program in providing services to 
                applicants and recipients and in assisting any advisory 
                committees established by the State agency; and
                    ``(C) that each State or local officer or employee, 
                or independent contractor--
                            ``(i) who is responsible for the 
                        expenditure of substantial amounts of funds 
                        under the State plan, or who is responsible for 
                        administering the State plan under this title, 
                        each individual who formerly was such an 
                        officer, employee, or independent contractor, 
                        and each partner of such an officer, employee, 
                        or independent contractor shall be prohibited 
                        from committing any act, in relation to any 
                        activity under the plan, the commission of 
                        which, in connection with any activity 
                        concerning the United States Government, by an 
                        officer or employee of the United States 
                        Government, an individual who was such an 
                        officer or employee, or a partner of such an 
                        officer or employee is prohibited by section 
                        207 or 208 of title 18, United States Code; and
                            ``(ii) who is responsible for selecting, 
                        awarding, or otherwise obtaining items and 
                        services under the State plan shall be subject 
                        to safeguards against conflicts of interest 
                        that are at least as stringent as the 
                        safeguards that apply under section 27 of the 
                        Office of Federal Procurement Policy Act (41 
                        U.S.C. 423) to persons described in subsection 
                        (a)(2) of such section of that Act;''.
    (e) Authority to Refuse to Enter Into Medicaid Agreements with 
Individuals or Entities Convicted of Felonies.--Section 1902(a)(23) (42 
U.S.C. 1396a(a)(23)) is amended to read as follows:
            ``(23) provide that--
                    ``(A) any individual eligible for medical 
                assistance (including drugs) may obtain such assistance 
                from any institution, agency, community pharmacy, or 
                person, qualified to perform the service or services 
                required (including an organization which provides such 
                services, or arranges for their availability, on a 
                prepayment basis), who undertakes to provide him such 
                services; and
                    ``(B) an enrollment of an individual eligible for 
                medical assistance in a primary care case-management 
                system (described in section 1915(b)(1)), a health 
                maintenance organization, or a similar entity shall not 
                restrict the choice of the qualified person from whom 
                the individual may receive services under section 
                1905(a)(4)(C),
        except as provided in subsection (g) and in section 1915, 
        except in the case of Puerto Rico, the Virgin Islands, and 
        Guam, and except that nothing in this paragraph shall be 
        construed as requiring a State to provide medical assistance 
        for items or services furnished by a person or entity convicted 
        of a felony under Federal or State law for an offense which the 
        State agency determines is inconsistent with the best interest 
        of beneficiaries under the State plan;''.
    (f) Monitoring Payments for Dual Eligibles.--The Administrator of 
the Health Care Financing Administration shall--
            (1) develop mechanisms to better monitor and prevent 
        inappropriate payments under the medicaid program under title 
        XIX of the Social Security Act (42 U.S.C. 1396 et seq.) in the 
        case of individuals who are dually eligible for benefits under 
        such program and under the medicare program under title XVIII 
        of such Act (42 U.S.C. 1395 et seq.);
            (2) study the use of case management or care coordination 
        in order to improve the appropriateness of care, quality of 
        care, and cost effectiveness of care for individuals who are 
        dually eligible for benefits under such programs; and
            (3) work with the States to ensure better care coordination 
        for dual eligibles and make recommendations to Congress as to 
        any statutory changes that would not compromise beneficiary 
        protections and that would improve or facilitate such care.
    (g) Beneficiary and Program Protection Against Waste, Fraud, and 
Abuse.--Section 1902(a) (42 U.S.C. 1396a(a)), as amended by subsection 
(b)(1), is amended--
            (1) by striking ``and'' at the end of paragraph (63);
            (2) by striking the period at the end of paragraph (64) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (64) the following:
            ``(65) provide programs--
                    ``(A) to ensure program integrity, protect and 
                advocate on behalf of individuals, and to report to the 
                State data concerning beneficiary concerns and 
                complaints and instances of beneficiary abuse or 
                program waste or fraud by managed care plans operating 
                in the State under contact with the State agency;
                    ``(B) to provide assistance to beneficiaries, with 
                particular emphasis on the families of special needs 
                children and persons with disabilities to--
                            ``(i) explain the differences between 
                        managed care and fee-for-service plans;
                            ``(ii) clarify the coverage for such 
                        beneficiaries under any managed care plan 
                        offered under the State plan under this title;
                            ``(iii) explain the implications of the 
                        choices between competing plans;
                            ``(iv) assist such beneficiaries in 
                        understanding their rights under any managed 
                        care plan offered under the State plan, 
                        including their right to--
                                    ``(I) access and benefits;
                                    ``(II) nondiscrimination;
                                    ``(III) grievance and appeal 
                                mechanisms; and
                                    ``(IV) change plans, as designated 
                                in the State plan; and
                            ``(v) exercise the rights described in 
                        clause (iv); and
                    ``(C) to collect and report to the State data on 
                the number of complaints or instances identified under 
                subparagraph (A) and to report to the State annually on 
                any systematic problems in the implementation of 
                managed care entities contracting with the State under 
                the State plan under this title.''.

SEC. 5757. STUDY ON EPSDT BENEFITS.

    (a) Study.--The Secretary of Health and Human Services, in 
consultation with Governors, directors of State medicaid and State 
maternal and child programs, the Institute of Medicine, the American 
Academy of Pediatrics, and representatives of beneficiaries under the 
medicaid program under title XIX of the Social Security Act (42 U.S.C. 
1396 et seq.) shall conduct a study of the early and periodic 
screening, diagnostic, and treatment services provided under State 
plans under title XIX of the Social Security Act in accordance with 
section 1905(r) of such Act (42 U.S.C. 1396d(r)).
    (b) Report.--Not later than 12 months after the date of enactment 
of this Act, the Secretary of Health and Human Services shall submit a 
report to Congress on the results of the conducted study under 
subsection (a).

SEC. 5758. STUDY ON EFFECTIVENESS OF MANAGED CARE ENTITIES IN MEETING 
              THE NEEDS OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS.

    (a) Study.--The Secretary of Health and Human Services, in 
consultation with States, managed care entities, as defined in section 
1950(a)(1) of the Social Security Act (as added by section 5701(a)(2) 
of this Act), the National Academy of State Health Policy, 
representatives of beneficiaries under the medicaid program under title 
XIX of the Social Security Act (42 U.S.C. 1396 et seq.) with special 
health care needs (as determined by the Secretary), and experts in the 
provision of specialized care, shall conduct a study of the health care 
items and services provided to such beneficiaries with special health 
care needs by managed care entities under part B of title XIX of the 
Social Security Act (as added by section 5701(a)(2) of this Act) or 
under a waiver. Such study shall consider the unique health care 
requirements of such beneficiaries, including any problems that are 
identified with respect to access to care that may be experienced by 
people with chronic conditions, and shall evaluate the extent to which 
the special health care needs of such beneficiaries are being satisfied 
by such entities.
    (b) Report.--Not later than 2 years after the date of enactment of 
this Act, the Secretary of Health and Human Services shall submit a 
report to Congress on the results of the study conducted under 
subsection (a).

                        CHAPTER 5--MISCELLANEOUS

SEC. 5761. INCREASED FMAPS.

    Section 1905(b) (42 U.S.C. 1396d(b)(1)) is amended--
            (1) by striking ``and (2)'' and inserting ``(2)''; and
            (2) by striking the period and inserting ``, and (3) during 
        the period beginning on October 1, 1997, and ending on 
        September 30, 2000, the Federal medical assistance percentage 
        for the District of Columbia shall be 60 per centum, and the 
        Federal medical assistance percentage for Alaska shall be 59.8 
        per centum (but only, in the case of such States, with respect 
        to expenditures under a State plan under this title).''.

SEC. 5762. INCREASE IN PAYMENT CAPS FOR TERRITORIES.

    Section 1108 (42 U.S.C. 1308) is amended--
            (1) in subsection (f), by striking ``The'' and inserting 
        ``Subject to subsection (g), the''; and
            (2) by adding at the end the following:
    ``(g) Medicaid Payments to Territories for Fiscal Year 1998 and 
thereafter.--
            ``(1) Fiscal year 1998.--With respect to fiscal year 1998, 
        the amounts otherwise determined for Puerto Rico, the Virgin 
        Islands, Guam, the Northern Mariana Islands, and American Samoa 
        under subsection (f) for such fiscal year shall be increased in 
        the following manner:
                    ``(A) For Puerto Rico, $30,000,000.
                    ``(B) For the Virgin Islands, $750,000.
                    ``(C) For Guam, $750,000.
                    ``(D) For the Northern Mariana Islands, $500,000.
                    ``(E) For American Samoa, $500,000.
            ``(2) Fiscal year 1999 and thereafter.--Notwithstanding 
        subsection (f), with respect to fiscal year 1999 and any fiscal 
        year thereafter, the total amount certified by the Secretary 
        under title XIX for payment to--
                    ``(A) Puerto Rico shall not exceed the sum of--
                            ``(i) the amount provided in this 
                        subsection for the preceding fiscal year; and
                            ``(ii) $30,000,000,
                increased by the percentage increase in the medical 
                care component of the consumer price index for all 
                urban consumers (as published by the Bureau of Labor 
                Statistics) for the twelve-month period ending in March 
                preceding the beginning of the fiscal year, rounded to 
                the nearest $100,000;
                    ``(B) the Virgin Islands shall not exceed the sum 
                of--
                            ``(i) the amount provided in this 
                        subsection for the preceding fiscal year; and
                            ``(ii) $750,000,
                increased by the percentage increase referred to in 
                subparagraph (A), rounded to the nearest $10,000;
                    ``(C) Guam shall not exceed the sum of--
                            ``(i) the amount provided in this 
                        subsection for the preceding fiscal year; and
                            ``(ii) $750,000,
                increased by the percentage increase referred to in 
                subparagraph (A), rounded to the nearest $10,000;
                    ``(D) Northern Mariana Islands shall not exceed the 
                sum of--
                            ``(i) the amount provided in this 
                        subsection for the preceding fiscal year; and
                            ``(ii) $500,000,
                increased by the percentage increase referred to in 
                subparagraph (A), rounded to the nearest $10,000; and
                    ``(E) American Samoa shall not exceed the sum of--
                            ``(i) the amount provided in this 
                        subsection for the preceding fiscal year; and
                            ``(ii) $500,000,
                increased by the percentage increase referred to in 
                subparagraph (A), rounded to the nearest $10,000.''.

SEC. 5763. COMMUNITY-BASED MENTAL HEALTH SERVICES.

    (a) In General.--Section 1905(a) (42 U.S.C. 1396d(a)), as amended 
by section 5741(a)(1), is amended--
            (1) by striking ``and'' at the end of paragraph (26);
            (2) by redesignating paragraph (27) as paragraph (28); and
            (3) by inserting after paragraph (26) the following new 
        paragraph:
            ``(27) outpatient and intensive community-based mental 
        health services, including psychiatric rehabilitation, day 
        treatment, intensive in-home services for children, assertive 
        community treatment, therapeutic out-of-home placements 
        (excluding room and board), clinic services, partial 
        hospitalization, and targeted case management; and''.
    (b) Conforming Amendments.--
            (1) Section 1902(a)(10)(C)(iv) (42 U.S.C. 
        1396a(a)(10)(C)(iv)), as amended by section 5702(a)(2)(A), is 
        amended by inserting ``or (27)'' after ``(25)''.
            (2) Section 1902(j) (42 U.S.C. 1396a(j)), as amended by 
        section 5741(b)(1), is amended by striking ``(27)'' and 
        inserting ``(28)''.

SEC. 5764. OPTIONAL MEDICAID COVERAGE OF CERTAIN CDC-SCREENED BREAST 
              CANCER PATIENTS.

    (a) Coverage as Optional Categorically Needy Group.--Section 
1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) is amended--
            (1) in subclause (XI), by striking ``or'' at the end;
            (2) in subclause (XII), by adding ``or'' at the end; and
            (3) by adding at the end the following:
                                    ``(XIII) who are described in 
                                subsection (aa)(1)(relating to certain 
                                CDC-screened breast cancer 
                                patients);''.
    (b) Group and Benefit Described.--Section 1902 (42 U.S.C. 1396a) is 
amended by adding at the end the following:
    ``(aa)(1) Individuals described in this paragraph are individuals 
not described in subsection (a)(10)(A)(i) who--
            ``(A) have not attained age 65;
            ``(B) have been diagnosed with breast cancer through 
        participation in the program to screen women for breast and 
        cervical cancer conducted by the Director of the Centers for 
        Disease Control and Prevention under title 15 of the Public 
        Health Service Act (42 U.S.C. 300k et seq.);
            ``(C) satisfy the income and resource eligibility criteria 
        established by such Director for participation in such program; 
        and
            ``(D) are not otherwise eligible for medical assistance 
        under the State plan under this title.
    ``(2) For purposes of subsection (a)(10), the term ``breast cancer-
related services'' means each of the following services relating to 
treatment of breast cancer:
            ``(A) Prescribed drugs.
            ``(B) Physicians' services and services described in 
        section 1905(a)(2).
            ``(C) Laboratory and X-ray services (including services to 
        confirm the presence of breast cancer).
            ``(D) Rural health clinic services and Federally-qualified 
        health center services.
            ``(E) Case management services (as defined in section 
        1915(g)(2)).
            ``(F) Services (other than room and board) designed to 
        encourage completion of regimens of prescribed drugs by 
        outpatients, including services to observe directly the intake 
        of prescribed drugs.''.
    (c) Limitation on Benefits.--Section 1902(a)(10) (42 U.S.C. 
1396a(a)(10)) is amended in the matter following subparagraph (F)--
            (1) by striking ``, and (XIII)''; and
            (2) by inserting before the semicolon at the end the 
        following: ``, and (XIV) the medical assistance made available 
        to an individual described in subsection (aa)(1) who is 
        eligible for medical assistance only because of subparagraph 
        (A)(ii)(XIII) shall be limited to medical assistance for breast 
        cancer-related services (described in subsection (aa)(2))''.
    (d) Conforming Amendments.--
            (1) Section 1905(a) (42 U.S.C. 1396d(a)) is amended--
                    (A) in clause (x), by striking ``or'' at the end;
                    (B) in clause (xi), by adding ``or'' at the end;
                    (C) by inserting after clause (xi) the following:
            ``(xii) individuals described in section 1902(aa)(1),''; 
        and
                    (D) by striking paragraph (19) and inserting the 
                following:
            ``(19) case management services (as defined in section 
        1915(g)(2)), TB-related services described in section 
        1902(z)(2)(F), and breast cancer-related services described in 
        section 1902)(2)(F);''.
            (2) Section 1915(g)(1) (42 U.S.C. 1396n(g)(1)) is amended 
        by inserting ``or section 1902(aa)(1)'' after ``section 
        1902(z)(1)(A)''.
    (e) Effective Date.--The amendments made by this section apply to 
medical assistance furnished on or after October 1, 1997, without 
regard to whether or not final regulations to carry out such amendments 
have been promulgated by such date.

SEC. 5765. TREATMENT OF STATE TAXES IMPOSED ON CERTAIN HOSPITALS THAT 
              PROVIDE FREE CARE.

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

SEC. 5766. TREATMENT OF VETERANS PENSIONS UNDER MEDICAID.

    (a) Post-Eligibility.--Section 1902(r)(1) of the Social Security 
Act (42 U.S.C. 1396a(r)(1)) is amended to read as follows:
    ``(r)(1) For purposes of sections 1902(a)(17) and 1924(d)(1)(D) and 
for purposes of a waiver under section 1915, with respect to the post-
eligibility treatment of income of individuals who are 
institutionalized or receiving home or community-based services under 
such a waiver--
            ``(A) there shall be disregarded reparation payments made 
        by the Federal Republic of Germany;
            ``(B) there shall be taken into account amounts for 
        incurred expenses for medical or remedial care that are not 
        subject to payment by a third party, including--
                    ``(i) medicare and other health insurance premiums, 
                deductibles, or coinsurance, and
                    ``(ii) necessary medical or remedial care 
                recognized under State law but not covered under the 
                State plan under this title, subject to reasonable 
                limits the State may establish on the amount of these 
                expenses; and
            ``(C) in the case of a resident in a State veterans home, 
        there shall be taken into account, as income, any and all 
        payments received under a Department of Veterans Affairs 
        pension or compensation program, including payments 
        attributable to the recipient's medical expenses or to the 
        recipient's need for aid and attendance, but excluding that 
        part of any augmented benefit attributable to a dependent.
For purposes of subparagraph (C), any Department of Veterans Affairs 
pension benefit that has been limited to $90 per month pursuant to 
section 5503(f) of title 38, United States Code, may be applied to meet 
the monthly personal needs allowance provided by the State plan under 
this title, but shall not otherwise be used to reduce the amount paid 
to a facility under the State plan.''.
    (b) Effective Date.--The amendment made by subsection (a) shall be 
effective with respect to periods beginning on and after July 1, 1994.

SEC. 5767. EFFECTIVE DATE.

    (a) In General.--Except as otherwise specifically provided, the 
provisions of and amendments made by this subtitle shall apply with 
respect to State programs under title XIX of the Social Security Act 
(42 U.S.C. 1396 et seq.) on and after October 1, 1997.
    (b) Extension for State Law Amendment.--In the case of a State plan 
under title XIX of the Social Security Act which the Secretary of 
Health and Human Services determines requires State legislation in 
order for the plan to meet the additional requirements imposed by the 
amendments made by this subtitle, the State plan shall not be regarded 
as failing to comply with the requirements of this subtitle solely on 
the basis of its failure to meet these additional requirements before 
the first day of the first calendar quarter beginning after the close 
of the first regular session of the State legislature that begins after 
the date of the enactment of this Act. For purposes of the previous 
sentence, in the case of a State that has a 2-year legislative session, 
each year of the session is considered to be a separate regular session 
of the State legislature.

          Subtitle J--Children's Health Insurance Initiatives

SEC. 5801. ESTABLISHMENT OF CHILDREN'S HEALTH INSURANCE INITIATIVES.

    (a) In General.--The Social Security Act is amended by adding at 
the end the following:

            ``TITLE XXI--CHILD HEALTH INSURANCE INITIATIVES

``SEC. 2101. PURPOSE.

    The purpose of this title is to provide funds to States to enable 
such States to expand the provision of health insurance coverage for 
low-income children. Funds provided under this title shall be used to 
achieve this purpose through outreach activities described in section 
2106(a) and, at the option of the State through--
            ``(1) a grant program conducted in accordance with section 
        2107 and the other requirements of this title; or
            ``(2) expansion of coverage of such children under the 
        State medicaid program who are not required to be provided 
        medical assistance under section 1902(l) (taking into account 
        the process of individuals aging into eligibility under 
        subsection (l)(1)(D)).

``SEC. 2102. DEFINITIONS.

    In this title:
            ``(1) Base-year covered low-income child population.--The 
        term `base-year covered low-income child population' means the 
        total number of low-income children with respect to whom, as of 
        fiscal year 1996, an eligible State provides or pays the cost 
        of health benefits either through a State funded program or 
        through eligibility under the State plan under title XIX 
        (including under a waiver of such plan), as determined by the 
        Secretary.
            ``(2) Child.--The term `child' means an individual under 19 
        years of age.
            ``(3) Eligible state.--The term `eligible State' means, 
        with respect to a fiscal year, a State that--
                    ``(A) provides, under section 1902(l)(1)(D) or 
                under a waiver, for eligibility for medical assistance 
                under a State plan under title XIX of individuals under 
                19 years of age, regardless of date of birth; and
                    ``(B) has submitted to the Secretary under section 
                2104 a program outline that--
                            ``(i) sets forth how the State intends to 
                        use the funds provided under this title to 
                        provide health insurance coverage for low-
                        income children consistent with the provisions 
                        of this title; and
                            ``(ii) is approved under section 2104; and
                            ``(iii) otherwise satisfies the 
                        requirements of this title.
            ``(4) Federal medical assistance percentage.--The term 
        `Federal medical assistance percentage' means, with respect to 
        a State, the meaning given that term under section 1905(b).
            ``(5) FEHBP-equivalent children's health insurance 
        coverage.--The term `FEHBP-equivalent children's health 
        insurance coverage' means, with respect to a State, any plan or 
        arrangement that provides, or pays the cost of, health benefits 
        that the Secretary has certified are actuarially equivalent to 
        the benefits required to be offered for a child under chapter 
        89 of title 5, United States Code, and that otherwise satisfies 
        State insurance standards and requirements.
            ``(6) Indians.--The term `Indians' has the meaning given 
        that term in section 4(c) of the Indian Health Care Improvement 
        Act (25 U.S.C. 1601 et seq.).
            ``(7) Low-income child.--The term `low-income child' means 
        a child in a family whose income is below 200 percent of the 
        poverty line for a family of the size involved.
            ``(8) Poverty line.--The term `poverty line' has the 
        meaning given that term in section 673(2) of the Community 
        Services Block Grant Act (42 U.S.C. 9902(2)), including any 
        revision required by such section.
            ``(9) Secretary.--The term `Secretary' means the Secretary 
        of Health and Human Services.
            ``(10) State.--The term `State' means each of the 50 
        States, the District of Columbia, Puerto Rico, Guam, the Virgin 
        Islands, American Samoa, and the Northern Mariana Islands.
            ``(11) State children's health expenditures.--The term 
        `State children's health expenditures' means the State share of 
        expenditures by the State for providing children with health 
        care items and services under--
                    ``(A) the State plan for medical assistance under 
                title XIX;
                    ``(B) the maternal and child health services block 
                grant program under title V;
                    ``(C) the preventive health services block grant 
                program under part A of title XIX of the Public Health 
                Services Act (42 U.S.C. 300w et seq.);
                    ``(D) State-funded programs that are designed to 
                provide health care items and services to children;
                    ``(E) school-based health services programs;
                    ``(F) State programs that provide uncompensated or 
                indigent health care;
                    ``(G) county-indigent care programs for which the 
                State requires a matching share by a county government 
                or for which there are intergovernmental transfers from 
                a county to State government; and
                    ``(H) any other program under which the Secretary 
                determines the State incurs uncompensated expenditures 
                for providing children with health care items and 
                services.
            ``(12) State medicaid program.--The term `State medicaid 
        program' means the program of medical assistance provided under 
        title XIX.

``SEC. 2103. APPROPRIATION.

    ``(a) Appropriation.--
            ``(1) In general.--Subject to subsection (b), out of any 
        money in the Treasury of the United States not otherwise 
        appropriated, there is appropriated for the purpose of carrying 
        out this title--
                    ``(A) for fiscal year 1998, $2,500,000,000;
                    ``(B) for each of fiscal years 1999 through 2001, 
                $3,200,000,000;
                    ``(C) for fiscal year 2002, $3,900,000,000; and
                    ``(D) for each of fiscal years 2003 through 2007, 
                $4,580,000,000.
            ``(2) Availability.--Funds appropriated under this section 
        shall remain available without fiscal year limitation, as 
        provided under section 2105(b)(4).
    ``(b) Reduction for Increased Medicaid Expenditures.--With respect 
to each of the fiscal years described in subsection (a)(1), the amount 
appropriated under subsection (a)(1) for each such fiscal year shall be 
reduced by an amount equal to the amount of the total Federal outlays 
under the medicaid program under title XIX resulting from--
            ``(1) the amendment made by section 5732 of the Balanced 
        Budget Act of 1997 (regarding the State option to provide 12-
        month continuous eligibility for children);
            ``(2) increased enrollment under State plans approved under 
        such program as a result of outreach activities under section 
        2106(a); and
            ``(3) the requirement under section 2102(3)(A) to provide 
        eligibility for medical assistance under the State plan under 
        title XIX for all children under 19 years of age who have 
        families with income that is at or below the poverty line.
    ``(c) State Entitlement.--This title constitutes budget authority 
in advance of appropriations Acts and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided in accordance with the provisions of this title.
    ``(d) Effective Date.--No State is eligible for payments under 
section 2105 for any calendar quarter beginning before October 1, 1997.

``SEC. 2104. PROGRAM OUTLINE.

    ``(a) General Description.--A State shall submit to the Secretary a 
program outline, consistent with the requirements of this title, that--
            ``(1) identifies which of the 2 options described in 
        section 2101 the State intends to use to provide low-income 
        children in the State with health insurance coverage;
            ``(2) describes the manner in which such coverage shall be 
        provided; and
            ``(3) provides such other information as the Secretary may 
        require.
    ``(b) Other Requirements.--The program outline submitted under this 
section shall include the following:
            ``(1) Eligibility standards and methodologies.--A summary 
        of the standards and methodologies used to determine the 
        eligibility of low-income children for health insurance 
        coverage under a State program funded under this title.
            ``(2) Eligibility screening; coordination with other health 
        coverage.--A description of the procedures to be used to 
        ensure--
                    ``(A) through both intake and followup screening, 
                that only low-income children are furnished health 
                insurance coverage through funds provided under this 
                title; and
                    ``(B) that any health insurance coverage provided 
                for children through funds under this title does not 
                reduce the number of children who are provided such 
                coverage through any other publicly or privately funded 
                health plan.
            ``(3) Indians.--A description of how the State will ensure 
        that Indians are served through a State program funded under 
        this title.
    ``(c) Deadline for submission.--A State program outline shall be 
submitted to the Secretary by not later than March 31 of any fiscal 
year (October 1, 1997, in the case of fiscal year 1998).

``SEC. 2105. DISTRIBUTION OF FUNDS.

    ``(a) Establishment of Funding Pools.--
            ``(1) In general.--From the amount appropriated under 
        section 2103(a)(1) for each fiscal year, determined after the 
        reduction required under section 2103(b), the Secretary shall, 
        for purposes of fiscal year 1998, reserve 85 percent of such 
        amount for distribution to eligible States through the basic 
        allotment pool under subsection (b) and 15 percent of such 
        amount for distribution through the new coverage incentive pool 
        under subsection (c)(2)(B)(ii).
            ``(2) Annual adjustment of reserve percentages.--The 
        Secretary shall annually adjust the amount of the percentages 
        described in paragraph (1) in order to provide sufficient basic 
        allotments and sufficient new coverage incentives to achieve 
        the purpose of this title.
    ``(b) Distribution of Funds Under the Basic Allotment Pool.--
            ``(1) States.--
                    ``(A) In general.--From the total amount reserved 
                under subsection (a) for a fiscal year for distribution 
                through the basic allotment pool, the Secretary shall 
                first set aside 0.25 percent for distribution under 
                paragraph (2) and shall allot from the amount remaining 
                to each eligible State not described in such paragraph 
                the State's allotment percentage for such fiscal year.
                    ``(B) State's allotment percentage.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the allotment percentage for 
                        a fiscal year for each State is the percentage 
                        equal to the ratio of the number of low-income 
                        children in the base period in the State to the 
                        total number of low-income children in the base 
                        period in all States not described in paragraph 
                        (2).
                            ``(ii) Number of low-income children in the 
                        base period.--In clause (i), the number of low-
                        income children in the base period for a fiscal 
                        year in a State is equal to the average of the 
                        number of low-income children in the State for 
                        the period beginning on October 1, 1992, and 
                        ending on September 30, 1995, as reported in 
                        the March 1994, March 1995, and March 1996 
                        supplements to the Current Population Survey of 
                        the Bureau of the Census.
            ``(2) Other states.--
                    ``(A) In general.--From the amount set aside under 
                paragraph (1)(A) for each fiscal year, the Secretary 
                shall make allotments for such fiscal year in 
                accordance with the percentages specified in 
                subparagraph (B) to Puerto Rico, Guam, the Virgin 
                Islands, American Samoa, and the Northern Mariana 
                Islands, if such States are eligible States for such 
                fiscal year.
                    ``(B) Percentages specified.--The percentages 
                specified in this subparagraph are in the case of--
                            ``(i) Puerto Rico, 91.6 percent;
                            ``(ii) Guam, 3.5 percent;
                            ``(iii) the Virgin Islands, 2.6 percent;
                            ``(iv) American Samoa, 1.2 percent; and
                            ``(v) the Northern Mariana Islands, 1.1 
                        percent.
            ``(3) Three-year availability of amounts allotted.--Amounts 
        allotted to a State pursuant to this subsection for a fiscal 
        year shall remain available for expenditure by the State 
        through the end of the second succeeding fiscal year.
            ``(4) Procedure for distribution of unused funds.--The 
        Secretary shall determine an appropriate procedure for 
        distribution of funds to eligible States that remain unused 
        under this subsection after the expiration of the availability 
        of funds required under paragraph (3). Such procedure shall be 
        developed and administered in a manner that is consistent with 
        the purpose of this title.
    ``(c) Payments.--
            ``(1) In general.--The Secretary shall--
                    ``(A) before October 1 of any fiscal year, pay an 
                eligible State an amount equal to 1 percent of the 
                amount allotted to the State under subsection (b) for 
                conducting the outreach activities required under 
                section 2106(a); and
                    ``(B) make quarterly fiscal year payments to an 
                eligible State from the amount remaining of such 
                allotment for such fiscal year in an amount equal to 
                the Federal medical assistance percentage for the 
                State, as determined under section 1905(b)(1), of the 
                cost of providing health insurance coverage for a low-
                income child in the State plus the applicable bonus 
                amount.
            ``(2) Applicable bonus.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the applicable bonus amount is--
                            ``(i) 5 percent of the cost, with respect 
                        to a period, of providing health insurance 
                        coverage for the base-year covered low-income 
                        child population (measured in full year 
                        equivalency); and
                            ``(ii) 10 percent of the cost, with respect 
                        to a period, of providing health insurance 
                        coverage for the number (as so measured) of 
                        low-income children that are in excess of such 
                        population.
                    ``(B) Source of bonuses.--
                            ``(i) Base-year covered low-income child 
                        population.--A bonus described in subparagraph 
                        (A)(i) shall be paid out of an eligible State's 
                        allotment for a fiscal year.
                            ``(ii) For other low-income child 
                        populations.--A bonus described in subparagraph 
                        (A)(ii) shall be paid out of the new coverage 
                        incentive pool reserved under subsection 
                        (a)(1).
            ``(3) Definition of cost of providing health insurance 
        coverage.--For purposes of this subsection the cost of 
        providing health insurance coverage for a low-income child in 
        the State means--
                    ``(A) in the case of an eligible State that opts to 
                use funds provided under this title through the 
                medicaid program, the cost of providing such child with 
                medical assistance under the State plan under title 
                XIX; and
                    ``(B) in the case of an eligible State that opts to 
                use funds provided under this title under section 2107, 
                the cost of providing such child with health insurance 
                coverage under such section.
            ``(4) Limitation on total payments.--With respect to a 
        fiscal year, the total amount paid to an eligible State under 
        this title (including any bonus payments) shall not exceed 85 
        percent of the total cost of a State program conducted under 
        this title for such fiscal year.
            ``(5) Maintenance of effort.--No funds shall be paid to a 
        State under this title if--
                    ``(A) in the case of fiscal year 1998, the State 
                children's health expenditures are less than the amount 
                of such expenditures for fiscal year 1996; and
                    ``(B) in the case of any succeeding fiscal year, 
                the State children's health expenditures described in 
                section 2102(11)(A) are less than the amount of such 
                expenditures for fiscal year 1996, increased by a 
                medicaid child population growth factor determined by 
                the Secretary.
            ``(6) Advance payment; retrospective adjustment.--The 
        Secretary may make payments under this subsection for each 
        quarter on the basis of advance estimates of expenditures 
        submitted by the State and such other investigation as the 
        Secretary may find necessary, and shall reduce or increase the 
        payments as necessary to adjust for any overpayment or 
        underpayment for prior quarters.

``SEC. 2106. USE OF FUNDS.

    ``(a) Set-Aside for Outreach Activities.--
            ``(1) In general.--From the amount allotted to a State 
        under section 2105(b) for a fiscal year, each State shall 
        conduct outreach activities described in paragraph (2).
            ``(2) Outreach activities described.--The outreach 
        activities described in this paragraph include activities to--
                    ``(A) identify and enroll children who are eligible 
                for medical assistance under the State plan under title 
                XIX; and
                    ``(B) conduct public awareness campaigns to 
                encourage employers to provide health insurance 
                coverage for children.
    ``(b) State Options for Remainder.--A State may use the amount 
remaining of the allotment to a State under section 2105(b) for a 
fiscal year, determined after the payment required under section 
2105(c)(1)(A), in accordance with section 2107 or the State medicaid 
program (but not both).
    ``(c) Prohibition on use for abortions.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        funds provided under this title may be used to pay for any 
        abortion or to assist in the purchase, in whole or in part, of 
        health benefit coverage that includes coverage of abortion.
            ``(2) Exception.--Paragraph (1) shall not apply to an 
        abortion if necessary to save the life of the mother or if the 
        pregnancy is the result of an act of rape or incest.
    ``(d) Use Limited to State Program Expenditures.--Funds provided to 
an eligible State under this title shall only be used to carry out the 
purpose of this title.
    ``(e) Administrative Expenditures.--Not more than 10 percent of the 
amount allotted to a State under section 2105(b), determined after the 
payment required under section 2105(c)(1)(A), shall be used for 
administrative expenditures for the program funded under this title.
    ``(f) Nonapplication of Five-Year Limited Eligibility for Means-
Tested Public Benefits.--The provisions of section 403 of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1613) shall not apply with respect to a State program funded 
under this title.

``SEC. 2107. STATE OPTION FOR THE PURCHASE OR PROVISION OF CHILDREN'S 
              HEALTH INSURANCE.

    ``(a) State Option.--
            ``(1) In general.--An eligible State that opts to use funds 
        provided under this title under this section shall use such 
        funds to--
                    ``(A) subsidize payment of employee contributions 
                for health insurance coverage for a dependent low-
                income child that is available through group health 
                insurance coverage offered by an employer in the State; 
                or
                    ``(B) to provide FEHBP-equivalent children's health 
                insurance coverage for low-income children who reside 
                in the State.
            ``(2) Priority for low-income children.--A State that uses 
        funds provided under this title under this section shall not 
        cover low-income children with higher family income without 
        covering such children with a lower family income.
            ``(3) Determination of eligibility and form of 
        assistance.--An eligible State may establish any additional 
        eligibility criteria for the provision of health insurance 
        coverage for a low-income child through funds provided under 
        this title, so long as such criteria and assistance are 
        consistent with the purpose and provisions of this title.
    ``(b) Nonentitlement.--Nothing in this section shall be construed 
as providing an entitlement for an individual or person to any health 
insurance coverage, assistance, or service provided through a State 
program funded under this title. If, with respect to a fiscal year, an 
eligible State determines that the funds provided under this title are 
not sufficient to provide health insurance coverage for all the low-
income children that the State proposes to cover in the State program 
outline submitted under section 2104 for such fiscal year, the State 
may adjust the applicable eligibility criteria for such children 
appropriately or adjust the State program in another manner specified 
by the Secretary, so long as any such adjustments are consistent with 
the purpose of this title.

``SEC. 2108. PROGRAM INTEGRITY.

    ``The following provisions of the Social Security Act shall apply 
to eligible States under this title in the same manner as such 
provisions apply to a State under title XIX:
            ``(1) Section 1116 (relating to administrative and judicial 
        review).
            ``(2) Section 1124 (relating to disclosure of ownership and 
        related information).
            ``(3) Section 1126 (relating to disclosure of information 
        about certain convicted individuals).
            ``(4) Section 1128A (relating to exclusion from individuals 
        and entities from participation in State health care plans).
            ``(5) Section 1128B(d) (relating to criminal penalties for 
        certain additional charges).
            ``(6) Section 1132 (relating to periods within which claims 
        must be filed).
            ``(7) Section 1902(a)(4)(C) (relating to conflict of 
        interest standards).
            ``(8) Section 1903(i) (relating to limitations on payment).
            ``(9) Section 1903(w) (relating to limitations on provider 
        taxes and donations).
            ``(10) Section 1905(a)(B) (relating to the exclusion of 
        care or services for any individual who has not attained 65 
        years of age and who is a patient in an institution for mental 
        diseases from the definition of medical assistance).
            ``(11) Section 1921 (relating to state licensure 
        authorities).
            ``(12) Sections 1902(a)(25), 1912(a)(1)(A), and 1903(o) 
        (insofar as such sections relate to third party liability).

``SEC. 2109. ANNUAL REPORTS.

    ``(a) Annual State Assessment of Progress.--An eligible State 
shall--
            ``(1) assess the operation of the State program funded 
        under this title in each fiscal year, including the progress 
        made in providing health insurance coverage for low-income 
        children; and
            ``(2) report to the Secretary, by January 1 following the 
        end of the fiscal year, on the result of the assessment.
    ``(b) Report of the Secretary.--The Secretary shall submit to the 
appropriate committees of Congress an annual report and evaluation of 
the State programs funded under this title based on the State 
assessments and reports submitted under subsection (a). Such report 
shall include any conclusions and recommendations that the Secretary 
considers appropriate.''.
    (b) Conforming Amendment.--Section 1128(h) (42 U.S.C. 1320a-7(h)) 
is amended by--
            (1) in paragraph (2), by striking ``or'' at the end;
            (2) in paragraph (3), by striking the period and inserting 
        ``, or''; and
            (3) by adding at the end the following:
            ``(4) a program funded under title XXI.''.
    (c) Effective Date.--The amendments made by this section apply on 
and after October 1, 1997.

            DIVISION 3--INCOME SECURITY AND OTHER PROVISIONS

 Subtitle K--Income Security, Welfare-to-Work Grant Program, and Other 
                               Provisions

                       CHAPTER 1--INCOME SECURITY

SEC. 5811. SSI ELIGIBILITY FOR ALIENS RECEIVING SSI ON AUGUST 22, 1996.

    (a) In General.--Section 402(a)(2) of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) 
is amended by adding after subparagraph (D) the following new 
subparagraph:
                    ``(E) Aliens receiving ssi on august 22, 1996.--
                With respect to eligibility for benefits for the 
                program defined in paragraph (3)(A) (relating to the 
                supplemental security income program), paragraph (1) 
                shall not apply to an alien who is lawfully residing in 
                any State and who was receiving such benefits on August 
                22, 1996.''.
    (b) Status of Cuban and Haitian Entrants.--For purposes of section 
402(a)(2)(E) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)(E)), an alien who is a 
Cuban and Haitian entrant, as defined in section 501(e) of the Refugee 
Education Assistance Act of 1980, shall be considered a qualified 
alien.
    (c) Conforming Amendments.--Section 402(a)(2)(D) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1612(a)(D)) is amended--
            (1) by striking clause (i);
            (2) in the subparagraph heading by striking ``benefits'' 
        and inserting ``food stamps'';
            (3) by striking ``(ii) Food stamps''; and
            (4) by redesignating subclauses (I), (II), and (III) as 
        clauses (i), (ii), and (iii).

SEC. 5812. EXTENSION OF ELIGIBILITY PERIOD FOR REFUGEES AND CERTAIN 
              OTHER QUALIFIED ALIENS FROM 5 TO 7 YEARS FOR SSI AND 
              MEDICAID.

    (a) SSI.--Section 402(a)(2)(A) of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)(A)) is 
amended to read as follows:
                    ``(A) Time-limited exception for refugees and 
                asylees.--
                            ``(i) SSI.--With respect to the specified 
                        Federal program described in paragraph (3)(A) 
                        paragraph 1 shall not apply to an alien until 7 
                        years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.
                            ``(ii) Food stamps.--With respect to the 
                        specified Federal program described in 
                        paragraph (3)(B), paragraph 1 shall not apply 
                        to an alien until 5 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.''.
    (b) Medicaid.--Section 402(b)(2)(A) of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
1612(b)(2)(A)) is amended to read as follows:
                    ``(A) Time-limited exception for refugees and 
                asylees.--
                            ``(i) Medicaid.--With respect to the 
                        designated Federal program described in 
                        paragraph (3)(C), paragraph 1 shall not apply 
                        to an alien until 7 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.
                            ``(ii) Other designated federal programs.--
                        With respect to the designated Federal programs 
                        under paragraph (3) (other than subparagraph 
                        (C)), paragraph 1 shall not apply to an alien 
                        until 5 years after the date--
                                    ``(I) an alien is admitted to the 
                                United States as a refugee under 
                                section 207 of the Immigration and 
                                Nationality Act;
                                    ``(II) an alien is granted asylum 
                                under section 208 of such Act; or
                                    ``(III) an alien's deportation is 
                                withheld under section 243(h) of such 
                                Act.''.
    (c) Status of Cuban and Haitian Entrants.--For purposes of sections 
402(a)(2)(A) and 402(b)(2)(A) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)(A), 
(b)(2)(A)), an alien who is a Cuban and Haitian entrant, as defined in 
section 501(e) of the Refugee Education Assistance Act of 1980, shall 
be considered a refugee.

SEC. 5813. SSI ELIGIBILITY FOR PERMANENT RESIDENT ALIENS WHO ARE 
              MEMBERS OF AN INDIAN TRIBE.

    Section 402(a)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) (as 
amended by section 5811) is amended by adding at the end the following:
                    ``(F) Permanent resident aliens who are members of 
                an indian tribe.--With respect to eligibility for 
                benefits for the program defined in paragraph (3)(A) 
                (relating to the supplemental security income program), 
                paragraph (1) shall not apply to an alien who--
                            ``(i) is lawfully admitted for permanent 
                        residence under the Immigration and Nationality 
                        Act; and
                            ``(ii) is a member of an Indian tribe (as 
                        defined in section 4(e) of the Indian Self-
                        Determination and Education Assistance Act).''.

SEC. 5814. SSI ELIGIBILITY FOR DISABLED LEGAL ALIENS IN THE UNITED 
              STATES ON AUGUST 22, 1996.

    Section 402(a)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) (as 
amended by section 5813) is amended by adding at the end the following:
                    ``(G) Disabled aliens lawfully residing in the 
                united states on august 22, 1996.--With respect to 
                eligibility for benefits for the program defined in 
                paragraph (3)(A) (relating to the supplemental security 
                income program), paragraph (1) shall not apply to an 
                alien who--
                            ``(i) is lawfully residing in any State on 
                        August 22, 1996; and
                            ``(ii) is disabled, as defined in section 
                        1614(a)(3) of the Social Security Act (42 
                        U.S.C. 1382c(a)(3)),
                but only if the alien applies for benefits under such 
                program on or before September 30, 1997.''.

SEC. 5815. EXEMPTION FROM RESTRICTION ON SUPPLEMENTAL SECURITY INCOME 
              PROGRAM PARTICIPATION BY CERTAIN RECIPIENTS ELIGIBLE ON 
              THE BASIS OF VERY OLD APPLICATIONS.

    Section 402(a)(2) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) (as 
amended by section 5814) is amended by adding at the end the following:
                    ``(H) Ssi exception for certain recipients on the 
                basis of very old applications.--With respect to 
                eligibility for benefits for the program defined in 
                paragraph (3)(A) (relating to the supplemental security 
                income program), paragraph (1) shall not apply to any 
                individual--
                            ``(i) who is receiving benefits under such 
                        program for months after July 1996 on the basis 
                        of an application filed before January 1, 1979; 
                        and
                            ``(ii) with respect to whom the 
                        Commissioner of Social Security lacks clear and 
                        convincing evidence that such individual is an 
                        alien ineligible for such benefits as a result 
                        of the application of this section.''.

SEC. 5816. REINSTATEMENT OF ELIGIBILITY FOR BENEFITS.

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

``SEC. 436. DERIVATIVE ELIGIBILITY FOR BENEFITS.

    Notwithstanding any other provision of law, an alien who under the 
provisions of this title is ineligible for benefits under the food 
stamp program (as defined in section 402(a)(3)(A)) shall not be 
eligible for such benefits because the alien receives benefits under 
the supplemental security income program (as defined in section 
402(a)(3)(B)).''.
    (b) Medicaid.--Section 402(b)(2) of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(b)(2)) is 
amended by adding at the end the following:
                    ``(E) Medicaid exception for aliens receiving 
                ssi.--An alien who is receiving benefits under the 
                program defined in subsection (a)(3)(A) (relating to 
                the supplemental security income program) shall be 
                eligible for medical assistance under a State plan 
                under title XIX of the Social Security Act (42 U.S.C. 
                1396 et seq.) under the same terms and conditions that 
                apply to other recipients of benefits under the program 
                defined in such subsection.''.
    (c) Clerical Amendment.--Section 2 of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 is amended by adding 
after the item related to section 435 the following:

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

SEC. 5817. EXEMPTION FOR CHILDREN WHO ARE LEGAL ALIENS FROM 5-YEAR BAN 
              ON MEDICAID ELIGIBILITY.

    Section 403 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (8 U.S.C. 1613)) is amended by adding at the 
end the following:
    ``(e) Medicaid Eligibility Exemption for Children.--The limitation 
under subsection (a) shall not apply to any alien who has not attained 
age 19 and is lawfully residing in any State, but only with respect to 
such alien's eligibility for medical assistance under a State plan 
under title XIX of the Social Security Act (42 U.S.C. 1396 et seq.).''.

SEC. 5818. EFFECTIVE DATE.

    The amendments made by this chapter shall take effect as if they 
were included in the enactment of title IV of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Public 
Law 104-193; 110 Stat. 2260).

                CHAPTER 2--WELFARE-TO-WORK GRANT PROGRAM

SEC. 5821. WELFARE-TO-WORK GRANTS.

    (a) Grants to States.--
            (1) In general.--Section 403(a) (42 U.S.C. 603(a)) is 
        amended by adding at the end the following:
            ``(5) Welfare-to-work grants.--
                    ``(A) Noncompetitive grants.--
                            ``(i) Entitlement.--A State shall be 
                        entitled to receive from the Secretary a grant 
                        for each fiscal year specified in subparagraph 
                        (H) of this paragraph for which the State is a 
                        welfare-to-work State, in an amount that does 
                        not exceed the greater of--
                                    ``(I) the allotment of the State 
                                under clause (iii) of this subparagraph 
                                for the fiscal year; or
                                    ``(II) 0.5 percent of the amount 
                                specified in subparagraph (H) for each 
                                fiscal year minus the total of the 
                                amounts reserved pursuant to 
                                subparagraphs (F) and (G) for the 
                                fiscal year.
                            ``(ii) Welfare-to-work state.--A State 
                        shall be considered a welfare-to-work State for 
                        a fiscal year for purposes of this subparagraph 
                        if the Secretary determines that the State 
                        meets the following requirements:
                                    ``(I) The State has submitted to 
                                the Secretary (in the form of an 
                                addendum to the State plan submitted 
                                under section 402) a plan which--
                                            ``(aa) describes how, 
                                        consistent with this 
                                        subparagraph, the State will 
                                        use any funds provided under 
                                        this subparagraph during the 
                                        fiscal year;
                                            ``(bb) specifies the 
                                        formula to be used pursuant to 
                                        clause (vi) to distribute funds 
                                        in the State, and describes the 
                                        process by which the formula 
                                        was developed;
                                            ``(cc) contains evidence 
                                        that the plan was developed in 
                                        consultation and coordination 
                                        with sub-State areas; and
                                            ``(dd) is approved by the 
                                        agency administering the State 
                                        program funded under this part.
                                    ``(II) The State certifies to the 
                                Secretary that the State intends to 
                                expend during the fiscal year 
                                (excluding expenditures described in 
                                section 409(a)(7)(B)(iv)) for 
                                activities described in subparagraph 
                                (C)(i) of this paragraph an amount 
                                equal to not less than 33 percent of 
                                the Federal funds provided under this 
                                paragraph.
                                    ``(III) The State has agreed to 
                                negotiate in good faith with the 
                                Secretary with respect to the substance 
                                of any evaluation under section 413(j), 
                                and to cooperate with the conduct of 
                                any such evaluation.
                                    ``(IV) The State is an eligible 
                                State for the fiscal year.
                                    ``(V) Qualified State expenditures 
                                (within the meaning of section 
                                409(a)(7)) are at least 75 percent of 
                                historic State expenditures (within the 
                                meaning of such section), with respect 
                                to the fiscal year or the immediately 
                                preceding fiscal year.
                            ``(iii) Allotments to welfare-to-work 
                        states.--The allotment of a welfare-to-work 
                        State for a fiscal year shall be the available 
                        amount for the fiscal year multiplied by the 
                        State percentage for the fiscal year.
                            ``(iv) Available amount.--As used in this 
                        subparagraph, the term `available amount' 
                        means, for a fiscal year, the sum of--
                                    ``(I) 75 percent of the sum of--
                                            ``(aa) the amount specified 
                                        in subparagraph (H) for the 
                                        fiscal year, minus the total of 
                                        the amounts reserved pursuant 
                                        to subparagraphs (F) and (G) 
                                        for the fiscal year; and
                                            ``(bb) any amount reserved 
                                        pursuant to subparagraph (F) 
                                        for the immediately preceding 
                                        fiscal year that has not been 
                                        obligated; and
                                    ``(II) any available amount for the 
                                immediately preceding fiscal year that 
                                has not been obligated by a State or 
                                sub-State entity.
                            ``(v) State percentage.--As used in clause 
                        (iii), the term `State percentage' means, with 
                        respect to a fiscal year, \1/3\ of the sum of--
                                    ``(I) the percentage represented by 
                                the number of individuals in the State 
                                whose income is less than the poverty 
                                line divided by the number of such 
                                individuals in the United States;
                                    ``(II) the percentage represented 
                                by the number of unemployed individuals 
                                in the State divided by the number of 
                                such individuals in the United States; 
                                and
                                    ``(III) the percentage represented 
                                by the number of individuals who are 
                                adult recipients of assistance under 
                                the State program funded under this 
                                part divided by the number of 
                                individuals in the United States who 
                                are adult recipients of assistance 
                                under any State program funded under 
                                this part.
                            ``(vi) Distribution of funds within 
                        states.--
                                    ``(I) In general.--A State to which 
                                a grant is made under this subparagraph 
                                shall distribute not less than 85 
                                percent of the grant funds among the 
                                political subdivisions in the State in 
                                which the percentage represented by the 
                                number of individuals in the State 
                                whose income is less than the poverty 
                                line divided by the number of such 
                                individuals in the State, and the 
                                percentage represented by the number of 
                                unemployed individuals in the State 
                                divided by the number of such 
                                individuals in the State are both above 
                                the average such percentages for the 
                                State, in accordance with a formula 
                                which--
                                            ``(aa) determines the 
                                        amount to be distributed for 
                                        the benefit of a political 
                                        subdivision in proportion to 
                                        the number (if any) of 
                                        individuals residing in the 
                                        political subdivision with an 
                                        income that is less than the 
                                        poverty line, relative to such 
                                        number of individuals for the 
                                        other political subdivisions in 
                                        the State, and accords a weight 
                                        of not less than 50 percent to 
                                        this factor;
                                            ``(bb) may determine the 
                                        amount to be distributed for 
                                        the benefit of a political 
                                        subdivision in proportion to 
                                        the number of adults residing 
                                        in the political subdivision 
                                        who are recipients of 
                                        assistance under the State 
                                        program funded under this part 
                                        (whether in effect before or 
                                        after the amendments made by 
                                        section 103(a) of the Personal 
                                        Responsibility and Work 
                                        Opportunity Reconciliation Act 
                                        first applied to the State) for 
                                        at least 30 months (whether or 
                                        not consecutive) relative to 
                                        the number of such adults 
                                        residing in the other political 
                                        subdivisions in the State; and
                                            ``(cc) may determine the 
                                        amount to be distributed for 
                                        the benefit of a political 
                                        subdivision in proportion to 
                                        the number of unemployed 
                                        individuals residing in the 
                                        political subdivision relative 
                                        to the number of such 
                                        individuals residing in the 
                                        other political subdivisions in 
                                        the State.
                                    ``(II) Special rule.--
                                Notwithstanding subclause (I), if the 
                                formula used pursuant to subclause (I) 
                                would result in the distribution of 
less than $100,000 during a fiscal year for the benefit of a political 
subdivision, then in lieu of distributing such sum in accordance with 
the formula, such sum shall be available for distribution under 
subclause (III) during the fiscal year.
                                    ``(III) Projects to help long-term 
                                recipients of assistance into the work 
                                force.--The Governor of a State to 
                                which a grant is made under this 
                                subparagraph may distribute not more 
                                than 15 percent of the grant funds 
                                (plus any amount required to be 
                                distributed under this subclause by 
                                reason of subclause (II)) to projects 
                                that appear likely to help long-term 
                                recipients of assistance under the 
                                State program funded under this part 
                                (whether in effect before or after the 
                                amendments made by section 103(a) of 
                                the Personal Responsibility and Work 
                                Opportunity Reconciliation Act first 
                                applied to the State) enter the work 
                                force.
                            ``(vii) Administration.--
                                    ``(I) In general.--A grant made 
                                under this subparagraph to a State 
                                shall be administered by the State 
                                agency that is administering, or 
                                supervising the administration of, the 
                                State program funded under this part.
                    ``(B) Competitive grants.--
                            ``(i) In general.--The Secretary shall 
                        award grants in accordance with this 
                        subparagraph, in fiscal years 1998 and 2000, 
                        for projects proposed by eligible applicants, 
                        based on the following:
                                    ``(I) The effectiveness of the 
                                proposal in--
                                            ``(aa) expanding the base 
                                        of knowledge about programs 
                                        aimed at moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force.
                                            ``(bb) moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force; and
                                            ``(cc) moving recipients of 
                                        assistance under State programs 
                                        funded under this part who are 
                                        least job ready into the work 
                                        force, even in labor markets 
                                        that have a shortage of low-
                                        skill jobs.
                                    ``(II) At the discretion of the 
                                Secretary, any of the following:
                                            ``(aa) The history of 
                                        success of the applicant in 
                                        moving individuals with 
                                        multiple barriers into work.
                                            ``(bb) Evidence of the 
                                        applicant's ability to leverage 
                                        private, State, and local 
                                        resources.
                                            ``(cc) Use by the applicant 
                                        of State and local resources 
                                        beyond those required by 
                                        subparagraph (A).
                                            ``(dd) Plans of the 
                                        applicant to coordinate with 
                                        other organizations at the 
                                        local and State level.
                                            ``(ee) Use by the applicant 
                                        of current or former recipients 
                                        of assistance under a State 
                                        program funded under this part 
                                        as mentors, case managers, or 
                                        service providers.
                                    ``(III) Evidence that the proposal 
                                has the approval of the State agency 
                                administering the program under this 
                                part.
                            ``(ii) Eligible applicants.--As used in 
                        clause (i), the term `eligible applicant' means 
                        a political subdivision of a State that submits 
                        a proposal that is approved by the agency 
                        administering the State program funded under 
                        this part.
                            ``(iii) Determination of grant amount.--In 
                        determining the amount of a grant to be made 
                        under this subparagraph for a project proposed 
                        by an applicant, the Secretary shall provide 
                        the applicant with an amount sufficient to 
                        ensure that the project has a reasonable 
                        opportunity to be successful, taking into 
                        account the number of long-term recipients of 
                        assistance under a State program funded under 
                        this part, the level of unemployment, the job 
                        opportunities and job growth, the poverty rate, 
                        and such other factors as the Secretary deems 
                        appropriate, in the area to be served by the 
                        project.
                            ``(iv) Targeting of funds to rural areas.--
                                    ``(I) In general.--The Secretary 
                                shall use not less than 30 percent of 
                                the funds available for grants under 
                                this subparagraph for a fiscal year to 
                                award grants for expenditures in rural 
                                areas.
                                    ``(II) Rural area defined.--As used 
                                in subclause (I), the term `rural area' 
                                means a city, town, or unincorporated 
                                area that has a population of 50,000 or 
                                fewer inhabitants and that is not an 
                                urbanized area immediately adjacent to 
                                a city, town, or unincorporated area 
                                that has a population of more than 
                                50,000 inhabitants.
                            ``(v) Funding.--For grants under this 
                        subparagraph for each fiscal year specified in 
                        subparagraph (H), there shall be available to 
                        the Secretary an amount equal to the sum of--
                                    ``(I) 25 percent of the sum of--
                                            ``(aa) the amount specified 
                                        in subparagraph (H) for the 
                                        fiscal year, minus the total of 
                                        the amounts reserved pursuant 
                                        to subparagraphs (F) and (G) 
                                        for the fiscal year; and
                                            ``(bb) any amount reserved 
                                        pursuant to subparagraph (F) 
                                        for the immediately preceding 
                                        fiscal year that has not been 
                                        obligated; and
                                    ``(II) any amount available for 
                                grants under this subparagraph for the 
                                immediately preceding fiscal year that 
                                has not been obligated.
                    ``(C) Limitations on use of funds.--
                            ``(i) Allowable activities.--An entity to 
                        which funds are provided under this paragraph 
                        may use the funds to move into the work force 
                        recipients of assistance under the program 
                        funded under this part of the State in which 
                        the entity is located and the noncustodial 
                        parent of any minor who is such a recipient, by 
                        means of any of the following:
                                    ``(I) Job creation through public 
                                or private sector employment wage 
                                subsidies.
                                    ``(II) On-the-job training.
                                    ``(III) Contracts with public or 
                                private providers of readiness, 
                                placement, and post-employment 
                                services.
                                    ``(IV) Job vouchers for placement, 
                                readiness, and post-employment 
                                services.
                                    ``(V) Job support services 
                                (excluding child care services) if such 
                                services are not otherwise available.
                            ``(ii) Required beneficiaries.--An entity 
                        that operates a project with funds provided 
                        under this paragraph shall expend at least 90 
                        percent of all funds provided to the project 
                        for the benefit of recipients of assistance 
                        under the program funded under this part of the 
                        State in which the entity is located who meet 
                        the requirements of either of the following 
                        subclauses:
                                    ``(I) At least 2 of the following 
                                apply to the recipient:
                                            ``(aa) The individual has 
                                        not completed secondary school 
                                        or obtained a certificate of 
                                        general equivalency, and has 
                                        low skills in reading and 
                                        mathematics.
                                            ``(bb) The individual 
                                        requires substance abuse 
                                        treatment for employment.
                                            ``(cc) The individual has a 
                                        poor work history.
                                The Secretary shall prescribe such 
                                regulations as may be necessary to 
                                interpret this subclause.
                                    ``(II) The individual--
                                            ``(aa) has received 
                                        assistance under the State 
                                        program funded under this part 
                                        (whether in effect before or 
                                        after the amendments made by 
                                        section 103 of the Personal 
                                        Responsibility and Work 
                                        Opportunity Reconciliation Act 
                                        of 1996 first apply to the 
                                        State) for at least 30 months 
                                        (whether or not consecutive); 
                                        or
                                            ``(bb) within 12 months, 
                                        will become ineligible for 
                                        assistance under the State 
                                        program funded under this part 
                                        by reason of a durational limit 
                                        on such assistance, without 
                                        regard to any exemption 
                                        provided pursuant to section 
                                        408(a)(7)(C) that may apply to 
                                        the individual.
                            ``(iii) Limitation on applicability of 
                        section 404.--The rules of section 404, other 
                        than subsections (b), (f), and (h) of section 
                        404, shall not apply to a grant made under this 
                        paragraph.
                            ``(iv) Cooperation with tanf agency.--On a 
                        determination by the Secretary an entity that 
                        operates a project with funds provided under 
                        this paragraph and the agency administering the 
                        State program funded under this part are not 
                        adhering to the agreement to implement any plan 
                        or project for which the funds are provided, 
                        the recipient of the funds shall remit the 
                        funds to the Secretary.
                            ``(v) Prohibition against use of grant 
                        funds for any other fund matching 
                        requirement.--An entity to which funds are 
                        provided under this paragraph shall not use any 
                        part of the funds to fulfill any obligation of 
                        any State, or political subdivision to 
                        contribute funds under other Federal law.
                            ``(vi) Deadline for expenditure.--An entity 
                        to which funds are provided under this 
                        paragraph shall remit to the Secretary any part 
                        of the funds that are not expended within 3 
                        years after the date the funds are so provided.
                    ``(D) Individuals with income less than the poverty 
                line.--For purposes of this paragraph, the number of 
                individuals with an income that is less than the 
                poverty line shall be determined based on the 
                methodology used by the Bureau of the Census to produce 
                and publish intercensal poverty data for 1993 for 
                States and counties.
                    ``(E) Set-aside for high performance bonus.--
                $100,000,000 of the amount specified in subparagraph 
                (H) for fiscal year 1999 shall be reserved for use by 
                the Secretary to make bonus grants (in the same manner 
                as such grants are determined under paragraph (4)) for 
                fiscal year 2003 to those States that receive funds 
                under this paragraph and that are most successful in 
                increasing the earnings of individuals described in 
                subparagraph (C)(ii)(II).
                    ``(F) Set-aside for indian tribes.--1 percent of 
                the amount specified in subparagraph (H) for each 
                fiscal year shall be reserved for grants to Indian 
                tribes under section 412(a)(3).
                    ``(G) Set-aside for evaluations.--0.5 percent of 
                the amount specified in subparagraph (H) for each 
                fiscal year shall be reserved for use by the Secretary 
                to carry out section 413(j).
                    ``(H) Funding.--The amount specified in this 
                subparagraph is--
                            ``(i) $750,000,000 for fiscal year 1998;
                            ``(ii) $1,250,000,000 for fiscal year 1999; 
                        and
                            ``(iii) $1,000,000,000 for fiscal year 
                        2000.
                    ``(I) Availability of funds.--Amounts appropriated 
                pursuant to this paragraph shall remain available 
                through fiscal year 2002.
                    ``(J) Budget scoring.--Notwithstanding section 
                457(b)(2) of the Balanced Budget and Emergency Deficit 
                Control Act of 1985, the baseline shall assume that no 
                grant shall be awarded under this paragraph or under 
                section 412(a)(3) after fiscal year 2000.
                    ``(K) Nondisplacement in Work Activities.--
                            ``(i) Prohibitions.--
                                    ``(I) General prohibition.--A 
                                participant in a work activity pursuant 
                                to this paragraph shall not displace 
                                (including a partial displacement, such 
                                as a reduction in the hours of 
                                nonovertime work, wages, or employment 
                                benefits) any individual who, as of the 
                                date of the participation, is an 
                                employee.
                                    ``(II) Prohibition on impairment of 
                                contracts.--A work activity pursuant to 
                                this paragraph shall not impair an 
                                existing contract for services or 
                                collective bargaining agreement, and a 
                                work activity that would be 
                                inconsistent with the terms of a 
                                collective bargaining agreement shall 
                                not be undertaken without the written 
                                concurrence of the labor organization 
                                and employer concerned.
                                    ``(III) Other prohibitions.--A 
                                participant in a work activity shall 
                                not be employed in a job--
                                            ``(aa) when any other 
                                        individual is on layoff from 
                                        the same or any substantially 
                                        equivalent job;
                                            ``(bb) when the employer 
                                        has terminated the employment 
                                        of any regular employee or 
                                        otherwise reduced the workforce 
                                        of the employer with the 
                                        intention of filling the 
                                        vacancy so created with the 
                                        participant; or
                                            ``(cc) which is created in 
                                        a promotional line that will 
                                        infringe in any way upon the 
                                        promotional opportunities of 
                                        employed individuals.
                            ``(ii) Health and safety.--Health and 
                        safety standards established under Federal and 
                        State law otherwise applicable to working 
                        conditions of employees shall be equally 
                        applicable to working conditions of 
                        participants engaged in a work activity 
                        pursuant to this paragraph. To the extent that 
                        a State workers' compensation law applies, 
                        workers' compensation shall be provided to 
                        participants on the same basis as the 
                        compensation is provided to other individuals 
                        in the State in similar employment.
                            ``(iii) Grievance procedure.--
                                    ``(I) In general.--Each State to 
                                which a grant is made under this 
                                paragraph shall establish and maintain 
                                a procedure for grievances or 
                                complaints alleging violations of 
                                clauses (i) or (ii) from participants 
                                and other interested or affected 
                                parties. The procedure shall include an 
                                opportunity for a hearing and be 
                                completed within 60 days after the 
                                grievance or complaint is filed.
                                    ``(II) Investigation.--
                                            ``(aa) In general.--The 
                                        Secretary of Labor shall 
                                        investigate an allegation of a 
                                        violation of clause (i) or (ii) 
                                        if a decision relating to the 
                                        violation is not reached within 
                                        60 days after the date of the 
                                        filing of the grievance or 
                                        complaint, and either party 
                                        appeals to the Secretary of 
                                        Labor, or a decision relating 
                                        to the violation is reached 
                                        within the 60-day period, and 
                                        the party to which the decision 
                                        is adverse appeals the decision 
                                        to the Secretary of Labor.
                                            ``(bb) Additional 
                                        requirement.--The Secretary of 
                                        Labor shall make a final 
                                        determination relating to an 
                                        appeal made under item (aa) not 
                                        later than 120 days after 
                                        receiving the appeal.
                                    ``(III) Remedies.--Remedies for 
                                violation of clause (i) or (ii) shall 
                                be limited to--
                                            ``(aa) suspension or 
                                        termination of payments under 
                                        this paragraph;
                                            ``(bb) prohibition of 
                                        placement of a participant with 
                                        an employer that has violated 
                                        clause (i) or (ii);
                                            ``(cc) where applicable, 
                                        reinstatement of an employee, 
                                        payment of lost wages and 
                                        benefits, and reestablishment 
                                        of other relevant terms, 
                                        conditions and privileges of 
                                        employment; and
                                            ``(dd) where appropriate, 
                                        other equitable relief.''.
            (2) Conforming amendment.--Section 409(a)(7)(B)(iv) of such 
        Act (42 U.S.C. 609(a)(7)(B)(iv)) is amended to read as follows:
                            ``(iv) Expenditures by the state.--The term 
                        `expenditures by the State' does not include--
                                    ``(I) any expenditure from amounts 
                                made available by the Federal 
                                Government;
                                    ``(II) any State funds expended for 
                                the medicaid program under title XIX;
                                    ``(III) any State funds which are 
                                used to match Federal funds provided 
                                under section 403(a)(5); or
                                    ``(IV) any State funds which are 
                                expended as a condition of receiving 
                                Federal funds other than under this 
                                part.
                        Notwithstanding subclause (IV) of the preceding 
                        sentence, such term includes expenditures by a 
                        State for child care in a fiscal year to the 
                        extent that the total amount of the 
                        expenditures does not exceed the amount of 
                        State expenditures in fiscal year 1994 or 1995 
                        (whichever is the greater) that equal the non-
                        Federal share for the programs described in 
                        section 418(a)(1)(A).''.
    (b) Grants to Outlying Areas.--Section 1108(a)(1) of such Act (42 
U.S.C. 1308(a)(1)) is amended by inserting ``(except section 
403(a)(5))'' after ``title IV''.
    (c) Grants to Indian Tribes.--Section 412(a) of such Act (42 U.S.C. 
612(a)) is amended by adding at the end the following:
            ``(3) Welfare-to-work grants.--
                    ``(A) In general.--The Secretary shall award a 
                grant in accordance with this paragraph to an Indian 
                tribe for each fiscal year specified in section 
                403(a)(5)(H) for which the Indian tribe is a welfare-
                to-work tribe, in such amount as the Secretary deems 
                appropriate, subject to subparagraph (B) of this 
                paragraph.
                    ``(B) Welfare-to-work tribe.--An Indian tribe shall 
                be considered a welfare-to-work tribe for a fiscal year 
                for purposes of this paragraph if the Indian tribe 
                meets the following requirements:
                            ``(i) The Indian tribe has submitted to the 
                        Secretary (in the form of an addendum to the 
                        tribal family assistance plan, if any, of the 
                        Indian tribe) a plan which describes how, 
                        consistent with section 403(a)(5), the Indian 
                        tribe will use any funds provided under this 
                        paragraph during the fiscal year.
                            ``(ii) The Indian tribe has provided the 
                        Secretary with an estimate of the amount that 
                        the Indian tribe intends to expend during the 
                        fiscal year (excluding tribal expenditures 
                        described in section 409(a)(7)(B)(iv)) for 
                        activities described in section 
                        403(a)(5)(C)(i).
                            ``(iii) The Indian tribe has agreed to 
                        negotiate in good faith with the Secretary of 
                        Health and Human Services with respect to the 
                        substance of any evaluation under section 
                        413(j), and to cooperate with the conduct of 
                        any such evaluation.
                    ``(C) Limitations on use of funds.--Section 
                403(a)(5)(C) shall apply to funds provided to Indian 
                tribes under this paragraph in the same manner in which 
                such section applies to funds provided under section 
                403(a)(5).''.
    (d) Funds Received From Grants To Be Disregarded in Applying 
Durational Limit on Assistance.--Section 408(a)(7) of such Act (42 
U.S.C. 608(a)(7)) is amended by adding at the end the following:
                    ``(G) Inapplicability to welfare-to-work grants and 
                assistance.--For purposes of subparagraph (A) of this 
                paragraph, a grant made under section 403(a)(5) shall 
                not be considered a grant made under section 403, and 
                assistance from funds provided under section 403(a)(5) 
                shall not be considered assistance.''.
    (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) is 
amended by adding at the end the following:
    ``(j) Evaluation of Welfare-to-Work Programs.--
            ``(1) Evaluation.--The Secretary--
                    ``(A) shall, in consultation with the Secretary of 
                Labor, develop a plan to evaluate how grants made under 
                sections 403(a)(5) and 412(a)(3) have been used;
                    ``(B) may evaluate the use of such grants by such 
                grantees as the Secretary deems appropriate, in 
                accordance with an agreement entered into with the 
                grantees after good-faith negotiations; and
                    ``(C) shall include the following outcome measures 
                in the plan developed under subparagraph (A):
                            ``(i) Placements in the labor force and 
                        placements in the labor force that last for at 
                        least 6 months.
                            ``(ii) Placements in the private and public 
                        sectors.
                            ``(iii) Earnings of individuals who obtain 
                        employment.
                            ``(iv) Average expenditures per placement.
            ``(2) Reports to the congress.--
                    ``(A) In general.--Subject to subparagraphs (B) and 
                (C), the Secretary, in consultation with the Secretary 
                of Labor and the Secretary of Housing and Urban 
                Development, shall submit to the Congress reports on 
                the projects funded under sections 403(a)(5) and 
                412(a)(3) and on the evaluations of the projects.
                    ``(B) Interim report.--Not later than January 1, 
                1999, the Secretary shall submit an interim report on 
                the matter described in subparagraph (A).
                    ``(C) Final report.--Not later than January 1, 2001 
                (or at a later date, if the Secretary informs the 
                committees of the Congress with jurisdiction over the 
                subject matter of the report) the Secretary shall 
                submit a final report on the matter described in 
                subparagraph (A).''.

SEC. 5822. ENROLLMENT FLEXIBILITY.

    (a) Determination of Eligibility.--Nothing in this section shall be 
construed as affecting--
            (1) the conditions for eligibility for benefits under a 
        program described in subsection (b)(2) (including any 
        conditions relating to income or resources);
            (2) any right to challenge determinations regarding 
        eligibility or rights to benefits under such programs 
        (including any rights to grievance procedures or appeal);
            (3) any determinations regarding quality control or error 
        rates with respect to eligibility determinations under or the 
        administration of such programs; or
            (4) any safeguards for the privacy, confidentiality, and 
        protections of individuals eligible for or receiving benefits 
        under a program described in subsection (b)(2) that are 
        provided under Federal or State law.
    (b) Authorization for State Plan to Consolidate and Automate the 
Administration of Low-Income Benefit Programs, Including Medicaid, and 
to Competitively Contract for the Administration of Such Programs.--
            (1) Approval of state plan.--
                    (A) In general.--A State plan described in 
                subparagraph (B) that was submitted by a State to the 
                Secretary of Health and Human Services (in this section 
                referred to as the ``Secretary'') prior to June 1, 
                1997, shall be deemed by the Secretary to be approved 
                in its entirety (including any subsequent technical, 
                clerical, and clarifying corrections, or any subsequent 
                proposal submitted to comply with applicable State 
                law). Any State that has a State plan described in 
                subparagraph (B) approved shall remain eligible for 
                Federal financial assistance for the procurement, 
                development, and operation of the automated data 
                processing equipment and services described in the 
                State plan in accordance with the provisions of law 
                applicable to such procurement, development, and 
                operation. No provision of law shall be construed as 
                preventing a State that has a State plan described in 
                subparagraph (B) approved from allowing eligibility 
                determinations described in paragraph (2) to be made by 
                an entity that is not a State or local government, or 
                by an individual who is not an employee of a State or 
                local government, so long as such entity or individual 
                meets such qualifications as the State determines. Any 
                eligibility determinations made by an entity or 
                individual described in the preceding sentence shall, 
                to the extent necessary to comply with the requirements 
                of any applicable Federal law, be considered to have 
                been made by the State or by a State agency.
                    (B) State plan described.--A State plan described 
                in this subparagraph is a State plan, including any 
                request for offers, waivers, or other State 
                submissions, to integrate and automate enrollment 
                procedures for eligibility determinations described in 
                paragraph (2) through the use of automated data 
                processing equipment and services.
            (2) Eligibility determinations described.--The eligibility 
        determinations described in this paragraph are eligibility 
        determinations for low-income individuals and households to 
        receive assistance and benefits under the medicaid program and 
        other programs using the integrated and automated procedures 
        under a State plan described in paragraph (1)(B).
            (3) Evaluation.--A State that has a State plan described in 
        paragraph (1)(B) approved shall, not later than 5 years after 
        the date of the approval of such plan, have an independent 
        evaluation of the State plan conducted and shall submit a copy 
        of the evaluation report to the appropriate committees of 
        Congress.

SEC. 5823. CLARIFICATION OF A STATE'S ABILITY TO SANCTION AN INDIVIDUAL 
              RECEIVING ASSISTANCE UNDER TANF FOR NONCOMPLIANCE.

    (a) In General.--Section 408 (42 U.S.C. 608) is amended--
            (1) by redesignating subsections (c) and (d) as subsections 
        (d) and (e), respectively; and
            (2) by inserting after subsection (b), the following:
    ``(c) Nonapplication of Any Minimum Wage Requirements With Respect 
to Individual Sanctions.--Notwithstanding any other provision of law, 
any requirement imposed by law, regulation, or otherwise that requires 
that an individual in a family that receives assistance under the State 
program funded under this part receive the applicable minimum wage 
under section 6 of the Fair Labor Standards Act (29 U.S.C. 206), shall 
not prohibit a State from imposing against a family that includes such 
an individual any penalty that may be imposed under the State program 
funded under this part for failure to comply with a requirement under 
such program.''.
    (b) Retroactivity.--The amendment made by subsection (a) shall take 
effect as if included in the enactment of section 103(a) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(Public Law 104-193; 110 Stat. 2112).

                  CHAPTER 3--UNEMPLOYMENT COMPENSATION

SEC. 5831. INCREASE IN FEDERAL UNEMPLOYMENT ACCOUNT CEILING.

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

SEC. 5832. SPECIAL DISTRIBUTION TO STATES FROM UNEMPLOYMENT TRUST FUND.

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

SEC. 5833. CLARIFYING PROVISION RELATING TO BASE PERIODS.

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

SEC. 5834. TREATMENT OF CERTAIN SERVICES PERFORMED BY INMATES.

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

         DIVISION 4--EARNED INCOME CREDIT AND OTHER PROVISIONS

         Subtitle L--Earned Income Credit and Other Provisions

                    CHAPTER 1--EARNED INCOME CREDIT

SEC. 5851. RESTRICTIONS ON AVAILABILITY OF EARNED INCOME CREDIT FOR 
              TAXPAYERS WHO IMPROPERLY CLAIMED CREDIT IN PRIOR YEAR.

    (a) In General.--Section 32 of the Internal Revenue Code of 1986 
(relating to earned income credit) is amended by redesignating 
subsections (k) and (l) as subsections (l) and (m), respectively, and 
by inserting after subsection (j) the following new subsection:
    ``(k) Restrictions on Taxpayers Who Improperly Claimed Credit in 
Prior Year.--
            ``(1) Taxpayers making prior fraudulent or reckless 
        claims.--
                    ``(A) In general.--No credit shall be allowed under 
                this section for any taxable year in the disallowance 
                period.
                    ``(B) Disallowance period.--For purposes of 
                paragraph (1), the disallowance period is--
                            ``(i) the period of 10 taxable years after 
                        the most recent taxable year for which there 
                        was a final determination that the taxpayer's 
                        claim of credit under this section was due to 
                        fraud, and
                            ``(ii) the period of 2 taxable years after 
                        the most recent taxable year for which there 
                        was a final determination that the taxpayer's 
                        claim of credit under this section was due to 
                        reckless or intentional disregard of rules and 
                        regulations (but not due to fraud).
            ``(2) Taxpayers making improper prior claims.--In the case 
        of a taxpayer who is denied credit under this section for any 
        taxable year as a result of the deficiency procedures under 
        subchapter B of chapter 63, no credit shall be allowed under 
        this section for any subsequent taxable year unless the 
        taxpayer provides such information as the Secretary may require 
        to demonstrate eligibility for such credit.''
    (b) Due Diligence Requirement on Income Tax Return Preparers.--
Section 6695 of the Internal Revenue Code of 1986 (relating to other 
assessable penalties with respect to the preparation of income tax 
returns for other persons) is amended by adding at the end the 
following new subsection:
    ``(g) Failure To Be Diligent in Determining Eligibility for Earned 
Income Credit.--Any person who is an income tax preparer with respect 
to any return or claim for refund who fails to comply with due 
diligence requirements imposed by the Secretary by regulations with 
respect to determining eligibility for, or the amount of, the credit 
allowable by section 32 shall pay a penalty of $100 for each such 
failure.''
    (c) Extension Procedures Applicable to Mathematical or Clerical 
Errors.--Paragraph (2) of section 6213(g) (relating to the definition 
of mathematical or clerical errors) is amended by striking ``and'' at 
the end of subparagraph (H), by striking the period at the end of 
subparagraph (I) and inserting ``, and'', and by inserting after 
subparagraph (I) the following new subparagraph:
                    ``(J) an omission of information required by 
                section 32(k)(2) (relating to taxpayers making improper 
                prior claims of earned income credit).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

                CHAPTER 2--INCREASE IN PUBLIC DEBT LIMIT

SEC. 5861. INCREASE IN PUBLIC DEBT LIMIT.

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

                        CHAPTER 3--MISCELLANEOUS

SEC. 5871. SENSE OF THE SENATE REGARDING THE CORRECTION OF COST-OF-
              LIVING ADJUSTMENTS.

    (a) Findings.--The Senate makes the following findings:
            (1) The final report of the Senate Finance Committee's 
        Advisory Commission to Study the Consumer Price Index, chaired 
        by Professor Michael Boskin, has concluded that the Consumer 
        Price Index overstates the cost of living in the United States 
        by 1.1 percentage points.
            (2) Dr. Alan Greenspan, Chairman of the Board of Governors 
        of the Federal Reserve System, has testified before the Senate 
        Finance Committee that ``the best available evidence suggests 
        that there is virtually no chance that the CPI as currently 
        published understates'' the cost of living and that there is 
        ``a very high probability that the upward bias ranges between 
        \1/2\ percentage point per year and 1\1/2\ percentage points 
        per year''.
            (3) The overstatement of the cost of living by the Consumer 
        Price Index has been recognized by economists since at least 
        1961, when a report noting the existence of the overstatement 
        was issued by a National Bureau of Economic Research Committee, 
        chaired by Professor George J. Stigler.
            (4) Congress and the President, through the indexing of 
        Federal tax brackets, Social Security benefits, and other 
        Federal program benefits, have undertaken to protect taxpayers 
        and beneficiaries of such programs from the erosion of 
        purchasing power due to inflation.
            (5) Congress and the President intended the indexing of 
        Federal tax brackets, Social Security benefits, and other 
        Federal program benefits to accurately reflect changes in the 
        cost of living.
            (6) The overstatement of the cost of living increases the 
        deficit and undermines the equitable administration of Federal 
        benefits and tax policies.
    (b) Sense of the Senate.--It is the sense of the Senate that all 
cost-of-living adjustments required by statute should accurately 
reflect the best available estimate of changes in the cost of living.

            Subtitle M--Welfare Reform Technical Corrections

SEC. 5900. SHORT TITLE OF SUBTITLE.

    This subtitle may be cited as the ``Welfare Reform Technical 
Corrections Act of 1997''.

   CHAPTER 1--BLOCK GRANTS FOR TEMPORARY ASSISTANCE TO NEEDY FAMILIES

SEC. 5901. AMENDMENT OF THE SOCIAL SECURITY ACT.

    Except as otherwise expressly provided, wherever in this chapter an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Social Security Act, and 
if the section or other provision is of part A of title IV of such Act, 
the reference shall be considered to be made to the section or other 
provision as amended by section 103, and as in effect pursuant to 
section 116, of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996.

SEC. 5902. ELIGIBLE STATES; STATE PLAN.

    (a) Later Deadline for Submission of State Plans.--Section 402(a) 
(42 U.S.C. 602(a)) is amended by striking ``2-year period immediately 
preceding'' and inserting ``27-month period ending with the close of 
the 1st quarter of''.
    (b) Clarification of Scope of Work Provisions.--Section 
402(a)(1)(A)(ii) (42 U.S.C. 602(a)(1)(A)(ii)) is amended by inserting 
``, consistent with section 407(e)(2)'' before the period.
    (c) Correction of Cross-Reference.--Section 402(a)(1)(A)(v) (42 
U.S.C. 602(a)(1)(A)(v)) is amended by striking ``403(a)(2)(B)'' and 
inserting ``403(a)(2)(C)(iii)''.
    (d) Notification of Plan Amendments.--Section 402 (42 U.S.C. 602) 
is amended--
            (1) by redesignating subsection (b) as subsection (c) and 
        inserting after subsection (a) the following:
    ``(b) Plan Amendments.--Within 30 days after a State amends a plan 
submitted pursuant to subsection (a), the State shall notify the 
Secretary of the amendment.''; and
            (2) in subsection (c) (as so redesignated), by inserting 
        ``or plan amendment'' after ``plan''.

SEC. 5903. GRANTS TO STATES.

    (a) Bonus for Decrease in Illegitimacy Modified To Take Account of 
Certain Territories.--
            (1) In general.--Section 403(a)(2)(B) (42 U.S.C. 
        603(a)(2)(B)) is amended to read as follows:
                    ``(B) Amount of grant.--
                            ``(i) In general.--If, for a bonus year, 
                        none of the eligible States is Guam, the Virgin 
                        Islands, or American Samoa, then the amount of 
                        the grant shall be--
                                    ``(I) $20,000,000 if there are 5 
                                eligible States; or
                                    ``(II) $25,000,000 if there are 
                                fewer than 5 eligible States.
                            ``(ii) Amount if certain territories are 
                        eligible.--If, for a bonus year, Guam, the 
                        Virgin Islands, or American Samoa is an 
                        eligible State, then the amount of the grant 
                        shall be--
                                    ``(I) in the case of such a 
                                territory, 25 percent of the mandatory 
                                ceiling amount (as defined in section 
                                1108(c)(4)) with respect to the 
                                territory; and
                                    ``(II) in the case of a State that 
                                is not such a territory--
                                            ``(aa) if there are 5 
                                        eligible States other than such 
                                        territories, $20,000,000, minus 
                                        \1/5\ of the total amount of 
                                        the grants payable under this 
                                        paragraph to such territories 
                                        for the bonus year; or
                                            ``(bb) if there are fewer 
                                        than 5 such eligible States, 
                                        $25,000,000, or such lesser 
                                        amount as may be necessary to 
                                        ensure that the total amount of 
                                        grants payable under this 
                                        paragraph for the bonus year 
                                        does not exceed 
                                        $100,000,000.''.
            (2) Certain territories to be ignored in ranking other 
        states.-- Section 403(a)(2)(C)(i)(I)(aa) (42 U.S.C. 
        603(a)(2)(C)(i)(I)(aa)) is amended by adding at the end the 
        following: ``In the case of a State that is not a territory 
        specified in subparagraph (B), the comparative magnitude of the 
        decrease for the State shall be determined without regard to 
        the magnitude of the corresponding decrease for any such 
        territory.''.
    (b) Computation of Bonus Based on Ratios of Out-of-Wedlock Births 
to All Births Instead of Numbers of Out-of-Wedlock Births.--Section 
403(a)(2) (42 U.S.C. 603(a)(2)) is amended--
            (1) in the paragraph heading, by inserting ``ratio'' before 
        the period;
            (2) in subparagraph (A), by striking all that follows 
        ``bonus year'' and inserting a period; and
            (3) in subparagraph (C)--
                    (A) in clause (i)--
                            (i) in subclause (I)(aa)--
                                    (I) by striking ``number of out-of-
                                wedlock births that occurred in the 
                                State during'' and inserting 
                                ``illegitimacy ratio of the State 
                                for''; and
                                    (II) by striking ``number of such 
                                births that occurred during'' and 
                                inserting ``illegitimacy ratio of the 
                                State for''; and
                            (ii) in subclause (II)(aa)--
                                    (I) by striking ``number of out-of-
                                wedlock births that occurred in'' each 
                                place such term appears and inserting 
                                ``illegitimacy ratio of''; and
                                    (II) by striking ``calculate the 
                                number of out-of-wedlock births'' and 
                                inserting ``calculate the illegitimacy 
                                ratio''; and
                    (B) by adding at the end the following:
                            ``(iii) Illegitimacy ratio.--The term 
                        `illegitimacy ratio' means, with respect to a 
                        State and a period--
                                    ``(I) the number of out-of-wedlock 
                                births to mothers residing in the State 
                                that occurred during the period; 
                                divided by
                                    ``(II) the number of births to 
                                mothers residing in the State that 
                                occurred during the period.''.
    (c) Use of Calendar Year Data Instead of Fiscal Year Data in 
Calculating Bonus for Decrease in Illegitimacy Ratio.--Section 
403(a)(2)(C) (42 U.S.C. 603(a)(2)(C)) is amended--
            (1) in clause (i)--
                    (A) in subclause (I)(bb)--
                            (i) by striking ``the fiscal year'' and 
                        inserting ``the calendar year for which the 
                        most recent data are available''; and
                            (ii) by striking ``fiscal year 1995'' and 
                        inserting ``calendar year 1995'';
                    (B) in subclause (II), by striking ``fiscal'' each 
                place such term appears and inserting ``calendar''; and
            (2) in clause (ii), by striking ``fiscal years'' and 
        inserting ``calendar years''.
    (d) Correction of Heading.--Section 403(a)(3)(C)(ii) (42 U.S.C. 
603(a)(3)(C)(ii)) is amended in the heading by striking ``1997'' and 
inserting ``1998''.
    (e) Clarification of Contingency Fund Provision.--Section 403(b) 
(42 U.S.C. 603(b)) is amended--
            (1) in paragraph (6), by striking ``(5)'' and inserting 
        ``(4)'';
            (2) by striking paragraph (4) and redesignating paragraphs 
        (5) and (6) as paragraphs (4) and (5), respectively; and
            (3) by inserting after paragraph (5) the following:
            ``(6) Annual reconciliation.--
                    ``(A) In general.--Notwithstanding paragraph (3), 
                if the Secretary makes a payment to a State under this 
                subsection in a fiscal year, then the State shall remit 
                to the Secretary, within 1 year after the end of the 
                first subsequent period of 3 consecutive months for 
                which the State is not a needy State, an amount equal 
                to the amount (if any) by which--
                            ``(i) the total amount paid to the State 
                        under paragraph (3) of this subsection in the 
                        fiscal year; exceeds
                            ``(ii) the product of--
                                    ``(I) the Federal medical 
                                assistance percentage for the State (as 
                                defined in section 1905(b), as such 
                                section was in effect on September 30, 
                                1995);
                                    ``(II) the State's reimbursable 
                                expenditures for the fiscal year; and
                                    ``(III) \1/12\ times the number of 
                                months during the fiscal year for which 
                                the Secretary made a payment to the 
                                State under such paragraph (3).
                    ``(B) Definitions.--As used in subparagraph (A):
                            ``(i) Reimbursable expenditures.--The term 
                        `reimbursable expenditures' means, with respect 
                        to a State and a fiscal year, the amount (if 
                        any) by which--
                                    ``(I) countable State expenditures 
                                for the fiscal year; exceeds
                                    ``(II) historic State expenditures 
                                (as defined in section 
                                409(a)(7)(B)(iii)), excluding any 
                                amount expended by the State for child 
                                care under subsection (g) or (i) of 
                                section 402 (as in effect during fiscal 
                                year 1994) for fiscal year 1994.
                            ``(ii) Countable state expenditures.--The 
                        term `countable expenditures' means, with 
                        respect to a State and a fiscal year--
                                    ``(I) the qualified State 
                                expenditures (as defined in section 
                                409(a)(7)(B)(i) (other than the 
                                expenditures described in subclause 
                                (I)(bb) of such section)) under the 
                                State program funded under this part 
                                for the fiscal year; plus
                                    ``(II) any amount paid to the State 
                                under paragraph (3) during the fiscal 
                                year that is expended by the State 
                                under the State program funded under 
                                this part.''.
    (f) Administration of Contingency Fund Transferred to the Secretary 
of HHS.--Section 403(b)(7) (42 U.S.C. 603(b)(7)) is amended to read as 
follows:
            ``(7) State defined.--As used in this subsection, the term 
        `State' means each of the 50 States and the District of 
        Columbia.''.

SEC. 5904. USE OF GRANTS.

     Section 404(a)(2) (42 U.S.C. 604(a)(2)) is amended by inserting 
``, or (at the option of the State) August 21, 1996'' before the 
period.

SEC. 5905. MANDATORY WORK REQUIREMENTS.

    (a) Family With a Disabled Parent Not Treated as a 2-Parent 
Family.--Section 407(b)(2) (42 U.S.C. 607(b)(2)) is amended by adding 
at the end the following:
                    ``(C) Family with a disabled parent not treated as 
                a 2-parent family.--A family that includes a disabled 
                parent shall not be considered a 2-parent family for 
                purposes of subsections (a) and (b) of this section.''.
    (b) Correction of Heading.--Section 407(b)(3) (42 U.S.C. 607(b)(3)) 
is amended in the heading by inserting ``and not resulting from changes 
in state eligibility criteria'' before the period.
    (c) State Option To Include Individuals Receiving Assistance Under 
a Tribal Work Program in Participation Rate Calculation.--Section 
407(b)(4) (42 U.S.C. 607(b)(4)) is amended--
            (1) in the heading, by inserting ``or tribal work program'' 
        before the period; and
            (2) by inserting ``or under a tribal work program to which 
        funds are provided under this part'' before the period.
    (d) Sharing of 35-Hour Work Requirement Between Parents in 2-Parent 
Families.--Section 407(c)(1)(B) (42 U.S.C. 607(c)(1)(B)) is amended--
            (1) in clause (i)--
                    (A) by striking ``is'' and inserting ``and the 
                other parent in the family are''; and
                    (B) by inserting ``a total of'' before ``at 
                least''; and
            (2) in clause (ii)--
                    (A) by striking ``individual's spouse is'' and 
                inserting ``individual and the other parent in the 
                family are'';
                    (B) by inserting ``for a total of at least 55 hours 
                per week'' before ``during the month''; and
                    (C) by striking ``20'' and inserting ``50''.
    (e) Clarification of Effort Required in Work Activities.--Section 
407(c)(1)(B) (42 U.S.C. 607(c)(1)(B)) is amended by striking ``making 
progress'' each place such term appears and inserting 
``participating''.
    (f) Additional Condition Under Which 12 Weeks of Job Search May 
Count as Work.--Section 407(c)(2)(A)(i) (42 U.S.C. 607(c)(2)(A)(i)) is 
amended by inserting ``or the State is a needy State (within the 
meaning of section 403(b)(6))'' after ``United States''.
    (g) Caretaker Relative of Child Under Age 6 Deemed To Be Meeting 
Work Requirements if Engaged in Work for 20 Hours Per Week.--Section 
407(c)(2)(B) (42 U.S.C. 607(c)(2)(B)) is amended--
            (1) in the heading, by inserting ``or relative'' after 
        ``parent'' each place such term appears; and
            (2) by striking ``in a 1-parent family who is the parent'' 
        and inserting ``who is the only parent or caretaker relative in 
        the family''.
    (h) Extension to Married Teens of Rule That Receipt of Sufficient 
Education Is Enough To Meet Work Participation Requirements.--Section 
407(c)(2)(C) (42 U.S.C. 607(c)(2)(C)) is amended--
            (1) in the heading, by striking ``Teen head of household'' 
        and inserting ``Single teen head of household or married 
        teen''; and
            (2) by striking ``a single'' and inserting ``married or 
        a''.
    (i) Clarification of Number of Hours of Participation in Education 
Directly Related to Employment That Are Required in Order for Single 
Teen Head of Household or Married Teen To Be Deemed To Be Engaged in 
Work.--Section 407(c)(2)(C)(ii) (42 U.S.C. 607(c)(2)(C)(ii)) is amended 
by striking ``at least'' and all that follows through ``subsection'' 
and inserting ``an average of at least 20 hours per week during the 
month''.
    (j) Clarification of Refusal To Work for Purposes of Work Penalties 
for Individuals.--Section 407(e)(2) (42 U.S.C. 607(e)(2)) is amended by 
striking ``work'' and inserting ``engage in work required in accordance 
with this section''.
    (k) Clarification of Removal of Teen Parents With Respect to 
Vocational Education.--Section 407(c)(2) (42 U.S.C. 607(c)(2)) is 
amended--
            (1) in subparagraph (C), by striking ``, subject to 
        subparagraph (D) of this paragraph,''; and
            (2) by striking subparagraph (D) and inserting the 
        following:
                    ``(D) Number of persons that may be treated as 
                engaged in work by virtue of participation in 
                vocational education activities.--For purposes of 
                determining monthly participation rates under 
                paragraphs (1)(B)(i) and (2)(B) of subsection (b), not 
                more than 20 percent of individuals in all families and 
                in 2-parent families (other than individuals in such 
                families who are described in subparagraph (C)) may be 
                determined to be engaged in work in the State for a 
                month by reason of participation in vocational 
                educational training.''.

SEC. 5906. PROHIBITIONS; REQUIREMENTS.

    (a) Elimination of Redundant Language; Clarification of Home 
Residence Requirement.--Section 408(a)(1) (42 U.S.C. 608(a)(1)) is 
amended to read as follows:
            ``(1) No assistance for families without a minor child.--A 
        State to which a grant is made under section 403 shall not use 
        any part of the grant to provide assistance to a family, unless 
        the family includes a minor child who resides with the family 
        (consistent with paragraph (10)) or a pregnant individual.''.
    (b) Clarification of Terminology.--Section 408(a)(3) (42 U.S.C. 
608(a)(3)) is amended--
            (1) by striking ``leaves'' the 1st, 3rd, and 4th places 
        such term appears and inserting ``ceases to receive assistance 
        under''; and
            (2) by striking ``the date the family leaves the program'' 
        the 2nd place such term appears and inserting ``such date''.
    (c) Elimination of Space.--Section 408(a)(5)(A)(ii) (42 U.S.C. 
608(a)(5)(A)(ii)) is amended by striking ``described.-- For'' and 
inserting ``described.--For''.
    (d) Corrections to 5-Year Limit on Assistance.--
            (1) Clarification of limitation on hardship exemption.--
        Section 408(a)(7)(C)(ii) (42 U.S.C. 608(a)(7)(C)(ii)) is 
        amended--
                    (A) by striking ``The number'' and inserting ``The 
                average monthly number''; and
                    (B) by inserting ``during the fiscal year or the 
                immediately preceding fiscal year (but not both), as 
                the State may elect'' before the period.
            (2) Residence exception made more uniform and easier to 
        administer.--Section 408(a)(7)(D) (42 U.S.C. 608(a)(7)(D)) is 
        amended to read as follows:
                    ``(D) Disregard of months of assistance received by 
                adult while living in indian country or an alaskan 
                native village with 50 percent unemployment.--
                            ``(i) In general.--In determining the 
                        number of months for which an adult has 
                        received assistance under a State or tribal 
                        program funded under this part, the State or 
                        tribe shall disregard any month during which 
                        the adult lived in Indian country or an Alaskan 
                        Native village if the most reliable data 
                        available with respect to the month (or a 
                        period including the month) indicate that at 
                        least 50 percent of the adults living in Indian 
                        country or in the village were not employed.
                            ``(ii) Indian country defined.--As used in 
                        clause (i), the term `Indian country' has the 
                        meaning given such term in section 1151 of 
                        title 18, United States Code.''.
    (e) Reinstatement of Deeming and Other Rules Applicable to Aliens 
Who Entered the United States Under Affidavits of Support Formerly 
Used.--Section 408 (42 U.S.C. 608) is amended by striking subsection 
(d) and inserting the following:
    ``(d) Special Rules Relating to Treatment of Certain Aliens.--For 
special rules relating to the treatment of certain aliens, see title IV 
of the Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996.
    ``(e) Special Rules Relating to the Treatment of Non-213A Aliens.--
The following rules shall apply if a State elects to take the income or 
resources of any sponsor of a non-213A alien into account in 
determining whether the alien is eligible for assistance under the 
State program funded under this part, or in determining the amount or 
types of such assistance to be provided to the alien:
            ``(1) Deeming of sponsor's income and resources.--For a 
        period of 3 years after a non-213A alien enters the United 
        States:
                    ``(A) Income deeming rule.--The income of any 
                sponsor of the alien and of any spouse of the sponsor 
                is deemed to be income of the alien, to the extent that 
                the total amount of the income exceeds the sum of--
                            ``(i) the lesser of--
                                    ``(I) 20 percent of the total of 
                                any amounts received by the sponsor or 
                                any such spouse in the month as wages 
                                or salary or as net earnings from self-
                                employment, plus the full amount of any 
                                costs incurred by the sponsor and any 
                                such spouse in producing self-
                                employment income in such month; or
                                    ``(II) $175;
                            ``(ii) the cash needs standard established 
                        by the State for purposes of determining 
                        eligibility for assistance under the State 
                        program funded under this part for a family of 
                        the same size and composition as the sponsor 
                        and any other individuals living in the same 
                        household as the sponsor who are claimed by the 
                        sponsor as dependents for purposes of 
                        determining the sponsor's Federal personal 
                        income tax liability but whose needs are not 
                        taken into account in determining whether the 
                        sponsor's family has met the cash needs 
                        standard;
                            ``(iii) any amounts paid by the sponsor or 
                        any such spouse to individuals not living in 
                        the household who are claimed by the sponsor as 
                        dependents for purposes of determining the 
                        sponsor's Federal personal income tax 
                        liability; and
                            ``(iv) any payments of alimony or child 
                        support with respect to individuals not living 
                        in the household.
                    ``(B) Resource deeming rule.--The resources of a 
                sponsor of the alien and of any spouse of the sponsor 
                are deemed to be resources of the alien to the extent 
                that the aggregate value of the resources exceeds 
                $1,500.
                    ``(C) Sponsors of multiple non-213a aliens.--If a 
                person is a sponsor of 2 or more non-213A aliens who 
                are living in the same home, the income and resources 
                of the sponsor and any spouse of the sponsor that would 
                be deemed income and resources of any such alien under 
                subparagraph (A) shall be divided into a number of 
                equal shares equal to the number of such aliens, and 
                the State shall deem the income and resources of each 
                such alien to include 1 such share.
            ``(2) Ineligibility of non-213a aliens sponsored by 
        agencies; exception.--A non-213A alien whose sponsor is or was 
        a public or private agency shall be ineligible for assistance 
        under a State program funded under this part, during a period 
        of 3 years after the alien enters the United States, unless the 
        State agency administering the program determines that the 
        sponsor either no longer exists or has become unable to meet 
        the alien's needs.
            ``(3) Information provisions.--
                    ``(A) Duties of non-213a aliens.--A non-213A alien, 
                as a condition of eligibility for assistance under a 
                State program funded under this part during the period 
                of 3 years after the alien enters the United States, 
                shall be required to provide to the State agency 
                administering the program--
                            ``(i) such information and documentation 
                        with respect to the alien's sponsor as may be 
                        necessary in order for the State agency to make 
                        any determination required under this 
                        subsection, and to obtain any cooperation from 
                        the sponsor necessary for any such 
                        determination; and
                            ``(ii) such information and documentation 
                        as the State agency may request and which the 
                        alien or the alien's sponsor provided in 
                        support of the alien's immigration application.
                    ``(B) Duties of federal agencies.--The Secretary 
                shall enter into agreements with the Secretary of State 
                and the Attorney General under which any information 
                available to them and required in order to make any 
                determination under this subsection will be provided by 
                them to the Secretary (who may, in turn, make the 
                information available, upon request, to a concerned 
                State agency).
            ``(4) Non-213a alien defined.--An alien is a non-213A alien 
        for purposes of this subsection if the affidavit of support or 
        similar agreement with respect to the alien that was executed 
        by the sponsor of the alien's entry into the United States was 
        executed other than pursuant to section 213A of the Immigration 
        and Nationality Act.
            ``(5) Inapplicability to alien minor sponsored by a 
        parent.--This subsection shall not apply to an alien who is a 
        minor child if the sponsor of the alien or any spouse of the 
        sponsor is a parent of the alien.
            ``(6) Inapplicability to certain categories of aliens.--
        This subsection shall not apply to an alien who is--
                    ``(A) admitted to the United States as a refugee 
                under section 207 of the Immigration and Nationality 
                Act;
                    ``(B) paroled into the United States under section 
                212(d)(5) of such Act for a period of at least 1 year; 
                or
                    ``(C) granted political asylum by the Attorney 
                General under section 208 of such Act.''.

SEC. 5907. PENALTIES.

    (a) States Given More Time To File Quarterly Reports.--Section 
409(a)(2)(A) (42 U.S.C. 609(a)(2)(A)) is amended by striking ``1 
month'' and inserting ``45 days''.
    (b) Treatment of Support Payments Passed Through to Families as 
Qualified State Expenditures.--Section 409(a)(7)(B)(i)(I)(aa) (42 
U.S.C. 609(a)(7)(B)(i)(I)(aa)) is amended by inserting ``, including 
any amount collected by the State as support pursuant to a plan 
approved under part D, on behalf of a family receiving assistance under 
the State program funded under this part, that is distributed to the 
family under section 457(a)(1)(B) and disregarded in determining the 
eligibility of the family for, and the amount of, such assistance'' 
before the period.
    (c) Disregard of Expenditures Made To Replace Penalty Grant 
Reductions.--Section 409(a)(7)(B)(i) (42 U.S.C. 609(a)(7)(B)(i)) is 
amended by redesignating subclause (III) as subclause (IV) and by 
inserting after subclause (II) the following:
                                    ``(III) Exclusion of amounts 
                                expended to replace penalty grant 
                                reductions.--Such term does not include 
                                any amount expended in order to comply 
                                with paragraph (12).''.
    (d) Treatment of Families of Certain Aliens as Eligible Families.--
Section 409(a)(7)(B)(i)(IV) (42 U.S.C. 609(a)(7)(B)(i)(IV)), as so 
redesignated by subsection (c) of this section, is amended--
            (1) by striking ``and families'' and inserting 
        ``families''; and
            (2) by striking ``Act or section 402'' and inserting ``Act, 
        and families of aliens lawfully present in the United States 
        that would be eligible for such assistance but for the 
        application of title IV''.
    (e) Elimination of Meaningless Language.--Section 409(a)(7)(B)(ii) 
(42 U.S.C. 609(a)(7)(B)(ii)) is amended by striking ``reduced (if 
appropriate) in accordance with subparagraph (C)(ii)''.
    (f) Clarification of Source of Data To Be Used in Determining 
Historic State Expenditures.--Section 409(a)(7)(B) (42 U.S.C. 
609(a)(7)(B)) is amended by adding at the end the following:
                            ``(v) Source of data.--In determining 
                        expenditures by a State for fiscal years 1994 
                        and 1995, the Secretary shall use information 
                        which was reported by the State on ACF Form 231 
                        or (in the case of expenditures under part F) 
                        ACF Form 331, available as of the dates 
                        specified in clauses (ii) and (iii) of section 
                        403(a)(1)(D).''.
    (g) Conforming Title IV-A Penalties to Title IV-D Performance-Based 
Standards.--Section 409(a)(8) (42 U.S.C. 609(a)(8)) is amended to read 
as follows:
            ``(8) Noncompliance of state child support enforcement 
        program with requirements of part d.--
                    ``(A) In general.--If the Secretary finds, with 
                respect to a State's program under part D, in a fiscal 
                year beginning on or after October 1, 1997--
                            ``(i)(I) on the basis of data submitted by 
                        a State pursuant to section 454(15)(B), or on 
                        the basis of the results of a review conducted 
                        under section 452(a)(4), that the State program 
                        failed to achieve the paternity establishment 
                        percentages (as defined in section 452(g)(2)), 
                        or to meet other performance measures that may 
                        be established by the Secretary;
                            ``(II) on the basis of the results of an 
                        audit or audits conducted under section 
                        452(a)(4)(C)(i) that the State data submitted 
                        pursuant to section 454(15)(B) is incomplete or 
                        unreliable; or
                            ``(III) on the basis of the results of an 
                        audit or audits conducted under section 
                        452(a)(4)(C) that a State failed to 
                        substantially comply with 1 or more of the 
                        requirements of part D; and
                            ``(ii) that, with respect to the succeeding 
                        fiscal year--
                                    ``(I) the State failed to take 
                                sufficient corrective action to achieve 
                                the appropriate performance levels or 
                                compliance as described in subparagraph 
                                (A)(i); or
                                    ``(II) the data submitted by the 
                                State pursuant to section 454(15)(B) is 
                                incomplete or unreliable;
                the amounts otherwise payable to the State under this 
                part for quarters following the end of such succeeding 
                fiscal year, prior to quarters following the end of the 
                first quarter throughout which the State program has 
                achieved the paternity establishment percentages or 
                other performance measures as described in subparagraph 
                (A)(i)(I), or is in substantial compliance with 1 or 
                more of the requirements of part D as described in 
                subparagraph (A)(i)(III), as appropriate, shall be 
                reduced by the percentage specified in subparagraph 
                (B).
                    ``(B) Amount of reductions.--The reductions 
                required under subparagraph (A) shall be--
                            ``(i) not less than 1 nor more than 2 
                        percent;
                            ``(ii) not less than 2 nor more than 3 
                        percent, if the finding is the 2nd consecutive 
                        finding made pursuant to subparagraph (A); or
                            ``(iii) not less than 3 nor more than 5 
                        percent, if the finding is the 3rd or a 
                        subsequent consecutive such finding.
                    ``(C) Disregard of noncompliance which is of a 
                technical nature.--For purposes of this section and 
                section 452(a)(4), a State determined as a result of an 
                audit--
                            ``(i) to have failed to have substantially 
                        complied with 1 or more of the requirements of 
                        part D shall be determined to have achieved 
                        substantial compliance only if the Secretary 
                        determines that the extent of the noncompliance 
                        is of a technical nature which does not 
                        adversely affect the performance of the State's 
                        program under part D; or
                            ``(ii) to have submitted incomplete or 
                        unreliable data pursuant to section 454(15)(B) 
                        shall be determined to have submitted adequate 
                        data only if the Secretary determines that the 
                        extent of the incompleteness or unreliability 
                        of the data is of a technical nature which does 
                        not adversely affect the determination of the 
                        level of the State's paternity establishment 
                        percentages (as defined under section 
                        452(g)(2)) or other performance measures that 
                        may be established by the Secretary.''.
    (h) Correction of Reference to 5-Year Limit on Assistance.--Section 
409(a)(9) (42 U.S.C. 609(a)(9)) is amended by striking ``408(a)(1)(B)'' 
and inserting ``408(a)(7)''.
    (i) Correction of Errors in Penalty for Failure To Meet Maintenance 
of Effort Requirement Applicable to the Contingency Fund.--Section 
409(a)(10) (42 U.S.C. 609(a)(10)) is amended--
            (1) by striking ``the expenditures under the State program 
        funded under this part for the fiscal year (excluding any 
        amounts made available by the Federal Government)'' and 
        inserting ``the qualified State expenditures (as defined in 
        paragraph (7)(B)(i) (other than the expenditures described in 
        subclause (I)(bb) of that paragraph)) under the State program 
        funded under this part for the fiscal year'';
            (2) by inserting ``excluding any amount expended by the 
        State for child care under subsection (g) or (i) of section 402 
        (as in effect during fiscal year 1994) for fiscal year 1994,'' 
        after ``(as defined in paragraph (7)(B)(iii) of this 
        subsection),''; and
            (3) by inserting ``that the State has not remitted under 
        section 403(b)(6)'' before the period.
    (j) Penalty for State Failure to Expend Additional State Funds To 
Replace Grant Reductions.--Section 409(a)(12) (42 U.S.C. 609(a)(12)) is 
amended--
            (1) in the heading--
                    (A) by striking ``Failure'' and inserting 
                ``Requirement''; and
                    (B) by striking ``reductions'' and inserting 
                ``reductions; penalty for failure to do so''; and
            (2) by inserting ``, and if the State fails to do so, the 
        Secretary may reduce the grant payable to the State under 
        section 403(a)(1) for the fiscal year that follows such 
        succeeding fiscal year by an amount equal to not more than 2 
        percent of the State family assistance grant'' before the 
        period.
    (k) Elimination of Certain Reasonable Cause Exceptions.--Section 
409(b)(2) (42 U.S.C. 609(b)(2)) is amended by striking ``(7) or (8)'' 
and inserting ``(6), (7), (8), (10), or (12)''.
    (l) Clarification of What It Means To Correct a Violation.--Section 
409(c) (42 U.S.C. 609(c)) is amended--
            (1) in each of subparagraphs (A) and (B) of paragraph (1), 
        by inserting ``or discontinue, as appropriate,'' after 
        ``correct'';
            (2) in paragraph (2)--
                    (A) in the heading, by inserting ``or 
                discontinuing'' after ``correcting''; and
                    (B) by inserting ``or discontinues, as 
                appropriate'' after ``corrects''; and
            (3) in paragraph (3)--
                    (A) in the heading, by inserting ``or discontinue'' 
                after ``correct''; and
                    (B) by inserting ``or discontinue, as 
                appropriate,'' before ``the violation''.
    (m) Certain Penalties Not Avoidable Through Corrective Compliance 
Plans.--Section 409(c)(4) (42 U.S.C. 609(c)(4)) is amended to read as 
follows:
            ``(4) Inapplicability to certain penalties.--This 
        subsection shall not apply to the imposition of a penalty 
        against a State under paragraph (6), (7), (8), (10), or (12) of 
        subsection (a).''.

SEC. 5908. DATA COLLECTION AND REPORTING.

    Section 411(a) (42 U.S.C. 611(a)) is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (A)--
                            (i) by striking clause (ii) and inserting 
                        the following:
                            ``(ii) Whether a child receiving such 
                        assistance or an adult in the family is 
                        receiving--
                                    ``(I) Federal disability insurance 
                                benefits;
                                    ``(II) benefits based on Federal 
                                disability status;
                                    ``(III) aid under a State plan 
                                approved under title XIV (as in effect 
                                without regard to the amendment made by 
                                section 301 of the Social Security 
                                Amendments of 1972));
                                    ``(IV) aid or assistance under a 
                                State plan approved under title XVI (as 
                                in effect without regard to such 
                                amendment) by reason of being 
                                permanently and totally disabled; or
                                    ``(V) supplemental security income 
                                benefits under title XVI (as in effect 
                                pursuant to such amendment) by reason 
                                of disability.'';
                            (ii) in clause (iv), by striking ``youngest 
                        child in'' and inserting ``head of'';
                            (iii) in each of clauses (vii) and (viii), 
                        by striking ``status'' and inserting ``level''; 
                        and
                            (iv) by adding at the end the following:
                            ``(xvii) With respect to each individual in 
                        the family who has not attained 20 years of 
                        age, whether the individual is a parent of a 
                        child in the family.''; and
                    (B) in subparagraph (B)--
                            (i) in the heading, by striking 
                        ``estimates'' and inserting ``samples''; and
                            (ii) in clause (i), by striking ``an 
                        estimate which is obtained'' and inserting 
                        ``disaggregated case record information on a 
                        sample of families selected''; and
            (2) by redesignating paragraph (6) as paragraph (7) and 
        inserting after paragraph (5) the following:
            ``(6) Report on families receiving assistance.--The report 
        required by paragraph (1) for a fiscal quarter shall include 
        for each month in the quarter the number of families and 
        individuals receiving assistance under the State program funded 
        under this part (including the number of 2-parent and 1-parent 
        families), and the total dollar value of such assistance 
        received by all families.''.

SEC. 5909. DIRECT FUNDING AND ADMINISTRATION BY INDIAN TRIBES.

    (a) Prorating of Tribal Family Assistance Grants.--Section 
412(a)(1)(A) (42 U.S.C. 612(a)(1)(A)) is amended by inserting ``which 
shall be reduced for a fiscal year, on a pro rata basis for each 
quarter, in the case of a tribal family assistance plan approved during 
a fiscal year for which the plan is to be in effect,'' before ``and 
shall''.
    (b) Tribal Option To Operate Work Activities Program.--Section 
412(a)(2)(A) (42 U.S.C. 612(a)(2)(A)) is amended by striking ``The 
Secretary'' and all that follows through ``2002'' and inserting ``For 
each of fiscal years 1997, 1998, 1999, 2000, 2001, and 2002, the 
Secretary shall pay to each eligible Indian tribe that proposes to 
operate a program described in subparagraph (C)''.
    (c) Discretion of Tribes To Select Population To Be Served by 
Tribal Work Activities Program.--Section 412(a)(2)(C) (42 U.S.C. 
612(a)(2)(C)) is amended by striking ``members of the Indian tribe'' 
and inserting ``such population and such service area or areas as the 
tribe specifies''.
    (d) Reduction of Appropriation for Tribal Work Activities 
Programs.--Section 412(a)(2)(D) (42 U.S.C. 612(a)(2)(D)) is amended by 
striking ``$7,638,474'' and inserting ``$7,633,287''.
    (e) Availability of Corrective Compliance Plans to Indian Tribes.--
Section 412(f)(1) (42 U.S.C. 612(f)(1)) is amended by striking ``and 
(b)'' and inserting ``(b), and (c)''.
    (f) Eligibility of Tribes for Federal Loans for Welfare Programs.--
Section 412 (42 U.S.C. 612) is amended by redesignating subsections 
(f), (g), and (h) as subsections (g), (h), and (i), respectively, and 
by inserting after subsection (e) the following:
    ``(f) Eligibility for Federal Loans.--Section 406 shall apply to an 
Indian tribe with an approved tribal assistance plan in the same manner 
as such section applies to a State, except that section 406(c) shall be 
applied by substituting `section 412(a)' for `section 403(a)'.''.

SEC. 5910. RESEARCH, EVALUATIONS, AND NATIONAL STUDIES.

    (a) Research.--
            (1) Methods.--Section 413(a) (42 U.S.C. 613(a)) is amended 
        by inserting ``, directly or through grants, contracts, or 
        interagency agreements,'' before ``shall conduct''.
            (2) Correction of cross reference.--Section 413(a) (42 
        U.S.C. 613(a)) is amended by striking ``409'' and inserting 
        ``407''.
    (b) Correction of Erroneously Indented Paragraph.--Section 
413(e)(1) (42 U.S.C. 613(e)(1)) is amended to read as follows:
            ``(1) In general.--The Secretary shall annually rank States 
        to which grants are made under section 403 based on the 
        following ranking factors:
                    ``(A) Absolute out-of-wedlock ratios.--The ratio 
                represented by--
                            ``(i) the total number of out-of-wedlock 
                        births in families receiving assistance under 
                        the State program under this part in the State 
                        for the most recent year for which information 
                        is available; over
                            ``(ii) the total number of births in 
                        families receiving assistance under the State 
                        program under this part in the State for the 
                        year.
                    ``(B) Net changes in the out-of-wedlock ratio.--The 
                difference between the ratio described in subparagraph 
                (A) with respect to a State for the most recent year 
                for which such information is available and the ratio 
                with respect to the State for the immediately preceding 
                year.''.
    (c) Funding of Prior Authorized Demonstrations.--Section 
413(h)(1)(D) (42 U.S.C. 613(h)(1)(D)) is amended by striking 
``September 30, 1995'' and inserting ``August 22, 1996''.
    (d) Child Poverty Reports.--
            (1) Delayed due date for initial report.--Section 413(i)(1) 
        (42 U.S.C. 613(i)(1)) is amended by striking ``90 days after 
        the date of the enactment of this part'' and inserting 
        ``November 30, 1997''.
            (2) Modification of factors to be used in establishing 
        methodology for use in determining child poverty rates.--
        Section 413(i)(5) (42 U.S.C. 613(i)(5)) is amended by striking 
        ``the county-by-county'' and inserting ``, to the extent 
        available, county-by-county''.

SEC. 5911. REPORT ON DATA PROCESSING.

    Section 106(a)(1) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 
2164) is amended by striking ``(whether in effect before or after 
October 1, 1995)''.

SEC. 5912. STUDY ON ALTERNATIVE OUTCOMES MEASURES.

    Section 107(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2164) is 
amended by striking ``409(a)(7)(C)'' and inserting ``408(a)(7)(C)''.

SEC. 5913. LIMITATION ON PAYMENTS TO THE TERRITORIES.

    (a) Certain Payments To Be Disregarded in Determining Limitation.--
Section 1108(a) (42 U.S.C. 1308) is amended to read as follows:
    ``(a) Limitation on Total Payments to Each Territory.--
            ``(1) In general.--Notwithstanding any other provision of 
        this Act (except for paragraph (2) of this subsection), the 
        total amount certified by the Secretary of Health and Human 
        Services under titles I, X, XIV, and XVI, under parts A and E 
        of title IV, and under subsection (b) of this section, for 
        payment to any territory for a fiscal year shall not exceed the 
        ceiling amount for the territory for the fiscal year.
            ``(2) Certain payments disregarded.--Paragraph (1) of this 
        subsection shall be applied without regard to any payment made 
        under section 403(a)(2), 403(a)(4), 406, or 413(f).''.
    (b) Certain Child Care and Social Services Expenditures by 
Territories Treated as IV-A Expenditures for Purposes of Matching 
Grant.--Section 1108(b)(1)(A) (42 U.S.C. 1308(b)(1)(A)) is amended by 
inserting ``, including any amount paid to the State under part A of 
title IV that is transferred in accordance with section 404(d) and 
expended under the program to which transferred'' before the semicolon.
    (c) Elimination of Duplicative Maintenance of Effort Requirement.--
Section 1108 (42 U.S.C. 1308) is amended by striking subsection (e).

SEC. 5914. CONFORMING AMENDMENTS TO THE SOCIAL SECURITY ACT.

    (a) Amendments to Part D of Title IV.--
            (1) Corrections to determination of paternity establishment 
        percentages.--Section 452 (42 U.S.C. 652) is amended--
                    (A) in subsection (d)(3)(A), by striking all that 
                follows ``for purposes of'' and inserting ``section 
                409(a)(8), to achieve the paternity establishment 
                percentages (as defined under section 452(g)(2)) and 
                other performance measures that may be established by 
                the Secretary, and to submit data under section 
                454(15)(B) that is complete and reliable, and to 
                substantially comply with the requirements of this 
                part; and''; and
                    (B) in subsection (g)(1), by striking ``section 
                403(h)'' and inserting ``section 409(a)(8)''.
            (2) Elimination of obsolete language.--Section 108(c)(8)(C) 
        of the Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2165) 
        is amended by inserting ``and all that follows through `the 
        best interests of such child to do so''' before ``and 
        inserting''.
            (3) Insertion of language inadvertently omitted.--Section 
        108(c)(13) of the Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2166) 
        is amended by inserting ``and inserting `pursuant to section 
        408(a)(3)''' before the period.
            (4) Elimination of obsolete cross reference.--Section 
        464(a)(1) (42 U.S.C. 664(a)(1)) is amended by striking 
        ``section 402(a)(26)'' and inserting ``section 408(a)(3)''.
    (b) Amendments to Part E of Title IV.--Each of the following is 
amended by striking ``June 1, 1995'' each place such term appears and 
inserting ``July 16, 1996'':
            (1) Section 472(a) (42 U.S.C. 672(a)).
            (2) Section 472(h) (42 U.S.C. 672(h)).
            (3) Section 473(a)(2) (42 U.S.C. 673(a)(2)).
            (4) Section 473(b) (42 U.S.C. 673(b)).

SEC. 5915. OTHER CONFORMING AMENDMENTS.

    (a) Elimination of Amendments Included Inadvertently.--Section 
110(l) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2173) is 
amended--
            (1) by striking paragraphs (1), (4), (5), and (7);
            (2) by redesignating paragraphs (2), (3), (6), and (8) as 
        paragraphs (1), (2), (3), and (4), respectively; and
            (3) by adding ``and'' at the end of paragraph (3), as so 
        redesignated.
    (b) Correction of Citation.--Section 109(f) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Public 
Law 104-193; 110 Stat. 2177) is amended by striking ``93-186'' and 
inserting ``93-86''.
    (c) Correction of Internal Cross Reference.--Section 103(a)(1) of 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (Public Law 104-193; 110 Stat. 2112) is amended by striking 
``603(b)(2)'' and inserting ``603(b)''.
    (d) Correction of References.--Section 416 (42 U.S.C. 616) is 
amended by striking ``amendment made by section 2103 of the Personal 
Responsibility and Work Opportunity'' and inserting ``amendments made 
by section 103 of the Personal Responsibility and Work Opportunity 
Reconciliation''.

SEC. 5916. MODIFICATIONS TO THE JOB OPPORTUNITIES FOR CERTAIN LOW-
              INCOME INDIVIDUALS PROGRAM.

    Section 112(5) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2177) is 
amended in each of subparagraphs (A) and (B) by inserting ``under'' 
after ``funded''.

SEC. 5917. DENIAL OF ASSISTANCE AND BENEFITS FOR DRUG-RELATED 
              CONVICTIONS.

    (a) Extension of Certain Requirements Coordinated With Delayed 
Effective Date for Successor Provisions.--Section 115(d)(2) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(Public Law 104-193; 110 Stat. 2181) is amended by striking 
``convictions'' and inserting ``a conviction if the conviction is for 
conduct''.
    (b) Immediate Effectiveness of Provisions Relating to Research, 
Evaluations, and National Studies.--Section 116(a) of such Act (Public 
Law 104-193; 110 Stat. 2181) is amended by adding at the end the 
following:
            ``(6) Research, evaluations, and national studies.--Section 
        413 of the Social Security Act, as added by the amendment made 
        by section 103(a) of this Act, shall take effect on the date of 
        the enactment of this Act.''.

SEC. 5918. TRANSITION RULE.

    Section 116 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2181) is 
amended--
            (1) in subsection (a)(2), by inserting ``(but subject to 
        subsection (b)(1)(A)(ii))'' after ``this section''; and
            (2) in subsection (b)(1)(A)(ii), by striking ``June 30, 
        1997'' and inserting ``the later of June 30, 1997, or the day 
        before the date described in subsection (a)(2)(B) of this 
        section''.

SEC. 5919. EFFECTIVE DATES.

    (a) Amendments to Part A of Title IV of the Social Security Act.--
The amendments made by this chapter to a provision of part A of title 
IV of the Social Security Act shall take effect as if the amendments 
had been included in section 103(a) of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 at the time such section 
became law.
    (b) Amendments to Parts D and E of Title IV of the Social Security 
Act.--The amendments made by section 5914 of this Act shall take effect 
as if the amendments had been included in section 108 of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 at the 
time such section 108 became law.
    (c) Amendments to Other Amendatory Provisions.--The amendments made 
by section 5915(a) of this Act shall take effect as if the amendments 
had been included in section 110 of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 at the time such section 
110 became law.
    (d) Amendments to Freestanding Provisions of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996.--The 
amendments made by this chapter to a provision of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 that, as 
of July 1, 1997, will not have become part of another statute shall 
take effect as if the amendments had been included in the provision at 
the time the provision became law.

                CHAPTER 2--SUPPLEMENTAL SECURITY INCOME

SEC. 5921. CONFORMING AND TECHNICAL AMENDMENTS RELATING TO ELIGIBILITY 
              RESTRICTIONS.

    (a) Denial of SSI Benefits for Fugitive Felons and Probation and 
Parole Violators.--Section 1611(e)(6) (42 U.S.C. 1382(e)(6)) is amended 
by inserting ``and section 1106(c) of this Act'' after ``of 1986''.
    (b) Treatment of Prisoners.--Section 1611(e)(1)(I)(i)(II) (42 
U.S.C. 1382(e)(1)(I)(i)(II)) is amended by striking ``inmate of the 
institution'' and all that follows through ``this subparagraph'' and 
inserting ``individual who receives in the month preceding the first 
month throughout which such individual is an inmate of the jail, 
prison, penal institution, or correctional facility that furnishes 
information respecting such individual pursuant to subclause (I), or is 
confined in the institution (that so furnishes such information) as 
described in section 202(x)(1)(A)(ii), a benefit under this title for 
such preceding month, and who is determined by the Commissioner to be 
ineligible for benefits under this title by reason of confinement based 
on the information provided by such institution''.
    (c) Correction of Reference.--Section 1611(e)(1)(I)(i)(I) (42 
U.S.C. 1382(e)(1)(I)(i)(I)) is amended by striking ``paragraph (1)'' 
and inserting ``this paragraph''.

SEC. 5922. CONFORMING AND TECHNICAL AMENDMENTS RELATING TO BENEFITS FOR 
              DISABLED CHILDREN.

    (a) Eligibility Redeterminations for Current Recipients.--Section 
211(d)(2)(A) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (42 U.S.C. 1382c note) is amended by 
striking ``1 year'' and inserting ``18 months''.
    (b) Eligibility Redeterminations and Continuing Disability 
Reviews.--
            (1) Disability eligibility redeterminations required for 
        ssi recipients who attain 18 years of age.--Section 
        1614(a)(3)(H)(iii) (42 U.S.C. 1382c(a)(3)(H)(iii)) is amended 
        by striking subclauses (I) and (II) and all that follows and 
        inserting the following:
            ``(I) by applying the criteria used in determining initial 
        eligibility for individuals who are age 18 or older; and
            ``(II) either during the 1-year period beginning on the 
        individual's 18th birthday or, in lieu of a continuing 
        disability review, whenever the Commissioner determines that an 
        individual's case is subject to a redetermination under this 
        clause.
With respect to any redetermination under this clause, paragraph (4) 
shall not apply.''.
            (2) Continuing disability review required for low birth 
        weight babies.--Section 1614(a)(3)(H)(iv) (42 U.S.C. 
        1382c(a)(3)(H)(iv)) is amended--
                    (A) in subclause (I), by striking ``Not'' and 
                inserting ``Except as provided in subclause (VI), 
                not''; and
                    (B) by adding at the end the following:
    ``(VI) Subclause (I) shall not apply in the case of an individual 
described in that subclause who, at the time of the individual's 
initial disability determination, the Commissioner determines has an 
impairment that is not expected to improve within 12 months after the 
birth of that individual, and who the Commissioner schedules for a 
continuing disability review at a date that is after the individual 
attains 1 year of age.''.
    (c) Additional Accountability Requirements.--Section 1631(a)(2)(F) 
(42 U.S.C. 1383(a)(2)(F)) is amended--
            (1) in clause (ii)(III)(bb), by striking ``the total 
        amount'' and all that follows through ``1613(c)'' and inserting 
        ``in any case in which the individual knowingly misapplies 
        benefits from such an account, the Commissioner shall reduce 
        future benefits payable to such individual (or to such 
        individual and his spouse) by an amount equal to the total 
        amount of such benefits so misapplied''; and
            (2) by striking clause (iii) and inserting the following:
    ``(iii) The representative payee may deposit into the account 
established under clause (i) any other funds representing past due 
benefits under this title to the eligible individual, provided that the 
amount of such past due benefits is equal to or exceeds the maximum 
monthly benefit payable under this title to an eligible individual 
(including State supplementary payments made by the Commissioner 
pursuant to an agreement under section 1616 or section 212(b) of Public 
Law 93-66).''.
    (d) Reduction in Cash Benefits Payable to Institutionalized 
Individuals Whose Medical Costs Are Covered by Private Insurance.--
Section 1611(e) (42 U.S.C. 1382(e)) is amended--
            (1) in paragraph (1)(B)--
                    (A) in the matter preceding clause (i), by striking 
                ``hospital, extended care facility, nursing home, or 
                intermediate care facility'' and inserting ``medical 
                treatment facility'';
                    (B) in clause (ii)--
                            (i) in the matter preceding subclause (I), 
                        by striking ``hospital, home or''; and
                            (ii) in subclause (I), by striking 
                        ``hospital, home, or'';
                    (C) in clause (iii), by striking ``hospital, home, 
                or''; and
                    (D) in the matter following clause (iii), by 
                striking ``hospital, extended care facility, nursing 
                home, or intermediate care facility which is a `medical 
                institution or nursing facility' within the meaning of 
                section 1917(c)'' and inserting ``medical treatment 
                facility that provides services described in section 
                1917(c)(1)(C)'';
            (2) in paragraph (1)(E)--
                    (A) in clause (i)(II), by striking ``hospital, 
                extended care facility, nursing home, or intermediate 
                care facility'' and inserting ``medical treatment 
                facility''; and
                    (B) in clause (iii), by striking ``hospital, 
                extended care facility, nursing home, or intermediate 
                care facility'' and inserting ``medical treatment 
                facility'';
            (3) in paragraph (1)(G), in the matter preceding clause 
        (i)--
                    (A) by striking ``or which is a hospital, extended 
                care facility, nursing home, or intermediate care'' and 
                inserting ``or is in a medical treatment''; and
                    (B) by inserting ``or, in the case of an individual 
                who is a child under the age of 18, under any health 
                insurance policy issued by a private provider of such 
                insurance'' after ``title XIX''; and
            (4) in paragraph (3)--
                    (A) by striking ``same hospital, home, or 
                facility'' and inserting ``same medical treatment 
                facility''; and
                    (B) by striking ``same such hospital, home, or 
                facility'' and inserting ``same such facility''.
    (e) Correction of U.S.C. Citation.--Section 211(c) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Public 
Law 104-193; 110 Stat. 2189) is amended by striking ``1382(a)(4)'' and 
inserting ``1382c(a)(4)''.

SEC. 5923. ADDITIONAL TECHNICAL AMENDMENTS TO TITLE XVI.

    Section 1615(d) (42 U.S.C. 1382d(d)) is amended--
            (1) in the first sentence, by inserting a comma after 
        ``subsection (a)(1)''; and
            (2) in the last sentence, by striking ``him'' and inserting 
        ``the Commissioner''.

SEC. 5924. ADDITIONAL TECHNICAL AMENDMENTS RELATING TO TITLE XVI.

    Section 1110(a)(3) (42 U.S.C. 1310(a)(3)) is amended--
            (1) by inserting ``(or the Commissioner, with respect to 
        any jointly financed cooperative agreement or grant concerning 
        title XVI)'' after ``Secretary'' the first place it appears; 
        and
            (2) by inserting ``(or the Commissioner, as applicable)'' 
        after ``Secretary'' the second place it appears.

SEC. 5925. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this part shall take effect as if included in the 
enactment of title II of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 
2185).
    (b) Exception.--The amendments made by section 5925 shall take 
effect as if included in the enactment of the Social Security 
Independence and Program Improvements Act of 1994 (Public Law 103-296; 
108 Stat. 1464).

                        CHAPTER 3--CHILD SUPPORT

SEC. 5935. STATE OBLIGATION TO PROVIDE CHILD SUPPORT ENFORCEMENT 
              SERVICES.

    (a) Individuals Subject to Fee For Child Support Enforcement 
Services.--Section 454(6)(B) (42 U.S.C. 654(6)(B)) is amended by 
striking ``individuals not receiving assistance under any State program 
funded under part A, which'' and inserting ``an individual, other than 
an individual receiving assistance under a State program funded under 
part A or E, or under a State plan approved under title XIX, or who is 
required by the State to cooperate with the State agency administering 
the program under this part pursuant to subsection (l) or (m) of 
section 6 of the Food Stamp Act of 1977, and''.
    (b) Correction of Reference.--Section 464(a)(2)(A) (42 U.S.C. 
654(a)(2)(A)) is amended in the first sentence by striking ``section 
454(6)'' and inserting ``section 454(4)(A)(ii)''.

SEC. 5936. DISTRIBUTION OF COLLECTED SUPPORT.

    (a) Continuation of Assignments.--Section 457(b) (42 U.S.C. 657(b)) 
is amended--
            (1) by striking ``which were assigned'' and inserting 
        ``assigned''; and
            (2) by striking ``and which were in effect'' and all that 
        follows and inserting ``and in effect on September 30, 1997 (or 
        such earlier date, on or after August 22, 1996, as the State 
        may choose), shall remain assigned after such date.''.
    (b) State Option for Applicability.--
            (1) In general.--Section 457(a) (42 U.S.C. 657(a)) is 
        amended by adding at the end the following:
            ``(6) State option for applicability.--Notwithstanding any 
        other provision of this subsection, a State may elect to apply 
        the rules described in clauses (i)(II), (ii)(II), and (v) of 
        paragraph (2)(B) to support arrearages collected on and after 
        October 1, 1998, and, if the State makes such an election, 
        shall apply the provisions of this section, as in effect and 
        applied on the day before the date of enactment of section 302 
        of the Personal Responsibility and Work Opportunity Act of 1996 
        (Public Law 104-193, 110 Stat. 2200), other than subsection 
        (b)(1) (as so in effect), to amounts collected before October 
        1, 1998.''.
            (2) Conforming amendments.--Section 408(a)(3)(A) (42 U.S.C. 
        608(a)(3)(A)) is amended--
                    (A) in clause (i), by inserting ``(I)'' after 
                ``(i)'';
                    (B) in clause (ii)--
                            (i) by striking ``(ii)'' and inserting 
                        ``(II)''; and
                            (ii) by striking the period and inserting 
                        ``; or''; and
                    (C) by adding at the end, the following:
                            ``(ii) if the State elects to distribute 
                        collections under section 457(a)(6), the date 
                        the family ceases to receive assistance under 
                        the program, if the assignment is executed on 
                        or after October 1, 1998.''.
    (c) Distribution of Collections With Respect to Families Receiving 
Assistance.--Section 457(a)(1) (42 U.S.C. 657(a)(1)) is amended by 
adding at the end the following flush language:
        ``In no event shall the total of the amounts paid to the 
        Federal Government and retained by the State exceed the total 
        of the amounts that have been paid to the family as assistance 
        by the State.''.
    (d) Families Under Certain Agreements.--Section 457(a)(4) (42 
U.S.C. 657(a)(4)) is amended to read as follows:
            ``(4) Families under certain agreements.--In the case of an 
        amount collected for a family in accordance with a cooperative 
        agreement under section 454(33), distribute the amount so 
        collected pursuant to the terms of the agreement.''.
    (e) Study and Report.--Section 457(a)(5) (42 U.S.C. 657(a)(5)) is 
amended by striking ``1998'' and inserting ``1999''.
    (f) Corrections of References.--Section 457(a)(2)(B) (42 U.S.C. 
657(a)(2)(B)) is amended--
            (1) in clauses (i)(I) and (ii)(I)--
                    (A) by striking ``(other than subsection (b)(1))'' 
                each place it appears; and
                    (B) by inserting ``(other than subsection (b)(1) 
                (as so in effect))'' after ``1996'' each place it 
                appears; and
            (2) in clause (ii)(II), by striking ``paragraph (4)'' and 
        inserting ``paragraph (5)''.
    (g) Correction of Territorial Match.--Section 457(c)(3)(A) (42 
U.S.C. 657(c)(3)(A)) is amended by striking ``the Federal medical 
assistance percentage (as defined in section 1118)'' and inserting ``75 
percent''.
    (h) Definitions.--
            (1) Federal share.--Section 457(c)(2) (42 U.S.C. 657(c)(2)) 
        is amended by striking ``collected'' the second place it 
        appears and inserting ``distributed''.
            (2) Federal medical assistance percentage.--Section 
        457(c)(3)(B) (42 U.S.C. 657(c)(3)(B)) is amended by striking 
        ``as in effect on September 30, 1996'' and inserting ``as such 
        section was in effect on September 30, 1995''.
    (i) Conforming Amendments.--
            (1) Section 464(a)(2)(A) (42 U.S.C. 664(a)(2)(A)) is 
        amended, in the penultimate sentence, by inserting ``in 
        accordance with section 457'' after ``owed''.
            (2) Section 466(a)(3)(B) (42 U.S.C. 666(a)(3)(B)) is 
        amended by striking ``457(b)(4) or (d)(3)'' and inserting 
        ``457''.

SEC. 5937. CIVIL PENALTIES RELATING TO STATE DIRECTORY OF NEW HIRES.

    Section 453A (42 U.S.C. 653a) is amended--
            (1) in subsection (d)--
                    (A) in the matter preceding paragraph (1), by 
                striking ``shall be less than'' and inserting ``shall 
                not exceed''; and
                    (B) in paragraph (1), by striking ``$25'' and 
                inserting ``$25 per failure to meet the requirements of 
                this section with respect to a newly hired employee''; 
                and
            (2) in subsection (g)(2)(B), by striking ``extracts'' and 
        all that follows through ``Labor'' and inserting 
        ``information''.

SEC. 5938. FEDERAL PARENT LOCATOR SERVICE.

    (a) In General.--Section 453 (42 U.S.C. 653) is amended--
            (1) in subsection (a)--
                    (A) by inserting ``(1)'' after ``(a)''; and
                    (B) by striking ``to obtain'' and all that follows 
                through the period and inserting ``for the purposes 
                specified in paragraphs (2) and (3).
    ``(2) For the purpose of establishing parentage, establishing, 
setting the amount of, modifying, or enforcing child support 
obligations, the Federal Parent Locator Service shall obtain and 
transmit to any authorized person specified in subsection (c)--
            ``(A) information on, or facilitating the discovery of, the 
        location of any individual--
                    ``(i) who is under an obligation to pay child 
                support;
                    ``(ii) against whom such an obligation is sought; 
                or
                    ``(iii) to whom such an obligation is owed,
        including the individual's social security number (or numbers), 
        most recent address, and the name, address, and employer 
        identification number of the individual's employer;
            ``(B) information on the individual's wages (or other 
        income) from, and benefits of, employment (including rights to 
        or enrollment in group health care coverage); and
            ``(C) information on the type, status, location, and amount 
        of any assets of, or debts owed by or to, any such individual.
    ``(3) For the purpose of enforcing any Federal or State law with 
respect to the unlawful taking or restraint of a child, or making or 
enforcing a child custody or visitation determination, as defined in 
section 463(d)(1), the Federal Parent Locator Service shall be used to 
obtain and transmit the information specified in section 463(c) to the 
authorized persons specified in section 463(d)(2).'';
            (2) by striking subsection (b) and inserting the following:
    ``(b)(1) Upon request, filed in accordance with subsection (d), of 
any authorized person, as defined in subsection (c) for the information 
described in subsection (a)(2), or of any authorized person, as defined 
in section 463(d)(2) for the information described in section 463(c), 
the Secretary shall, notwithstanding any other provision of law, 
provide through the Federal Parent Locator Service such information to 
such person, if such information--
            ``(A) is contained in any files or records maintained by 
        the Secretary or by the Department of Health and Human 
        Services; or
            ``(B) is not contained in such files or records, but can be 
        obtained by the Secretary, under the authority conferred by 
        subsection (e), from any other department, agency, or 
        instrumentality of the United States or of any State,
and is not prohibited from disclosure under paragraph (2).
    ``(2) No information shall be disclosed to any person if the 
disclosure of such information would contravene the national policy or 
security interests of the United States or the confidentiality of 
census data. The Secretary shall give priority to requests made by any 
authorized person described in subsection (c)(1). No information shall 
be disclosed to any person if the State has notified the Secretary that 
the State has reasonable evidence of domestic violence or child abuse 
and the disclosure of such information could be harmful to the 
custodial parent or the child of such parent, provided that--
            ``(A) in response to a request from an authorized person 
        (as defined in subsection (c) and section 463(d)(2)), the 
        Secretary shall advise the authorized person that the Secretary 
        has been notified that there is reasonable evidence of domestic 
        violence or child abuse and that information can only be 
        disclosed to a court or an agent of a court pursuant to 
        subparagraph (B); and
            ``(B) information may be disclosed to a court or an agent 
        of a court described in subsection (c)(2) or section 
        463(d)(2)(B), if--
                    ``(i) upon receipt of information from the 
                Secretary, the court determines whether disclosure to 
                any other person of that information could be harmful 
                to the parent or the child; and
                    ``(ii) if the court determines that disclosure of 
                such information to any other person could be harmful, 
                the court and its agents shall not make any such 
                disclosure.
    ``(3) Information received or transmitted pursuant to this section 
shall be subject to the safeguard provisions contained in section 
454(26).''; and
            (3) in subsection (c)--
                    (A) in paragraph (1), by striking ``or to seek to 
                enforce orders providing child custody or visitation 
                rights''; and
                    (B) in paragraph (2)--
                            (i) by inserting ``or to serve as the 
                        initiating court in an action to seek an 
                        order'' after ``issue an order''; and
                            (ii) by striking ``or to issue an order 
                        against a resident parent for child custody or 
                        visitation rights''.
    (b) Use of the Federal Parent Locator Service.--Section 463 (42 
U.S.C. 663) is amended--
            (1) in subsection (a)--
                    (A) in the matter preceding paragraph (1)--
                            (i) by striking ``any State which is able 
                        and willing to do so,'' and inserting ``every 
                        State''; and
                            (ii) by striking ``such State'' and 
                        inserting ``each State''; and
                    (B) in paragraph (2), by inserting ``or 
                visitation'' after ``custody'';
            (2) in subsection (b)(2), by inserting ``or visitation'' 
        after ``custody'';
            (3) in subsection (d)--
                    (A) in paragraph (1), by inserting ``or 
                visitation'' after ``custody''; and
                    (B) in subparagraphs (A) and (B) of paragraph (2), 
                by inserting ``or visitation'' after ``custody'' each 
                place it appears;
            (4) in subsection (f)(2), by inserting ``or visitation'' 
        after ``custody''; and
            (5) by striking ``noncustodial'' each place it appears.

SEC. 5939. ACCESS TO REGISTRY DATA FOR RESEARCH PURPOSES.

    (a) In General.--Section 453(j)(5) (42 U.S.C. 653(j)(5)) is amended 
by inserting ``data in each component of the Federal Parent Locator 
Service maintained under this section and to'' before ``information''.
    (b) Conforming Amendments.--Section 453 (42 U.S.C. 653) is 
amended--
            (1) in subsection (j)(3)(B), by striking ``registries'' and 
        inserting ``components''; and
            (2) in subsection (k)(2), by striking ``subsection (j)(3)'' 
        and inserting ``section 453A(g)(2)''.

SEC. 5940. COLLECTION AND USE OF SOCIAL SECURITY NUMBERS FOR USE IN 
              CHILD SUPPORT ENFORCEMENT.

    Section 466(a)(13) (42 U.S.C. 666(a)(13)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``commercial''; and
                    (B) by inserting ``recreational license,'' after 
                ``occupational license,''; and
            (2) in the matter following subparagraph (C), by inserting 
        ``to be used on the face of the document while the social 
        security number is kept on file at the agency'' after ``other 
        than the social security number''.

SEC. 5941. ADOPTION OF UNIFORM STATE LAWS.

    Section 466(f) (42 U.S.C. 666(f)) is amended by striking 
``together'' and all that follows and inserting ``and as in effect on 
August 22, 1996, including any amendments officially adopted as of such 
date by the National Conference of Commissioners on Uniform State 
Laws.''.

SEC. 5942. STATE LAWS PROVIDING EXPEDITED PROCEDURES.

    Section 466(c) (42 U.S.C. 666(c)) is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (E), by inserting ``, part E,'' 
                after ``part A''; and
                    (B) in subparagraph (G), by inserting ``any current 
                support obligation and'' after ``to satisfy''; and
            (2) in paragraph (2)(A)--
                    (A) in clause (i), by striking ``the tribunal 
                and''; and
                    (B) in clause (ii)--
                            (i) by striking ``tribunal may'' and 
                        inserting ``court or administrative agency of 
                        competent jurisdiction shall''; and
                            (ii) by striking ``filed with the 
                        tribunal'' and inserting ``filed with the State 
                        case registry''.

SEC. 5943. VOLUNTARY PATERNITY ACKNOWLEDGEMENT.

    Section 466(a)(5)(C)(i) (42 U.S.C. 666(a)(5)(C)(i)) is amended by 
inserting ``, or through the use of video or audio equipment,'' after 
``orally''.

SEC. 5944. CALCULATION OF PATERNITY ESTABLISHMENT PERCENTAGE.

    Section 452(g)(2) (42 U.S.C. 652(g)(2)) is amended, in the matter 
following subparagraph (C), by striking ``subparagraph (A)'' and 
inserting ``subparagraphs (A) and (B)''.

SEC. 5945. MEANS AVAILABLE FOR PROVISION OF TECHNICAL ASSISTANCE AND 
              OPERATION OF FEDERAL PARENT LOCATOR SERVICE.

    (a) Technical Assistance.--Section 452(j) (42 U.S.C. 652(j)), is 
amended, in the matter preceding paragraph (1), by striking ``to cover 
costs incurred by the Secretary'' and inserting ``which shall be 
available for use by the Secretary, either directly or through grants, 
contracts, or interagency agreements,''.
    (b) Operation of Federal Parent Locator Service.--
            (1) Means available.--Section 453(o) (42 U.S.C. 653(o)) is 
        amended--
                    (A) in the heading, by striking ``Recovery of 
                Costs'' and inserting ``Use of Set-Aside Funds''; and
                    (B) by striking ``to cover costs incurred by the 
                Secretary'' and inserting ``which shall be available 
                for use by the Secretary, either directly or through 
                grants, contracts, or interagency agreements,''.
            (2) Availability of funds.--Section 453(o) (42 U.S.C. 
        653(o)) is amended by adding at the end the following: 
        ``Amounts appropriated under this subsection for each of fiscal 
        years 1997 through 2001 shall remain available until 
        expended.''.

SEC. 5946. AUTHORITY TO COLLECT SUPPORT FROM FEDERAL EMPLOYEES.

    (a) Response to Notice or Process.--Section 459(c)(2)(C) (42 U.S.C. 
659(c)(2)(C)) is amended by striking ``respond to the order, process, 
or interrogatory'' and inserting ``withhold available sums in response 
to the order or process, or answer the interrogatory''.
    (b) Moneys Subject to Process.--Section 459(h)(1) (42 U.S.C. 
659(h)(1)) is amended--
            (1) in the matter preceding subparagraph (A) and in 
        subparagraph (A)(i), by striking ``paid or'' each place it 
        appears;
            (2) in subparagraph (A)--
                    (A) in clause (ii)(V), by striking ``and'' at the 
                end;
                    (B) in clause (iii)--
                            (i) by inserting ``or payable'' after 
                        ``paid''; and
                            (ii) by striking ``but'' and inserting ``; 
                        and''; and
                    (C) by inserting after clause (iii), the following:
                            ``(iv) benefits paid or payable under the 
                        Railroad Retirement System, but''; and
            (3) in subparagraph (B)--
                    (A) in clause (i), by striking ``or'' at the end;
                    (B) in clause (ii), by striking the period and 
                inserting ``; or''; and
                    (C) by adding at the end the following:
                            ``(iii) of periodic benefits under title 
                        38, United States Code, except as provided in 
                        subparagraph (A)(ii)(V).''.
    (c) Conforming Amendment.--Section 454(19)(B)(ii) (42 U.S.C. 
654(19)(B)(ii)) is amended by striking ``section 462(e)'' and inserting 
``section 459(i)(5)''.

SEC. 5947. DEFINITION OF SUPPORT ORDER.

    Section 453(p) (42 U.S.C. 653(p)), is amended by striking ``a child 
and'' and inserting ``of''.

SEC. 5948. STATE LAW AUTHORIZING SUSPENSION OF LICENSES.

    Section 466(a)(16) (42 U.S.C. 666(a)(16)) is amended by inserting 
``and sporting'' after ``recreational''.

SEC. 5949. INTERNATIONAL SUPPORT ENFORCEMENT.

    Section 454(32)(A) (42 U.S.C. 654(32)(A)) is amended by striking 
``section 459A(d)(2)'' and inserting ``section 459A(d)''.

SEC. 5950. CHILD SUPPORT ENFORCEMENT FOR INDIAN TRIBES.

    (a) Cooperative Agreements by Indian Tribes and States for Child 
Support Enforcement.--Section 454(33) (42 U.S.C. 654(33)) is amended--
            (1) by striking ``and enforce support orders, and'' and 
        inserting ``or enforce support orders, or'';
            (2) by striking ``guidelines established by such tribe or 
        organization'' and inserting ``guidelines established or 
        adopted by such tribe or organization'';
            (3) by striking ``funding collected'' and inserting 
        ``collections''; and
            (4) by striking ``such funding'' and inserting ``such 
        collections''.
    (b) Correction of Subsection Designation.--Section 455 (42 U.S.C. 
655), is amended by redesignating subsection (b), as added by section 
375(b) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193, 110 Stat. 2256), as 
subsection (f).
    (c) Direct Grants to Tribes.--Section 455(f) (42 U.S.C. 655(f)), as 
redesignated by subsection (b), is amended to read as follows:
    ``(f) The Secretary may make direct payments under this part to an 
Indian tribe or tribal organization that demonstrates to the 
satisfaction of the Secretary that it has the capacity to operate a 
child support enforcement program meeting the objectives of this part, 
including establishment of paternity, establishment, modification, and 
enforcement of support orders, and location of absent parents. The 
Secretary shall promulgate regulations establishing the requirements 
which must be met by an Indian tribe or tribal organization to be 
eligible for a grant under this subsection.''.

SEC. 5951. CONTINUATION OF RULES FOR DISTRIBUTION OF SUPPORT IN THE 
              CASE OF A TITLE IV-E CHILD.

    Section 457 (42 U.S.C. 657) is amended--
            (1) in subsection (a), in the matter preceding paragraph 
        (1), by striking ``subsection (e)'' and inserting ``subsections 
        (e) and (f)''; and
            (2) by adding at the end, the following:
    ``(f) Notwithstanding the preceding provisions of this section, 
amounts collected by a State as child support for months in any period 
on behalf of a child for whom a public agency is making foster care 
maintenance payments under part E--
            ``(1) shall be retained by the State to the extent 
        necessary to reimburse it for the foster care maintenance 
        payments made with respect to the child during such period 
        (with appropriate reimbursement of the Federal Government to 
        the extent of its participation in the financing);
            ``(2) shall be paid to the public agency responsible for 
        supervising the placement of the child to the extent that the 
        amounts collected exceed the foster care maintenance payments 
        made with respect to the child during such period but not the 
        amounts required by a court or administrative order to be paid 
        as support on behalf of the child during such period; and the 
        responsible agency may use the payments in the manner it 
        determines will serve the best interests of the child, 
        including setting such payments aside for the child's future 
        needs or making all or a part thereof available to the person 
        responsible for meeting the child's day-to-day needs; and
            ``(3) shall be retained by the State, if any portion of the 
        amounts collected remains after making the payments required 
        under paragraphs (1) and (2), to the extent that such portion 
        is necessary to reimburse the State (with appropriate 
        reimbursement to the Federal Government to the extent of its 
        participation in the financing) for any past foster care 
        maintenance payments (or payments of assistance under the State 
        program funded under part A) which were made with respect to 
        the child (and with respect to which past collections have not 
        previously been retained);
and any balance shall be paid to the State agency responsible for 
supervising the placement of the child, for use by such agency in 
accordance with paragraph (2).''.

SEC. 5952. GOOD CAUSE IN FOSTER CARE AND FOOD STAMP CASES.

    (a) State Plan.--Section 454(4)(A)(i) (42 U.S.C. 654(4)(A)(i)) is 
amended--
            (1) by striking ``or'' before ``(III)''; and
            (2) by inserting ``or (IV) cooperation is required pursuant 
        to section 6(l)(1) of the Food Stamp Act of 1977 (7 U.S.C. 
        2015(l)(1)),'' after ``title XIX,''.
    (b) Conforming Amendments.--Section 454(29) (42 U.S.C. 654(29)) is 
amended--
            (1) in subparagraph (A)--
                    (A) in the matter preceding clause (i), by striking 
                ``part A of this title or the State program under title 
                XIX'' and inserting ``part A, the State program under 
                part E, the State program under title XIX, or the food 
                stamp program, as defined under section 3(h) of the 
                Food Stamp Act of 1977 (7 U.S.C. 2012(h)),''; and
                    (B) by striking clauses (i) and (ii) and all that 
                follows through the semicolon and inserting the 
                following:
                            ``(i) in the case of the State program 
                        funded under part A, the State program under 
                        part E, or the State program under title XIX 
                        shall, at the option of the State, be defined, 
                        taking into account the best interests of the 
                        child, and applied in each case, by the State 
                        agency administering such program; and
                            ``(ii) in the case of the food stamp 
                        program, as defined under section 3(h) of the 
                        Food Stamp Act of 1977 (7 U.S.C. 2012(h)), 
                        shall be defined and applied in each case under 
                        that program in accordance with section 6(l)(2) 
                        of the Food Stamp Act of 1977 (7 U.S.C. 
                        2015(l)(2));'';
            (2) in subparagraph (D), by striking ``or the State program 
        under title XIX'' and inserting ``the State program under part 
        E, the State program under title XIX, or the food stamp 
        program, as defined under section 3(h) of the Food Stamp Act of 
        1977 (7 U.S.C. 2012(h))''; and
            (3) in subparagraph (E), by striking ``individual,'' and 
        all that follows through ``XIX,'' and inserting ``individual 
        and the State agency administering the State program funded 
        under part A, the State agency administering the State program 
        under part E, the State agency administering the State program 
        under title XIX, or the State agency administering the food 
        stamp program, as defined under section 3(h) of the Food Stamp 
        Act of 1977 (7 U.S.C. 2012(h)),''.

SEC. 5953. DATE OF COLLECTION OF SUPPORT.

    Section 454B(c)(1) (42 U.S.C. 654B(c)(1)) is amended by adding at 
the end the following: ``The date of collection for amounts collected 
and distributed under this part is the date of receipt by the State 
disbursement unit, except that if current support is withheld by an 
employer in the month when due and is received by the State 
disbursement unit in a month other than the month when due, the date of 
withholding may be deemed to be the date of collection.''.

SEC. 5954. ADMINISTRATIVE ENFORCEMENT IN INTERSTATE CASES.

    (a) Procedures.--Section 466(a)(14) (42 U.S.C. 666(a)(14)) is 
amended to read as follows:
            ``(14) High-volume, automated administrative enforcement in 
        interstate cases.--
                    ``(A) In general.--Procedures under which--
                            ``(i) the State shall use high-volume 
                        automated administrative enforcement, to the 
                        same extent as used for intrastate cases, in 
                        response to a request made by another State to 
                        enforce support orders, and shall promptly 
                        report the results of such enforcement 
                        procedure to the requesting State;
                            ``(ii) the State may, by electronic or 
                        other means, transmit to another State a 
                        request for assistance in enforcing support 
                        orders through high-volume, automated 
                        administrative enforcement, which request--
                                    ``(I) shall include such 
                                information as will enable the State to 
                                which the request is transmitted to 
                                compare the information about the cases 
                                to the information in the data bases of 
                                the State; and
                                    ``(II) shall constitute a 
                                certification by the requesting State--
                                            ``(aa) of the amount of 
                                        support under an order the 
                                        payment of which is in arrears; 
                                        and
                                            ``(bb) that the requesting 
                                        State has complied with all 
                                        procedural due process 
                                        requirements applicable to each 
                                        case;
                            ``(iii) if the State provides assistance to 
                        another State pursuant to this paragraph with 
                        respect to a case, neither State shall consider 
                        the case to be transferred to the caseload of 
                        such other State; and
                            ``(iv) the State shall maintain records 
                        of--
                                    ``(I) the number of such requests 
                                for assistance received by the State;
                                    ``(II) the number of cases for 
                                which the State collected support in 
                                response to such a request; and
                                    ``(III) the amount of such 
                                collected support.
                    ``(B) High-volume automated administrative 
                enforcement.--In this part, the term `high-volume 
                automated administrative enforcement' means the use of 
                automatic data processing to search various State data 
                bases, including license records, employment service 
                data, and State new hire registries, to determine 
                whether information is available regarding a parent who 
                owes a child support obligation.''.
    (b) Incentive Payments.--Section 458(d) (42 U.S.C. 658(d)) is 
amended by inserting ``, including amounts collected under section 
466(a)(14),'' after ``another State''.

SEC. 5955. WORK ORDERS FOR ARREARAGES.

    Section 466(a)(15) (42 U.S.C. 666(a)(15)) is amended to read as 
follows:
            ``(15) Procedures to ensure that persons owing overdue 
        support work or have a plan for payment of such support.--
        Procedures under which the State has the authority, in any case 
        in which an individual owes overdue support with respect to a 
        child receiving assistance under a State program funded under 
        part A, to issue an order or to request that a court or an 
        administrative process established pursuant to State law issue 
        an order that requires the individual to--
                    ``(A) pay such support in accordance with a plan 
                approved by the court, or, at the option of the State, 
                a plan approved by the State agency administering the 
                State program under this part; or
                    ``(B) if the individual is subject to such a plan 
                and is not incapacitated, participate in such work 
                activities (as defined in section 407(d)) as the court, 
                or, at the option of the State, the State agency 
                administering the State program under this part, deems 
                appropriate.''.

SEC. 5956. ADDITIONAL TECHNICAL STATE PLAN AMENDMENTS.

    Section 454 (42 U.S.C. 654) is amended--
            (1) in paragraph (8)--
                    (A) in the matter preceding subparagraph (A)--
                            (i) by striking ``noncustodial''; and
                            (ii) by inserting ``, for the purpose of 
                        establishing parentage, establishing, setting 
                        the amount of, modifying, or enforcing child 
                        support obligations, or making or enforcing a 
                        child custody or visitation determination, as 
                        defined in section 463(d)(1)'' after ``provide 
                        that'';
                    (B) in subparagraph (A), by striking the comma and 
                inserting a semicolon;
                    (C) in subparagraph (B), by striking the semicolon 
                and inserting a comma; and
                    (D) by inserting after subparagraph (B), the 
                following flush language:
        ``and shall, subject to the privacy safeguards required under 
        paragraph (26), disclose only the information described in 
        sections 453 and 463 to the authorized persons specified in 
        such sections for the purposes specified in such sections;'';
            (2) in paragraph (17)--
                    (A) by striking ``in the case of a State which 
                has'' and inserting ``provide that the State will 
                have''; and
                    (B) by inserting ``and'' after ``section 453,''; 
                and
            (3) in paragraph (26)--
                    (A) in the matter preceding subparagraph (A), by 
                striking ``will'';
                    (B) in subparagraph (A)--
                            (i) by inserting ``, modify,'' after 
                        ``establish'', the second place it appears; and
                            (ii) by inserting ``, or to make or enforce 
                        a child custody determination'' after 
                        ``support'';
                    (C) in subparagraph (B)--
                            (i) by inserting ``or the child'' after ``1 
                        party'';
                            (ii) by inserting ``or the child'' after 
                        ``former party''; and
                            (iii) by striking ``and'' at the end;
                    (D) in subparagraph (C)--
                            (i) by inserting ``or the child'' after ``1 
                        party'';
                            (ii) by striking ``another party'' and 
                        inserting ``another person'';
                            (iii) by inserting ``to that person'' after 
                        ``release of the information''; and
                            (iv) by striking ``former party'' and 
                        inserting ``party or the child''; and
                    (E) by adding at the end the following:
                    ``(D) in cases in which the prohibitions under 
                subparagraphs (B) and (C) apply, the requirement to 
                notify the Secretary, for purposes of section 
                453(b)(2), that the State has reasonable evidence of 
                domestic violence or child abuse against a party or the 
                child and that the disclosure of such information could 
                be harmful to the party or the child; and
                    ``(E) procedures providing that when the Secretary 
                discloses information about a parent or child to a 
                State court or an agent of a State court described in 
                section 453(c)(2) or 463(d)(2)(B), and advises that 
                court or agent that the Secretary has been notified 
                that there is reasonable evidence of domestic violence 
                or child abuse pursuant to section 453(b)(2), the court 
                shall determine whether disclosure to any other person 
                of information received from the Secretary could be 
                harmful to the parent or child and, if the court 
                determines that disclosure to any other person could be 
                harmful, the court and its agents shall not make any 
                such disclosure;''.

SEC. 5957. FEDERAL CASE REGISTRY OF CHILD SUPPORT ORDERS.

    Section 453(h) (42 U.S.C. 653(h)) is amended--
            (1) in paragraph (1), by inserting ``and order'' after 
        ``with respect to each case''; and
            (2) in paragraph (2)--
                    (A) in the heading, by inserting ``and order'' 
                after ``Case'';
                    (B) by inserting ``or an order'' after ``with 
                respect to a case'' and
                    (C) by inserting ``or order'' after ``and the State 
                or States which have the case''.

SEC. 5958. FULL FAITH AND CREDIT FOR CHILD SUPPORT ORDERS.

    Section 1738B(f) of title 28, United States Code, is amended--
            (1) in paragraph (4), by striking ``a court may'' and all 
        that follows and inserting ``a court having jurisdiction over 
        the parties shall issue a child support order, which must be 
        recognized.''; and
            (2) in paragraph (5), by inserting ``under subsection (d)'' 
        after ``jurisdiction''.

SEC. 5959. DEVELOPMENT COSTS OF AUTOMATED SYSTEMS.

    (a) Definition of State.--Section 455(a)(3)(B) (42 U.S.C. 
655(a)(3)(B)) is amended--
            (1) in clause (i)--
                    (A) by inserting ``or system described in clause 
                (iii)'' after ``each State''; and
                    (B) by inserting ``or system'' after ``the State''; 
                and
            (2) by adding at the end the following:
    ``(iii) For purposes of clause (i), a system described in this 
clause is a system that has been approved by the Secretary to receive 
enhanced funding pursuant to the Family Support Act of 1988 (Public Law 
100-485; 102 Stat. 2343) for the purpose of developing a system that 
meets the requirements of sections 454(16) (as in effect on and after 
September 30, 1995) and 454A, including systems that have received 
funding for such purpose pursuant to a waiver under section 1115(a).''.
    (b) Temporary Limitation On Payments.--Section 344(b)(2) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(42 U.S.C. 655 note) is amended--
            (1) in subparagraph (B)--
                    (A) by inserting ``or a system described in 
                subparagraph (C)'' after ``to a State''; and
                    (B) by inserting ``or system'' after ``for the 
                State''; and
            (2) in subparagraph (C), by striking ``Act,'' and all that 
        follows and inserting ``Act, and among systems that have been 
        approved by the Secretary to receive enhanced funding pursuant 
        to the Family Support Act of 1988 (Public Law 100-485; 102 
        Stat. 2343) for the purpose of developing a system that meets 
        the requirements of sections 454(16) (as in effect on and after 
        September 30, 1995) and 454A, including systems that have 
        received funding for such purpose pursuant to a waiver under 
        section 1115(a), which shall take into account--
                            ``(i) the relative size of such State and 
                        system caseloads under part D of title IV of 
                        the Social Security Act; and
                            ``(ii) the level of automation needed to 
                        meet the automated data processing requirements 
                        of such part.''.

SEC. 5960. ADDITIONAL TECHNICAL AMENDMENTS.

    (a) Elimination of Surplusage.--Section 466(c)(1)(F) (42 U.S.C. 
666(c)(1)(F)) is amended by striking ``of section 466''.
    (b) Correction of Ambiguous Amendment.--Section 344(a)(1)(F) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(Public Law 104-193; 110 Stat. 2234) is amended by inserting ``the 
first place such term appears'' before ``and all that follows''.
    (c) Correction of Erroneously Drafted Provision.--Section 215 of 
the Department of Health and Human Services Appropriations Act, 1997, 
(as contained in section 101(e) of the Omnibus Consolidated 
Appropriations Act, 1997) is amended to read as follows:
    ``Sec. 215. Sections 452(j) and 453(o) of the Social Security Act 
(42 U.S.C. 652(j) and 653(o)), as amended by section 345 of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(Public Law 104-193; 110 Stat. 2237) are each amended by striking 
`section 457(a)' and inserting `a plan approved under this part'. 
Amounts available under such sections 452(j) and 453(o) shall be 
calculated as though the amendments made by this section were effective 
October 1, 1995.''.
    (d) Elimination of Surplusage.--Section 456(a)(2)(B) (42 U.S.C. 
656(a)(2)(B)) is amended by striking ``, and'' and inserting a period.
    (e) Correction of Date.--Section 466(a)(1)(B) (42 U.S.C. 
666(a)(1)(B)) is amended by striking ``October 1, 1996'' and inserting 
``January 1, 1994''.

SEC. 5961. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), the 
amendments made by this chapter shall take effect as if included in the 
enactment of title III of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 
2105).
    (b) Exception.--The amendments made by section 5936(b)(2) shall 
take effect as if the amendments had been included in the enactment of 
section 103(a) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 2112).

     CHAPTER 4--RESTRICTING WELFARE AND PUBLIC BENEFITS FOR ALIENS

             Subchapter A--Eligibility for Federal Benefits

SEC. 5965. ALIEN ELIGIBILITY FOR FEDERAL BENEFITS: LIMITED APPLICATION 
              TO MEDICARE AND BENEFITS UNDER THE RAILROAD RETIREMENT 
              ACT.

    (a) Limited Application to Medicare.--Section 401(b) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(8 U.S.C. 1611(b)) is amended by adding at the end the following:
            ``(3) Subsection (a) shall not apply to any benefit payable 
        under title XVIII of the Social Security Act (relating to the 
        medicare program) to an alien who is lawfully present in the 
        United States as determined by the Attorney General and, with 
        respect to benefits payable under part A of such title, who was 
        authorized to be employed with respect to any wages 
        attributable to employment which are counted for purposes of 
        eligibility for such benefits.''.
    (b) Limited Application to Benefits Under the Railroad Retirement 
Act.--Section 401(b) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1611(b)) (as amended 
by subsection (a)) is amended by inserting at the end the following:
            ``(4) Subsection (a) shall not apply to any benefit payable 
        under the Railroad Retirement Act of 1974 or the Railroad 
        Unemployment Insurance Act to an alien who is lawfully present 
        in the United States as determined by the Attorney General or 
        to an alien residing outside the United States.''.

SEC. 5966. EXCEPTIONS TO BENEFIT LIMITATIONS: CORRECTIONS TO REFERENCE 
              CONCERNING ALIENS WHOSE DEPORTATION IS WITHHELD.

    Sections 402(a)(2)(A)(i)(III), 402(a)(2)(A)(ii)(III), 
402(b)(2)(A)(iii), 403(b)(1)(C), 412(b)(1)(C), and 431(b)(5) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(8 U.S.C. 1612(a)(2)(A)(iii), 1612(b)(2)(A)(iii), 1613(b)(1)(C), 
1622(b)(1)(C), and 1641(b)(5)) are each amended by striking ``section 
243(h) of such Act'' each place it appears and inserting ``section 
243(h) of such Act (as in effect immediately before the effective date 
of section 307 of division C of Public Law 104-208) or section 
241(b)(3) of such Act (as amended by section 305(a) of division C of 
Public Law 104-208)''.

SEC. 5967. VETERANS EXCEPTION: APPLICATION OF MINIMUM ACTIVE DUTY 
              SERVICE REQUIREMENT; EXTENSION TO UNREMARRIED SURVIVING 
              SPOUSE; EXPANDED DEFINITION OF VETERAN.

    (a) Application of Minimum Active Duty Service Requirement.--
Sections 402(a)(2)(C)(i), 402(b)(2)(C)(i), 403(b)(2)(A), and 
412(b)(3)(A) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)(C)(i), 
1612(b)(2)(C)(i), 1613(b)(2)(A), and 1622(b)(3)(A)) are each amended by 
inserting ``and who fulfills the minimum active-duty service 
requirements of section 5303A(d) of title 38, United States Code'' 
after ``alienage''.
    (b) Exception Applicable to Unremarried Surviving Spouse.--Section 
402(a)(2)(C)(iii), 402(b)(2)(C)(iii), 403(b)(2)(C), and 412(b)(3)(C) of 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (8 U.S.C. 1612(a)(2)(C)(iii), 1612(b)(2)(C)(iii), 1613(b)(2)(C), 
and 1622(b)(3)(C)) are each amended by inserting before the period ``or 
the unremarried surviving spouse of an individual described in clause 
(i) or (ii) who is deceased if the marriage fulfills the requirements 
of section 1304 of title 38, United States Code''.
    (c) Expanded Definition of Veteran.--Sections 402(a)(2)(C)(i), 
402(b)(2)(C)(i), 403(b)(2)(A), and 412(b)(3)(A) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1612(a)(2)(C)(i), 1612(b)(2)(C)(i), 1613(b)(2)(A), and 
1622(b)(3)(A)) are each amended by inserting ``, 1101, or 1301, or as 
described in section 107'' after ``section 101''.

SEC. 5968. CORRECTION OF REFERENCE CONCERNING CUBAN AND HAITIAN 
              ENTRANTS.

    Section 403(d) of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (8 U.S.C. 1613(d)) is amended--
            (1) by striking ``section 501 of the Refugee'' and insert 
        ``section 501(a) of the Refugee''; and
            (2) by striking ``section 501(e)(2)'' and inserting 
        ``section 501(e)''.

SEC. 5969. NOTIFICATION CONCERNING ALIENS NOT LAWFULLY PRESENT: 
              CORRECTION OF TERMINOLOGY.

    Section 1631(e)(9) of the Social Security Act (42 U.S.C. 
1383(e)(9)) and section 27 of the United States Housing Act of 1937, as 
added by section 404 of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, are each amended by striking 
``unlawfully in the United States'' each place it appears and inserting 
``not lawfully present in the United States''.

SEC. 5970. FREELY ASSOCIATED STATES: CONTRACTS AND LICENSES.

    Sections 401(c)(2)(A) and 411(c)(2)(A) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1611(c)(2)(A) and 1621(c)(2)(A)) are each amended by inserting 
before the semicolon at the end ``, or to a citizen of a freely 
associated state, if section 141 of the applicable compact of free 
association approved in Public Law 99-239 or 99-658 (or a successor 
provision) is in effect''.

SEC. 5971. CONGRESSIONAL STATEMENT REGARDING BENEFITS FOR HMONG AND 
              OTHER HIGHLAND LAO VETERANS.

    (a) Findings.--The Congress makes the following findings:
            (1) Hmong and other Highland Lao tribal peoples were 
        recruited, armed, trained, and funded for military operations 
        by the United States Department of Defense, Central 
        Intelligence Agency, Department of State, and Agency for 
        International Development to further United States national 
        security interests during the Vietnam conflict.
            (2) Hmong and other Highland Lao tribal forces sacrificed 
        their own lives and saved the lives of American military 
        personnel by rescuing downed American pilots and aircrews and 
        by engaging and successfully fighting North Vietnamese troops.
            (3) Thousands of Hmong and other Highland Lao veterans who 
        fought in special guerilla units on behalf of the United States 
        during the Vietnam conflict, along with their families, have 
        been lawfully admitted to the United States in recent years.
            (4) The Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996 (Public Law 104-193), the new 
        national welfare reform law, restricts certain welfare benefits 
        for noncitizens of the United States and the exceptions for 
        noncitizen veterans of the Armed Forces of the United States do 
        not extend to Hmong veterans of the Vietnam conflict era, 
        making Hmong veterans and their families receiving certain 
        welfare benefits subject to restrictions despite their military 
        service on behalf of the United States.
    (b) Congressional Statement.--It is the sense of the Congress that 
Hmong and other Highland Lao veterans who fought on behalf of the Armed 
Forces of the United States during the Vietnam conflict and have 
lawfully been admitted to the United States for permanent residence 
should be considered veterans for purposes of continuing certain 
welfare benefits consistent with the exceptions provided other 
noncitizen veterans under the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.

                    Subchapter B--General Provisions

SEC. 5972. DETERMINATION OF TREATMENT OF BATTERED ALIENS AS QUALIFIED 
              ALIENS; INCLUSION OF ALIEN CHILD OF BATTERED PARENT AS 
              QUALIFIED ALIEN.

    (a) Determination of Status by Agency Providing Benefits.--Section 
431 of the Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996 (8 U.S.C. 1641) is amended in subsections (c)(1)(A) and 
(c)(2)(A) by striking ``Attorney General, which opinion is not subject 
to review by any court)'' each place it appears and inserting ``agency 
providing such benefits)''.
    (b) Guidance Issued by Attorney General.--Section 431(c) of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(8 U.S.C. 1641(c)) is amended by adding at the end the following new 
undesignated paragraph:
     ``After consultation with the Secretaries of Health and Human 
Services, Agriculture, and Housing and Urban Development, the 
Commissioner of Social Security, and with the heads of such Federal 
agencies administering benefits as the Attorney General considers 
appropriate, the Attorney General shall issue guidance (in the Attorney 
General's sole and unreviewable discretion) for purposes of this 
subsection and section 421(f), concerning the meaning of the terms 
`battery' and `extreme cruelty', and the standards and methods to be 
used for determining whether a substantial connection exists between 
battery or cruelty suffered and an individual's need for benefits under 
a specific Federal, State, or local program.''.
    (c) Inclusion of Alien Child of Battered Parent as Qualified 
Alien.--Section 431(c) of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (8 U.S.C. 1641(c)) is amended--
            (1) at the end of paragraph (1)(B)(iv) by striking ``or'';
            (2) at the end of paragraph (2)(B) by striking the period 
        and inserting ``; or''; and
            (3) by inserting after paragraph (2)(B) and before the last 
        sentence of such subsection the following new paragraph:
            ``(3) an alien child who--
                    ``(A) resides in the same household as a parent who 
                has been battered or subjected to extreme cruelty in 
                the United States by that parent's spouse or by a 
                member of the spouse's family residing in the same 
                household as the parent and the spouse consented or 
                acquiesced to such battery or cruelty, but only if (in 
                the opinion of the agency providing such benefits) 
                there is a substantial connection between such battery 
                or cruelty and the need for the benefits to be 
                provided; and
                    ``(B) who meets the requirement of subparagraph (B) 
                of paragraph (1).''.
    (d) Inclusion of Alien Child of Battered Parent Under Special Rule 
for Attribution of Income.--Section 421(f)(1)(A) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1631(f)(1)(A)) is amended--
            (1) at the end of clause (i) by striking ``or''; and
            (2) by striking ``and the battery or cruelty described in 
        clause (i) or (ii)'' and inserting ``or (iii) the alien is a 
        child whose parent (who resides in the same household as the 
        alien child) has been battered or subjected to extreme cruelty 
        in the United States by that parent's spouse, or by a member of 
        the spouse's family residing in the same household as the 
        parent and the spouse consented to, or acquiesced in, such 
        battery or cruelty, and the battery or cruelty described in 
        clause (i), (ii), or (iii)''.

SEC. 5973. VERIFICATION OF ELIGIBILITY FOR BENEFITS.

    (a) Regulations and Guidance.--Section 432(a) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1642(a)) is amended--
            (1) by inserting at the end of paragraph (1) the following: 
        ``Not later than 90 days after the date of the enactment of the 
        Welfare Reform Technical Corrections Act of 1997, the Attorney 
        General of the United States, after consultation with the 
        Secretary of Health and Human Services, shall issue interim 
        verification guidance.''; and
            (2) by adding after paragraph (2) the following new 
        paragraph:
    ``(3) Not later than 90 days after the date of the enactment of the 
Welfare Reform Technical Corrections Act of 1997, the Attorney General 
shall promulgate regulations which set forth the procedures by which a 
State or local government can verify whether an alien applying for a 
State or local public benefit is a qualified alien, a nonimmigrant 
under the Immigration and Nationality Act, or an alien paroled into the 
United States under section 212(d)(5) of the Immigration and 
Nationality Act for less than 1 year, for purposes of determining 
whether the alien is ineligible for benefits under section 411 of this 
Act.''.
    (b) Disclosure of Information for Verification.--Section 384(b) of 
the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 
(division C of Public Law 104-208) is amended by adding after paragraph 
(4) the following new paragraph:
            ``(5) The Attorney General is authorized to disclose 
        information, to Federal, State, and local public and private 
        agencies providing benefits, to be used solely in making 
        determinations of eligibility for benefits pursuant to section 
        431(c) of the Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996.''.

SEC. 5974. QUALIFYING QUARTERS: DISCLOSURE OF QUARTERS OF COVERAGE 
              INFORMATION; CORRECTION TO ASSURE THAT CREDITING APPLIES 
              TO ALL QUARTERS EARNED BY PARENTS BEFORE CHILD IS 18.

    (a) Disclosure of Quarters of Coverage Information.--Section 435 of 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (8 U.S.C. 1645) is amended by adding at the end the following: 
``Notwithstanding section 6103 of the Internal Revenue Code of 1986, 
the Commissioner of Social Security is authorized to disclose quarters 
of coverage information concerning an alien and an alien's spouse or 
parents to a government agency for the purposes of this title.''.
    (b) Correction To Assure That Crediting Applies to All Quarters 
Earned by Parents Before Child is 18.--Section 435(1) of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (8 
U.S.C. 1645(1)) is amended by striking ``while the alien was under age 
18,'' and inserting ``before the date on which the alien attains age 
18,''.

SEC. 5975. STATUTORY CONSTRUCTION: BENEFIT ELIGIBILITY LIMITATIONS 
              APPLICABLE ONLY WITH RESPECT TO ALIENS PRESENT IN THE 
              UNITED STATES.

    Section 433 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (8 U.S.C. 1643) is amended--
            (1) by redesignated subsections (b) and (c) as subsections 
        (c) and (d); and
            (2) by adding after subsection (a) the following new 
        subsection:
    ``(b) Benefit Eligibility Limitations Applicable Only With Respect 
to Aliens Present in the United States.--Notwithstanding any other 
provision of this title, the limitations on eligibility for benefits 
under this title shall not apply to eligibility for benefits of aliens 
who are not residing, or present, in the United States with respect 
to--
            ``(1) wages, pensions, annuities, and other earned payments 
        to which an alien is entitled resulting from employment by, or 
        on behalf of, a Federal, State, or local government agency 
        which was not prohibited during the period of such employment 
        or service under section 274A or other applicable provision of 
        the Immigration and Nationality Act; or
            ``(2) benefits under laws administered by the Secretary of 
        Veterans Affairs.''.

    Subchapter C--Miscellaneous Clerical and Technical Amendments; 
                             Effective Date

SEC. 5976. CORRECTING MISCELLANEOUS CLERICAL AND TECHNICAL ERRORS.

    (a) Information Reporting Under Title IV of the Social Security 
Act.--Effective July 1, 1997, section 408 of the Social Security Act 
(42 U.S.C. 608), as amended by section 5903, and as in effect pursuant 
to section 116 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, and as amended by section 5906(e) of this 
Act, is amended by adding at the end the following new subsection:
    ``(f) State Required To Provide Certain Information.--Each State to 
which a grant is made under section 403 shall, at least 4 times 
annually and upon request of the Immigration and Naturalization 
Service, furnish the Immigration and Naturalization Service with the 
name and address of, and other identifying information on, any 
individual who the State knows is not lawfully present in the United 
States.''.
    (b) Miscellaneous Clerical and Technical Corrections.--
            (1) Section 411(c)(3) of the Personal Responsibility and 
        Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
        1621(c)(3)) is amended by striking ``4001(c)'' and inserting 
        ``401(c)''.
            (2) Section 422(a) of the Personal Responsibility and Work 
        Opportunity Reconciliation Act of 1996 (8 U.S.C. 1632(a)) is 
        amended by striking ``benefits (as defined in section 
        412(c)),'' and inserting ``benefits,''.
            (3) Section 412(b)(1)(C) of the Personal Responsibility and 
        Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
        1622(b)(1)(C)) is amended by striking ``with-holding'' and 
        inserting ``withholding''.
            (4) The subtitle heading for subtitle D of title IV of the 
        Personal Responsibility and Work Opportunity Reconciliation Act 
        of 1996 is amended to read as follows:

                  ``Subtitle D--General Provisions''.

            (5) The subtitle heading for subtitle F of title IV of the 
        Personal Responsibility and Work Opportunity Reconciliation Act 
        of 1996 is amended to read as follows:

 ``Subtitle F--Earned Income Credit Denied to Unauthorized Employees''.

            (6) Section 431(c)(2)(B) of the Personal Responsibility and 
        Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
        1641(c)(2)(B)) is amended by striking ``clause (ii) of 
        subparagraph (A)'' and inserting ``subparagraph (B) of 
        paragraph (1)''.
            (7) Section 431(c)(1)(B) of the Personal Responsibility and 
        Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
        1641(c)(1)(B)) is amended--
                    (A) in clause (iii) by striking ``, or'' and 
                inserting ``(as in effect prior to April 1, 1997),''; 
                and
                    (B) by adding after clause (iv) the following new 
                clause:
                            ``(v) cancellation of removal pursuant to 
                        section 240A(b)(2) of such Act;''.

SEC. 5977. EFFECTIVE DATE.

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

                      CHAPTER 5--CHILD PROTECTION

SEC. 5981. CONFORMING AND TECHNICAL AMENDMENTS RELATING TO CHILD 
              PROTECTION.

    (a) Methods Permitted for Conduct of Study of Child Welfare.--
Section 429A(a) (42 U.S.C. 628b(a)) is amended by inserting 
``(directly, or by grant, contract, or interagency agreement)'' after 
``conduct''.
    (b) Redesignation of Paragraph.--Section 471(a) (42 U.S.C. 671(a)) 
is amended--
            (1) by striking ``and'' at the end of paragraph (17);
            (2) by striking the period at the end of paragraph (18) (as 
        added by section 1808(a) of the Small Business Job Protection 
        Act of 1996 (Public Law 104-188; 110 Stat. 1903)) and inserting 
        ``; and''; and
            (3) by redesignating paragraph (18) (as added by section 
        505(3) of the Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996 (Public Law 104-193; 110 Stat. 
        2278)) as paragraph (19).

SEC. 5982. ADDITIONAL TECHNICAL AMENDMENTS RELATING TO CHILD 
              PROTECTION.

    (a) Part B Amendments.--
            (1) In general.--Part B of title IV (42 U.S.C. 620-635) is 
        amended--
                    (A) in section 422(b)--
                            (i) by striking the period at the end of 
                        the paragraph (9) (as added by section 554(3) 
                        of the Improving America's Schools Act of 1994 
                        (Public Law 103-382; 108 Stat. 4057)) and 
                        inserting a semicolon;
                            (ii) by redesignating paragraph (10) as 
                        paragraph (11); and
                            (iii) by redesignating paragraph (9), as 
                        added by section 202(a)(3) of the Social 
                        Security Act Amendments of 1994 (Public Law 
                        103-432, 108 Stat. 4453), as paragraph (10);
                    (B) in sections 424(b) and 425(a), by striking 
                ``422(b)(9)'' each place it appears and inserting 
                ``422(b)(10)''; and
                    (C) by transferring section 429A (as added by 
                section 503 of the Personal Responsibility and Work 
                Opportunity Reconciliation Act of 1996 (Public Law 104-
                193; 110 Stat. 2277)) to the end of subpart 1.
            (2) Clarification of Conflicting Amendments.--Section 
        204(a)(2) of the Social Security Act Amendments of 1994 (Public 
        Law 103-432; 108 Stat. 4456) is amended by inserting ``(as 
        added by such section 202(a))'' before ``and inserting''.
    (b) Part E Amendments.--Section 472(d) (42 U.S.C. 672(d)) is 
amended by striking ``422(b)(9)'' and inserting ``422(b)(10)''.

SEC. 5983. EFFECTIVE DATE.

    The amendments made by this chapter shall take effect as if 
included in the enactment of title V of the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996 (Public Law 104-193; 110 
Stat. 2277).

                         CHAPTER 6--CHILD CARE

SEC. 5985. CONFORMING AND TECHNICAL AMENDMENTS RELATING TO CHILD CARE.

    (a) Funding.--Section 418(a) (42 U.S.C. 618(a)) is amended--
            (1) in paragraph (1)--
                    (A) in the matter preceding subparagraph (A), by 
                inserting ``the greater of'' after ``equal to'';
                    (B) in subparagraph (A)--
                            (i) by striking ``the sum of'';
                            (ii) by striking ``amounts expended'' and 
                        inserting ``expenditures''; and
                            (iii) by striking ``section--'' and all 
                        that follows and inserting ``subsections (g) 
                        and (i) of section 402 (as in effect before 
                        October 1, 1995); or'';
                    (C) in subparagraph (B)--
                            (i) by striking ``sections'' and inserting 
                        ``subsections''; and
                            (ii) by striking the semicolon at the end 
                        and inserting a period; and
                    (D) in the matter following subparagraph (B), by 
                striking ``whichever is greater.''; and
            (2) in paragraph (2)--
                    (A) by striking subparagraph (B) and inserting the 
                following:
                    ``(B) Allotments to states.--The total amount 
                available for payments to States under this paragraph, 
                as determined under subparagraph (A), shall be allotted 
                among the States based on the formula used for 
                determining the amount of Federal payments to each 
                State under section 403(n) (as in effect before October 
                1, 1995).'';
                    (B) by striking subparagraph (C) and inserting the 
                following:
                    ``(C) Federal matching of state expenditures 
                exceeding historical expenditures.--The Secretary shall 
                pay to each eligible State for a fiscal year an amount 
                equal to the lesser of the State's allotment under 
                subparagraph (B) or the Federal medical assistance 
                percentage for the State for the fiscal year (as 
                defined in section 1905(b), as such section was in 
                effect on September 30, 1995) of so much of the State's 
                expenditures for child care in that fiscal year as 
                exceed the total amount of expenditures by the State 
                (including expenditures from amounts made available 
                from Federal funds) in fiscal year 1994 or 1995 
                (whichever is greater) for the programs described in 
                paragraph (1)(A).''; and
                    (C) in subparagraph (D)(i)--
                            (i) by striking ``amounts under any grant 
                        awarded'' and inserting ``any amounts 
                        allotted''; and
                            (ii) by striking ``the grant is made'' and 
                        inserting ``such amounts are allotted''.
    (b) Data Used To Determine Historic State Expenditures.--Section 
418(a) (42 U.S.C. 618(a)), is amended by adding at the end the 
following:
            ``(5) Data used to determine state and federal shares of 
        expenditures.--In making the determinations concerning 
        expenditures required under paragraphs (1) and (2)(C), the 
        Secretary shall use information that was reported by the State 
        on ACF Form 231 and available as of the applicable dates 
        specified in clauses (i)(I), (ii), and (iii)(III) of section 
        403(a)(1)(D).''.
    (c) Definition of State.--Section 418(d) (42 U.S.C. 618(d)) is 
amended by striking ``or'' and inserting ``and''.

SEC. 5986. ADDITIONAL CONFORMING AND TECHNICAL AMENDMENTS.

    The Child Care and Development Block Grant Act of 1990 (42 U.S.C. 
9858 et seq.) is amended--
            (1) in section 658E(c)(2)(E)(ii), by striking ``tribal 
        organization'' and inserting ``tribal organizations'';
            (2) in section 658K(a)--
                    (A) in paragraph (1)--
                            (i) in subparagraph (B)--
                                    (I) by striking clause (iv) and 
                                inserting the following:
                            ``(iv) whether the head of the family unit 
                        is a single parent;'';
                                    (II) in clause (v)--
                                            (aa) in the matter 
                                        preceding subclause (I), by 
                                        striking ``including the amount 
                                        obtained from (and separately 
                                        identified)--'' and inserting 
                                        ``including--''; and
                                            (bb) by striking subclause 
                                        (II) and inserting the 
                                        following:
                                    ``(II) cash or other assistance 
                                under--
                                            ``(aa) the temporary 
                                        assistance for needy families 
                                        program under part A of title 
                                        IV of the Social Security Act 
                                        (42 U.S.C. 601 et seq.); and
                                            ``(bb) a State program for 
                                        which State spending is counted 
                                        toward the maintenance of 
                                        effort requirement under 
                                        section 409(a)(7) of the Social 
                                        Security Act (42 U.S.C. 
                                        609(a)(7));''; and
                                    (III) in clause (x), by striking 
                                ``week'' and inserting ``month''; and
                            (ii) by striking subparagraph (D) and 
                        inserting the following:
                    ``(D) Use of samples.--
                            ``(i) Authority.--A State may comply with 
                        the requirement to collect the information 
                        described in subparagraph (B) through the use 
                        of disaggregated case record information on a 
                        sample of families selected through the use of 
                        scientifically acceptable sampling methods 
                        approved by the Secretary.
                            ``(ii) Sampling and other methods.--The 
                        Secretary shall provide the States with such 
                        case sampling plans and data collection 
                        procedures as the Secretary deems necessary to 
                        produce statistically valid samples of the 
                        information described in subparagraph (B). The 
                        Secretary may develop and implement procedures 
                        for verifying the quality of data submitted by 
                        the States.''; and
                    (B) in paragraph (2)--
                            (i) in the heading, by striking 
                        ``Biannual'' and inserting ``Annual''; and
                            (ii) by striking ``6'' and inserting 
                        ``12'';
            (3) in section 658L, by striking ``1997'' and inserting 
        ``1998'';
            (4) in section 658O(c)(6)(C), by striking ``(A)'' and 
        inserting ``(B)''; and
            (5) in section 658P(13), by striking ``or'' and inserting 
        ``and''.

SEC. 5987. REPEALS.

    (a) Child Development Associate Scholarship Assistance Act of 
1985.--Title VI of the Human Services Reauthorization Act of 1986 (42 
U.S.C. 10901-10905) is repealed.
    (b) State Dependent Care Development Grants Act.--Subchapter E of 
chapter 8 of subtitle A of title VI of the Omnibus Budget 
Reconciliation Act of 1981 (42 U.S.C. 9871-9877) is repealed.
    (c) Programs of National Significance.--Title X of the Elementary 
and Secondary Education Act of 1965 (20 U.S.C. 8001 et seq.) is 
amended--
            (1) in section 10413(a), by striking paragraph (4);
            (2) in section 10963(b)(2), by striking subparagraph (G); 
        and
            (3) in section 10974(a)(6), by striking subparagraph (G).
    (d) Native Hawaiian Family-Based Education Centers.--Section 9205 
of the Native Hawaiian Education Act (20 U.S.C. 7905) is repealed.

SEC. 5988. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), this chapter 
and the amendments made by this chapter shall take effect as if 
included in the enactment of title VI of the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (Public Law 104-193; 
110 Stat. 2278).
    (b) Exceptions.--The amendment made by section 5985(a)(2)(B) and 
the repeal made by section 5987(d) shall each take effect on October 1, 
1997.

  CHAPTER 7--ERISA AMENDMENTS RELATING TO MEDICAL CHILD SUPPORT ORDERS

SEC. 5991. AMENDMENTS RELATING TO SECTION 303 OF THE PERSONAL 
              RESPONSIBILITY AND WORK OPPORTUNITY RECONCILIATION ACT OF 
              1996.

    (a) Privacy Safeguards for Medical Child Support Orders.--Section 
609(a)(3)(A) of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1169(a)(3)(A)) is amended by adding at the end the following: 
``except that, to the extent provided in the order, the name and 
mailing address of an official of a State or a political subdivision 
thereof may be substituted for the mailing address of any such 
alternate recipient,''.
    (b) Payment to State Official Treated as Satisfaction of Plan's 
Obligation.--Section 609(a) of such Act (29 U.S.C. 1169(a)) is amended 
by adding at the end the following new paragraph:
            ``(9) Payment to state official treated as satisfaction of 
        plan's obligation to make payment to alternate recipient.--
        Payment of benefits by a group health plan to an official of a 
        State or a political subdivision thereof who is named in a 
        qualified medical child support order in lieu of the alternate 
        recipient, pursuant to paragraph (3)(A), shall be treated, for 
        purposes of this title, as payment of benefits to the alternate 
        recipient.''.
    (c) Effective Date.--The amendments made by this section shall be 
apply with respect to medical child support orders issued on or after 
the date of the enactment of this Act.

SEC. 5992. AMENDMENT RELATING TO SECTION 381 OF THE PERSONAL 
              RESPONSIBILITY AND WORK OPPORTUNITY RECONCILIATION ACT OF 
              1996.

    (a) Clarification of Effect of Administrative Notices.--Section 
609(a)(2)(B) of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1169(a)(2)(B)) is amended by adding at the end the following new 
sentence: ``For purposes of this subparagraph, an administrative notice 
which is issued pursuant to an administrative process referred to in 
subclause (II) of the preceding sentence and which has the effect of an 
order described in clause (i) or (ii) of the preceding sentence shall 
be treated as such an order.''.
    (b) Effective Date.--The amendment made by this section shall be 
effective as if included in the enactment of section 381 of the 
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 
(Public Law 104-193; 110 Stat. 2257).

SEC. 5993. AMENDMENTS RELATING TO SECTION 382 OF THE PERSONAL 
              RESPONSIBILITY AND WORK OPPORTUNITY RECONCILIATION ACT OF 
              1996.

    (a) Elimination of Requirement That Orders Specify Affected 
Plans.--Section 609(a)(3) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1169(a)(3)) is amended--
            (1) in subparagraph (C), by striking ``, and'' and 
        inserting a period; and
            (2) by striking subparagraph (D).
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to medical child support orders issued on or after 
the date of the enactment of this Act.

              TITLE VI--COMMITTEE ON GOVERNMENTAL AFFAIRS

            Subtitle A--Civil Service and Postal Provisions

SEC. 6001. INCREASED CONTRIBUTIONS TO FEDERAL CIVILIAN RETIREMENT 
              SYSTEMS.

    (a) Civil Service Retirement System.--
            (1) Agency contributions.--Notwithstanding section 
        8334(a)(1) of title 5, United States Code--
                    (A) during the period beginning on October 1, 1997, 
                through September 30, 2001, each employing agency 
                (other than the United States Postal Service, the 
                Metropolitan Washington Airports Authority, or the 
                government of the District of Columbia) shall 
                contribute--
                            (i) 8.51 percent of the basic pay of an 
                        employee;
                            (ii) 9.01 percent of the basic pay of a 
                        congressional employee, a law enforcement 
                        officer, a member of the Capitol police, or a 
                        firefighter; and
                            (iii) 9.51 percent of the basic pay of a 
                        Member of Congress, a Claims Court judge, a 
                        United States magistrate, a judge of the United 
                        States Court of Appeals for the Armed Forces, 
                        or a bankruptcy judge; and
                    (B) during the period beginning on October 1, 2001, 
                through September 30, 2002, each employing agency 
                (other than the United States Postal Service, the 
                Metropolitan Washington Airports Authority, or the 
                government of the District of Columbia) shall 
                contribute--
                            (i) 8.6 percent of the basic pay of an 
                        employee;
                            (ii) 9.1 percent of the basic pay of a 
                        congressional employee, a law enforcement 
                        officer, a member of the Capitol police, or a 
                        firefighter; and
                            (iii) 9.6 percent of the basic pay of a 
                        Member of Congress, a Claims Court judge, a 
                        United States magistrate, a judge of the United 
                        States Court of Appeals for the Armed Forces, 
                        or a bankruptcy judge;
        in lieu of the agency contributions otherwise required under 
        section 8334(a)(1) of title 5, United States Code.
            (2) No reduction in agency contributions by the postal 
        service.--Agency contributions by the United States Postal 
        Service under section 8348(h) of title 5, United States Code--
                    (A) shall not be reduced as a result of the 
                amendments made under paragraph (3) of this subsection; 
                and
                    (B) shall be computed as though such amendments had 
                not been enacted.
            (3) Individual deductions, withholdings, and deposits.--The 
        table under section 8334(c) of title 5, United States Code, is 
        amended--
                    (A) in the matter relating to an employee by 
                striking:

      

                                  ``7..............  After December 31, 1969.'';                                
                                                                                                                

                and inserting the following:

      

                                  ``7..............  January 1, 1970, to December 31, 1998.                     
                                   7.25............  January 1, 1999, to December 31, 1999.                     
                                   7.4.............  January 1, 2000, to December 31, 2000.                     
                                   7.5.............  January 1, 2001, to December 31, 2002.                     
                                   7...............  After December 31, 2002.'';                                
                                                                                                                

                    (B) in the matter relating to a Member or employee 
                for congressional employee service by striking:

      

                                  ``7\1/2\.........  After December 31, 1969.'';                                
                                                                                                                

                and inserting the following:

      

                                  ``7.5............  January 1, 1970, to December 31, 1998.                     
                                   7.75............  January 1, 1999, to December 31, 1999.                     
                                   7.9.............  January 1, 2000, to December 31, 2000.                     
                                   8...............  January 1, 2001, to December 31, 2002.                     
                                   7.5.............  After December 31, 2002.'';                                
                                                                                                                

                    (C) in the matter relating to a Member for Member 
                service by striking:

      

                                  ``8..............  After December 31, 1969.'';                                
                                                                                                                

                and inserting the following:

      

                                  ``8..............  January 1, 1970, to December 31, 1998.                     
                                   8.25............  January 1, 1999, to December 31, 1999.                     
                                   8.4.............  January 1, 2000, to December 31, 2000.                     
                                   8.5.............  January 1, 2001, to December 31, 2002.                     
                                   8...............  After December 31, 2002.'';                                
                                                                                                                

                    (D) in the matter relating to a law enforcement 
                officer for law enforcement service and firefighter for 
                firefighter service by striking:

      

                                  ``7\1/2\.........  After December 31, 1974.'';                                
                                                                                                                

                and inserting the following:

      

                                  ``7.5............  January 1, 1975, to December 31, 1998.                     
                                   7.75............  January 1, 1999, to December 31, 1999.                     
                                   7.9.............  January 1, 2000, to December 31, 2000.                     
                                   8...............  January 1, 2001, to December 31, 2002.                     
                                   7.5.............  After December 31, 2002.'';                                
                                                                                                                

                    (E) in the matter relating to a bankruptcy judge by 
                striking:

      

                                  ``8..............  After December 31, 1983.'';                                
                                                                                                                

                and inserting the following:

      

                                  ``8..............  January 1, 1984, to December 31, 1998.                     
                                   8.25............  January 1, 1999, to December 31, 1999.                     
                                   8.4.............  January 1, 2000, to December 31, 2000.                     
                                   8.5.............  January 1, 2001, to December 31, 2002.                     
                                   8...............  After December 31, 2002.'';                                
                                                                                                                

                    (F) in the matter relating to a judge of the United 
                States Court of Appeals for the Armed Forces for 
                service as a judge of that court by striking:

      

                                  ``8..............  On and after the date of enactment of the Department of    
                                                      Defense Authorization Act, 1984.'';                       
                                                                                                                

                and inserting the following:

      

                                  ``8..............  The date of enactment of the Department of Defense         
                                                      Authorization Act, 1984, to December 31, 1998.            
                                   8.25............  January 1, 1999, to December 31, 1999.                     
                                   8.4.............  January 1, 2000, to December 31, 2000.                     
                                   8.5.............  January 1, 2001, to December 31, 2002.                     
                                   8...............  After December 31, 2002.'';                                
                                                                                                                

                    (G) in the matter relating to a United States 
                magistrate by striking:

      

                                  ``8..............  After September 30, 1987.'';                               
                                                                                                                

                and inserting the following:

      

                                  ``8..............  October 1, 1987, to December 31, 1998.                     
                                   8.25............  January 1, 1999, to December 31, 1999.                     
                                   8.4.............  January 1, 2000, to December 31, 2000.                     
                                   8.5.............  January 1, 2001, to December 31, 2002.                     
                                   8...............  After December 31, 2002.'';                                
                                                                                                                

                    (H) in the matter relating to a Claims Court judge 
                by striking:

      

                                  ``8..............  After September 30, 1988.'';                               
                                                                                                                

                and insert the following:

      

                                  ``8..............  October 1, 1988, to December 31, 1998.                     
                                   8.25............  January 1, 1999, to December 31, 1999.                     
                                   8.4.............  January 1, 2000, to December 31, 2000.                     
                                   8.5.............  January 1, 2001, to December 31, 2002.                     
                                   8...............  After December 31, 2002.'';                                
                                                                                                                

                and
                    (I) by inserting after the matter relating to a 
                Claims Court judge the following:

      

``Member of the Capitol Police..........  2.5....................  August 1, 1920, to June 30, 1926.            
                                          3.5....................  July 1, 1926, to June 30, 1942.              
                                          5......................  July 1, 1942, to June 30, 1948.              
                                          6......................  July 1, 1948, to October 31, 1956.           
                                          6.5....................  November 1, 1956, to December 31, 1969.      
                                          7.5....................  January 1, 1970, to December 31, 1998.       
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.9....................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.5....................  After December 31, 2002.''.                  
                                                                                                                

            (4) Other service.--
                    (A) Military service.--Section 8334(j) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1)(A) by inserting ``and 
                        subject to paragraph (5),'' after ``Except as 
                        provided in subparagraph (B),''; and
                            (ii) by adding at the end the following new 
                        paragraph:
            ``(5) Effective with respect to any period of military 
        service after December 31, 1998, the percentage of basic pay 
        under section 204 of title 37 payable under paragraph (1) shall 
        be equal to the same percentage as would be applicable under 
        subsection (c) of this section for that same period for service 
        as an employee, subject to paragraph (1)(B).''.
                    (B) Volunteer service.--Section 8334(l) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1) by adding at the end 
                        the following: ``This paragraph shall be 
                        subject to paragraph (4).''; and
                            (ii) by adding at the end the following new 
                        paragraph:
            ``(4) Effective with respect to any period of service after 
        December 31, 1998, the percentage of the readjustment allowance 
        or stipend (as the case may be) payable under paragraph (1) 
        shall be equal to the same percentage as would be applicable 
        under subsection (c) of this section for the same period for 
        service as an employee.''.
    (b) Federal Employees' Retirement System.--
            (1) Individual deductions and withholdings.--
                    (A) In general.--Section 8422(a) of title 5, United 
                States Code, is amended by striking paragraph (2) and 
                inserting the following:
            ``(2) The percentage to be deducted and withheld from basic 
        pay for any pay period shall be equal to--
                    ``(A) the applicable percentage under paragraph 
                (3), minus
                    ``(B) the percentage then in effect under section 
                3101(a) of the Internal Revenue Code of 1986 (relating 
                to rate of tax for old-age, survivors, and disability 
                insurance).
            ``(3) The applicable percentage under this paragraph for 
        civilian service shall be as follows:

      

``Employee..............................  7......................  Before January 1, 1999.                      
                                          7.25...................  January 1, 1999, to December 31, 1999.       
                                          7.4....................  January 1, 2000, to December 31, 2000.       
                                          7.5....................  January 1, 2001, to December 31, 2002.       
                                          7......................  After December 31, 2002.                     
Congressional employee..................  7.5....................  Before January 1, 1999.                      
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.9....................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.5....................  After December 31, 2002.                     
Member..................................  7.5....................  Before January 1, 1999.                      
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.9....................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.5....................  After December 31, 2002.                     
Law enforcement officer, firefighter,     7.5....................  Before January 1, 1999.                      
 member of the Capitol Police, or air                                                                           
 traffic controller.                                                                                            
                                          7.75...................  January 1, 1999, to December 31, 1999.       
                                          7.9....................  January 1, 2000, to December 31, 2000.       
                                          8......................  January 1, 2001, to December 31, 2002.       
                                          7.5....................  After December 31, 2002.''.                  
                                                                                                                

                    (B) Military service.--Section 8422(e) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1)(A) by inserting ``and 
                        subject to paragraph (6),'' after ``Except as 
                        provided in subparagraph (B),''; and
                            (ii) by adding at the end the following:
            ``(6) The percentage of basic pay under section 204 of 
        title 37 payable under paragraph (1), with respect to any 
        period of military service performed during--
                    ``(A) January 1, 1999, through December 31, 1999, 
                shall be 3.25 percent;
                    ``(B) January 1, 2000, through December 31, 2000, 
                shall be 3.4 percent; and
                    ``(C) January 1, 2001, through December 31, 2002, 
                shall be 3.5 percent.''.
                    (C) Volunteer service.--Section 8422(f) of title 5, 
                United States Code, is amended--
                            (i) in paragraph (1) by adding at the end 
                        the following: ``This paragraph shall be 
                        subject to paragraph (4).''; and
                            (ii) by adding at the end the following:
            ``(4) The percentage of the readjustment allowance or 
        stipend (as the case may be) payable under paragraph (1), with 
        respect to any period of volunteer service performed during--
                    ``(A) January 1, 1999, through December 31, 1999, 
                shall be 3.25 percent;
                    ``(B) January 1, 2000, through December 31, 2000, 
                shall be 3.4 percent; and
                    ``(C) January 1, 2001, through December 31, 2002, 
                shall be 3.5 percent.''.
            (2) No reduction in agency contributions.--Agency 
        contributions under section 8423 (a) and (b) of title 5, United 
        States Code, shall not be reduced as a result of the amendments 
        made under paragraph (1) of this subsection.
    (c) Central Intelligence Agency Retirement and Disability System.--
            (1) Agency contributions.--Notwithstanding section 
        211(a)(2) of the Central Intelligence Agency Retirement Act (50 
        U.S.C. 2021(a)(2))--
                    (A) during the period beginning on October 1, 1997, 
                through September 30, 2001, the Central Intelligence 
                Agency shall contribute 8.51 percent of the basic pay 
                of an employee participating in the Central 
                Intelligence Agency Retirement and Disability System; 
                and
                    (B) during the period beginning on October 1, 2001, 
                through September 30, 2002, the Central Intelligence 
                Agency shall contribute 8.6 percent of the basic pay of 
                an employee participating in the Central Intelligence 
                Agency Retirement and Disability System.
            (2) Individual deductions, withholdings, and deposits.--
        Notwithstanding section 211(a)(1) of the Central Intelligence 
        Agency Retirement Act (50 U.S.C. 2021(a)(1)) beginning on 
        January 1, 1999, through December 31, 2002, the amount withheld 
        and deducted from the basic pay of an employee participating in 
        Central Intelligence Agency Retirement and Disability System 
        shall be as follows:

      

                                  ``7.25...........  January 1, 1999, to December 31, 1999.                     
                                   7.4.............  January 1, 2000, to December 31, 2000.                     
                                   7.5.............  January 1, 2001, to December 31, 2002.                     
                                   7...............  After December 31, 2002.''.                                
                                                                                                                

            (3) Military service.--Section 252(h)(1) of the Central 
        Intelligence Agency Retirement Act (50 U.S.C. 2082(h)(1)), is 
        amended to read as follows:
    ``(h)(1)(A) Each participant who has performed military service 
before the date of separation on which entitlement to an annuity under 
this title is based may pay to the Agency an amount equal to 7 percent 
of the amount of basic pay paid under section 204 of title 37, United 
States Code, to the participant for each period of military service 
after December 1956; except, the amount to be paid for military service 
performed beginning on January 1, 1999, through December 31, 2002, 
shall be as follows:

      

                                ``7.25 percent of       January 1, 1999, to December 31, 1999.                  
                                 basic pay.                                                                     
                                 7.4 percent of basic   January 1, 2000, to December 31, 2000.                  
                                 pay.                                                                           
                                 7.5 percent of basic   January 1, 2001, to December 31, 2002.                  
                                 pay.                                                                           
                                 7 percent of basic     After December 31, 2002.                                
                                 pay.                                                                           
                                                                                                                

    ``(B) The amount of such payments shall be based on such evidence 
of basic pay for military service as the participant may provide or, if 
the Director determines sufficient evidence has not been provided to 
adequately determine basic pay for military service, such payment shall 
be based upon estimates of such basic pay provided to the Director 
under paragraph (4).''.
    (d) Foreign Service Retirement and Disability System.--
            (1) Agency contributions.--Notwithstanding section 805(a) 
        (1) and (2) of the Foreign Service Act of 1980 (22 U.S.C. 
        4045(a) (1) and (2))--
                    (A) during the period beginning on October 1, 1997, 
                through September 30, 2001, each agency employing a 
                participant in the Foreign Service Retirement and 
                Disability System shall contribute to the Foreign 
                Service Retirement and Disability Fund--
                            (i) 8.51 percent of the basic pay of each 
                        participant covered under section 805(a)(1) of 
                        such Act participating in the Foreign Service 
                        Retirement and Disability System; and
                            (ii) 9.01 percent of the basic pay of each 
                        participant covered under section 805(a)(2) of 
                        such Act participating in the Foreign Service 
                        Retirement and Disability System; and
                    (B) during the period beginning on October 1, 2001, 
                through September 30, 2002, each agency employing a 
                participant in the Foreign Service Retirement and 
                Disability System shall contribute to the Foreign 
                Service Retirement and Disability Fund--
                            (i) 8.6 percent of the basic pay of each 
                        participant covered under section 805(a)(1) of 
                        such Act participating in the Foreign Service 
                        Retirement and Disability System; and
                            (ii) 9.1 percent of the basic pay of each 
                        participant covered under section 805(a)(2) of 
                        such Act participating in the Foreign Service 
                        Retirement and Disability System.
            (2) Individual deductions, withholdings, and deposits.--
                    (A) In general.--Notwithstanding section 805(a)(1) 
                of the Foreign Service Act of 1980 (22 U.S.C. 
                4045(a)(1)), beginning on January 1, 1999, through 
                December 31, 2002, the amount withheld and deducted 
                from the basic pay of a participant in the Foreign 
                Service Retirement and Disability System shall be as 
                follows:

      

                                  ``7.25...........  January 1, 1999, to December 31, 1999.                     
                                   7.4.............  January 1, 2000, to December 31, 2000.                     
                                   7.5.............  January 1, 2001, to December 31, 2002.                     
                                   7...............  After December 31, 2002.''.                                
                                                                                                                

                    (B) Foreign service criminal investigators/
                inspectors of the office of the inspector general, 
                agency for international development.--Notwithstanding 
                section 805(a)(2) of the Foreign Service Act of 1980 
                (22 U.S.C. 4045(a)(2)), beginning on January 1, 1999, 
                through December 31, 2002, the amount withheld and 
                deducted from the basic pay of an eligible Foreign 
                Service criminal investigator/inspector of the Office 
                of the Inspector General, Agency for International 
                Development participating in the Foreign Service 
                Retirement and Disability System shall be as follows:

      

                                  ``7.75...........  January 1, 1999, to December 31, 1999.                     
                                   7.9.............  January 1, 2000, to December 31, 2000.                     
                                   8...............  January 1, 2001, to December 31, 2002.                     
                                   7.5.............  After December 31, 2002.''.                                
                                                                                                                

                    (C) Military service.--Section 805(e) of the 
                Foreign Service Act of 1980 (22 U.S.C. 4045(e)) is 
                amended--
                            (i) in subsection (e)(1) by striking 
                        ``Each'' and inserting ``Subject to paragraph 
                        (5), each''; and
                            (ii) by adding after paragraph (4) the 
                        following new paragraph:
            ``(5) Effective with respect to any period of military 
        service after December 31, 1998, the percentage of basic pay 
        under section 204 of title 37, United States Code, payable 
        under paragraph (1) shall be equal to the same percentage as 
        would be applicable under section 8334(c) of title 5, United 
        States Code, for that same period for service as an 
        employee.''.
    (e) Foreign Service Pension System.--
            (1) Individual deductions and withholdings from pay.--
                    (A) In general.--Section 856(a) of the Foreign 
                Service Act of 1980 (22 U.S.C. 4071e(a)) is amended to 
                read as follows:
    ``(a)(1) The employing agency shall deduct and withhold from the 
basic pay of each participant the applicable percentage of basic pay 
specified in paragraph (2) of this subsection minus the percentage then 
in effect under section 3101(a) of the Internal Revenue Code of 1986 
(26 U.S.C. 3101(a)) (relating to the rate of tax for old age, 
survivors, and disability insurance).
    ``(2) The applicable percentage under this subsection shall be as 
follows:

      

                                  ``7.5............  Before January 1, 1999.                                    
                                   7.75............  January 1, 1999, to December 31, 1999.                     
                                   7.9.............  January 1, 2000, to December 31, 2000.                     
                                   8...............  January 1, 2001, to December 31, 2002.                     
                                   7.5.............  After December 31, 2002.''.                                
                                                                                                                

                    (B) Volunteer service.--Subsection 854(c) of the 
                Foreign Service Act of 1980 (22 U.S.C. 4071c(c)) is 
                amended to read as follows:
    ``(c)(1) Credit shall be given under this System to a participant 
for a period of prior satisfactory service as--
            ``(A) a volunteer or volunteer leader under the Peace Corps 
        Act (22 U.S.C. 2501 et seq.),
            ``(B) a volunteer under part A of title VIII of the 
        Economic Opportunity Act of 1964, or
            ``(C) a full-time volunteer for a period of service of at 
        least 1 year's duration under part A, B, or C of title I of the 
        Domestic Volunteer Service Act of 1973 (42 U.S.C. 4951 et 
        seq.),
if the participant makes a payment to the Fund equal to 3 percent of 
pay received for the volunteer service; except, the amount to be paid 
for volunteer service beginning on January 1, 1999, through December 
31, 2002, shall be as follows:

      

                                  ``3.25...........  January 1, 1999, to December 31, 1999.                     
                                   3.4.............  January 1, 2000, to December 31, 2000.                     
                                   3.5.............  January 1, 2001, to December 31, 2002.                     
                                                                                                                

    ``(2) The amount of such payments shall be determined in accordance 
with regulations of the Secretary of State consistent with regulations 
for making corresponding determinations under chapter 83, title 5, 
United States Code, together with interest determined under regulations 
issued by the Secretary of State.''.
            (2) No reduction in agency contributions.--Agency 
        contributions under section 857 of the Foreign Service Act of 
        1980 (22 U.S.C. 4071f) shall not be reduced as a result of the 
        amendments made under paragraph (1) of this subsection.
    (f) Effective Date.--Except as otherwise provided, the amendments 
made by this section shall take effect on the first day of the first 
applicable pay period beginning on or after January 1, 1999.

SEC. 6002. GOVERNMENT CONTRIBUTIONS UNDER THE FEDERAL EMPLOYEES HEALTH 
              BENEFITS PROGRAM.

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

SEC. 6003. REPEAL OF AUTHORIZATION OF TRANSITIONAL APPROPRIATIONS FOR 
              THE UNITED STATES POSTAL SERVICE.

    (a) Repeal.--
            (1) In general.--Section 2004 of title 39, United States 
        Code, is repealed.
            (2) Technical and conforming amendments.--
                    (A) The table of sections for chapter 20 of such 
                title is amended by repealing the item relating to 
                section 2004.
                    (B) Section 2003(e)(2) of such title is amended by 
                striking ``sections 2401 and 2004'' each place it 
                appears and inserting ``section 2401''.
    (b) Clarification That Liabilities Formerly Paid Pursuant to 
Section 2004 Remain Liabilities Payable by the Postal Service.--Section 
2003 of title 39, United States Code, is amended by adding at the end 
the following:
    ``(h) Liabilities of the former Post Office Department to the 
Employees' Compensation Fund (appropriations for which were authorized 
by former section 2004, as in effect before the effective date of this 
subsection) shall be liabilities of the Postal Service payable out of 
the Fund.''.
    (c) Effective Date.--This section and the amendments made by this 
section shall be effective as of October 1, 1997.

                     Subtitle B--GSA Property Sales

SEC. 6011. SALE OF GOVERNORS ISLAND, NEW YORK.

    (a) In General.--Notwithstanding any other provision of law, the 
Administrator of General Services shall, no earlier than fiscal year 
2002, dispose of by sale at fair market value all rights, title, and 
interests of the United States in and to the land of, and improvements 
to, Governors Island, New York.
    (b) Right of First Offer.--Before a sale is made under subsection 
(a) to any other parties, the State of New York and the city of New 
York shall be given the right of first offer to purchase all or part of 
Governors Island at fair market value as determined by the 
Administrator of General Services. Not later than 90 days after 
notification by the Administrator of General Services, such right may 
be exercised by either the State of New York or the city of New York or 
by both parties acting jointly.
    (c) Proceeds.--Proceeds from the disposal of Governors Island under 
subsection (a) shall be deposited in the general fund of the Treasury 
and credited as miscellaneous receipts.

SEC. 6012. SALE OF AIR RIGHTS.

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

           TITLE VII--COMMITTEE ON LABOR AND HUMAN RESOURCES

SEC. 7001. MANAGEMENT AND RECOVERY OF RESERVES.

    (a) Amendment.--Section 422 of the Higher Education Act of 1965 (20 
U.S.C. 1072) is amended by adding after subsection (g) the following 
new subsection:
    ``(h) Recall of Reserves; Limitations on Use of Reserve Funds and 
Assets.--
            (1) In general.--Notwithstanding any other provision of 
        law, the Secretary shall, except as otherwise provided in this 
        subsection, recall $1,028,000,000 from the reserve funds held 
        by guaranty agencies under this part (which for purposes of 
        this subsection shall include any reserve funds held by, or 
        under the control of, any other entity) on September 1, 2002.
            ``(2) Deposit.--Funds recalled by the Secretary under this 
        subsection shall be deposited in the Treasury.
            ``(3) Equitable share.--The Secretary shall require each 
        guaranty agency to return reserve funds under paragraph (1) 
        based on such agency's equitable share of excess reserve funds 
        held by guaranty agencies as of September 30, 1996. For 
        purposes of this paragraph, a guaranty agency's equitable share 
        of excess reserve funds shall be determined as follows:
                    ``(A) The Secretary shall compute each agency's 
                reserve ratio by dividing (i) the amount held in such 
                agency's reserve (including funds held by, or under the 
                control of, any other entity) as of September 30, 1996, 
                by (ii) the original principal amount of all loans for 
                which such agency has an outstanding insurance 
                obligation.
                    ``(B) If the reserve ratio of any agency as 
                computed under subparagraph (A) exceeds 1.12 percent, 
                the agency's equitable share shall include so much of 
                the amounts held in such agency's reserve fund as 
                exceed a reserve ratio of 1.12 percent.
                    ``(C) If any additional amount is required to be 
                recalled under paragraph (1) (after deducting the total 
                of the equitable shares calculated under subparagraph 
                (B)), the agencies' equitable shares shall include 
                additional amounts--
                            ``(i) determined by imposing on each such 
                        agency an equal percentage reduction in the 
                        amount of each agency's reserve fund remaining 
                        after deduction of the amount recalled under 
                        subparagraph (B); and
                            ``(ii) the total of which equals the 
                        additional amount that is required to be 
                        recalled under paragraph (1) (after deducting 
                        the total of the equitable shares calculated 
                        under subparagraph (B)).
            ``(4) Restricted accounts.--Within 90 days after the 
        beginning of each of fiscal years 1998 through 2002, each 
        guaranty agency shall transfer a portion of each agency's 
        equitable share determined under paragraph (3) to a restricted 
        account established by the guaranty agency that is of a type 
        selected by the guaranty agency with the approval of the 
        Secretary. Funds transferred to such restricted accounts shall 
        be invested in obligations issued or guaranteed by the United 
        States or in other similarly low-risk securities. A guaranty 
        agency shall not use the funds in such a restricted account for 
        any purpose without the express written permission of the 
        Secretary, except that a guaranty agency may use the earnings 
        from such restricted account for activities to reduce student 
        loan defaults under this part. The portion required to be 
        transferred shall be determined as follows:
                    ``(A) In fiscal year 1998--
                            ``(i) all agencies combined shall transfer 
                        to a restricted account an amount equal to one-
                        fifth of the total amount recalled under 
                        paragraph (1);
                            ``(ii) each agency with a reserve ratio (as 
                        computed under paragraph (3)(A)) that exceeds 2 
                        percent shall transfer to a restricted account 
                        so much of the amounts held in such agency's 
                        reserve fund as exceed a reserve ratio of 2 
                        percent; and
                            ``(iii) each agency shall transfer any 
                        additional amount required under clause (i) 
                        (after deducting the amount transferred under 
                        clause (ii)) by transferring an amount that 
                        represents an equal percentage of each agency's 
                        equitable share to a restricted account.
                    ``(B) In fiscal years 1999 through 2002, each 
                agency shall transfer an amount equal to one-fourth of 
                the total amount remaining of the agency's equitable 
                share (after deduction of the amount transferred under 
                subparagraph (A)).
            ``(5) Shortage.--If, on September 1, 2002, the total amount 
        in the restricted accounts described in paragraph (4) is less 
        than the amount the Secretary is required to recall under 
        paragraph (1), the Secretary may require the return of the 
        amount of the shortage from other reserve funds held by 
        guaranty agencies under procedures established by the 
        Secretary.
            ``(6) Prohibition.--The Secretary shall not have any 
        authority to direct a guaranty agency to return reserve funds 
        under subsection (g)(1)(A) during the period from the date of 
        enactment of this subsection through September 30, 2002, and 
        any reserve funds otherwise returned under subsection (g)(1) 
        during such period shall be treated as amounts recalled under 
        this subsection and shall not be available under subsection 
        (g)(4).
            ``(7) Definition.--For purposes of this subsection the term 
        `reserve funds' when used with respect to a guaranty agency--
                    ``(A) includes any reserve funds held by, or under 
                the control of, any other entity; and
                    ``(B) does not include buildings, equipment, or 
                other nonliquid assets.''.
    (b) Conforming Amendment.--Section 428(c)(9)(A) of the Higher 
Education Act of 1965 (20 U.S.C. 1078(c)(9)(A)) is amended--
            (1) in the first sentence, by striking ``for the fiscal 
        year of the agency that begins in 1993''; and
            (2) by striking the third sentence.

SEC. 7002. REPEAL OF DIRECT LOAN ORIGINATION FEES TO INSTITUTIONS OF 
              HIGHER EDUCATION.

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

SEC. 7003. FUNDS FOR ADMINISTRATIVE EXPENSES.

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

SEC. 7004. EXTENSION OF STUDENT AID PROGRAMS.

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

               TITLE VIII--COMMITTEE ON VETERANS' AFFAIRS

SEC. 8001. SHORT TITLE; TABLE OF CONTENTS.

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

               TITLE VIII--COMMITTEE ON VETERANS' AFFAIRS

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

Sec. 8011. Enhanced loan asset sale authority.
Sec. 8012. Home loan fees.
Sec. 8013. Procedures applicable to liquidation sales on defaulted home 
                            loans guaranteed by the Department of 
                            Veterans Affairs.
Sec. 8014. Income verification authority.
Sec. 8015. Limitation on pension for certain recipients of medicaid-
                            covered nursing home care.
         Subtitle B--Copayments and Medical Care Cost Recovery

Sec. 8021. Authority to require that certain veterans make copayments 
                            in exchange for receiving health care 
                            benefits.
Sec. 8022. Medical care cost recovery authority.
Sec. 8023. Department of Veterans Affairs medical-care receipts.
                       Subtitle C--Other Matters

Sec. 8031. Rounding down of cost-of-living adjustments in compensation 
                            and DIC rates in fiscal years 1998 through 
                            2002.
Sec. 8032. Increase in amount of home loan fees for the purchase of 
                            repossessed homes from the Department of 
                            Veterans Affairs.
Sec. 8033. Withholding of payments and benefits.

             Subtitle A--Extension of Temporary Authorities

SEC. 8011. ENHANCED LOAN ASSET SALE AUTHORITY.

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

SEC. 8012. HOME LOAN FEES.

    Section 3729(a) of title 38, United States Code, is amended--
            (1) in paragraph (4), by striking out ``October 1, 1998'' 
        and inserting in lieu thereof ``October 1, 2002''; and
            (2) in paragraph (5)(C), by striking out ``October 1, 
        1998'' and inserting in lieu thereof ``October 1, 2002''.

SEC. 8013. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED HOME 
              LOANS GUARANTEED BY THE DEPARTMENT OF VETERANS AFFAIRS.

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

SEC. 8014. INCOME VERIFICATION AUTHORITY.

    Section 5317(g) of title 38, United States Code, is amended by 
striking out ``September 30, 1998'' and inserting in lieu thereof 
``September 30, 2002''.

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

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

         Subtitle B--Copayments and Medical Care Cost Recovery

SEC. 8021. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE COPAYMENTS 
              IN EXCHANGE FOR RECEIVING HEALTH CARE BENEFITS.

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

SEC. 8022. MEDICAL CARE COST RECOVERY AUTHORITY.

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

SEC. 8023. DEPARTMENT OF VETERANS AFFAIRS MEDICAL-CARE RECEIPTS.

    (a) Allocation of Receipts.--(1) Chapter 17 of title 38, United 
States Code, is amended by inserting after section 1729 the following 
new section:
``Sec. 1729A. Department of Veterans Affairs Medical Care Collections 
              Fund
    ``(a) There is in the Treasury a fund to be known as the Department 
of Veterans Affairs Medical Care Collections Fund.
    ``(b) Amounts recovered or collected after June 30, 1997, under any 
of the following provisions of law shall be deposited in the fund:
            ``(1) Section 1710(f) of this title.
            ``(2) Section 1710(g) of this title.
            ``(3) Section 1711 of this title.
            ``(4) Section 1722A of this title.
            ``(5) Section 1729 of this title.
            ``(6) Public Law 87-693, popularly known as the `Federal 
        Medical Care Recovery Act' (42 U.S.C. 2651 et seq.), to the 
        extent that a recovery or collection under that law is based on 
        medical care and services furnished under this chapter.
    ``(c)(1) Subject to the provisions of appropriations Acts, amounts 
in the fund shall be available to the Secretary for the following 
purposes:
            ``(A) Furnishing medical care and services under this 
        chapter, to be available during any fiscal year for the same 
        purposes and subject to the same limitations as apply to 
        amounts appropriated for that fiscal year for medical care.
            ``(B) Expenses of the Department for the identification, 
        billing, auditing, and collection of amounts owed the United 
        States by reason of medical care and services furnished under 
        this chapter.
    ``(2) Amounts available under paragraph (1) shall be available only 
for the purposes set forth in that paragraph.
    ``(d) The Secretary shall ensure that the amount made available to 
a Veterans Integrated Service Network in a fiscal year from amounts in 
the fund is an amount equal to the amount recovered or collected by the 
Veterans Integrated Service Network under a provision of law referred 
to in subsection (b) during the fiscal year.''.
    (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1729 the 
following new item:

``1729A. Department of Veterans Affairs Medical Care Collections 
                            Fund.''
    (b) Conforming Amendments.--Chapter 17 of such title is amended as 
follows:
            (1) Section 1710(f) is amended by striking out paragraph 
        (4) and redesignating paragraph (5) as paragraph (4).
            (2) Section 1710(g) is amended by striking out paragraph 
        (4).
            (3) Section 1722A(b) is amended by striking out 
        ``Department of Veterans Affairs Medical-Care Cost Recovery 
        Fund'' and inserting in lieu thereof ``Department of Veterans 
        Affairs Medical Care Collections Fund''.
            (4) Section 1729 is amended by striking out subsection (g).
    (c) Disposition of Funds in Medical-Care Cost Recovery Fund.--The 
amount of the unobligated balance remaining in the Department of 
Veterans Affairs Medical-Care Cost Recovery Fund (established pursuant 
to section 1729(g)(1) of title 38, United States Code) at the close of 
June 30, 1997, shall be deposited, not later than December 31, 1997, in 
the Department of Veterans Affairs Medical Care Collections Fund 
established by section 1729A(a) of title 38, United States Code, as 
added by subsection (a).

                       Subtitle C--Other Matters

SEC. 8031. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION 
              AND DIC RATES IN FISCAL YEARS 1998 THROUGH 2002.

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

``1103. Cost-of-living adjustments.''.
    (b) DIC COLAs.--(1) Chapter 13 of title 38, United States Code, is 
amended by inserting after section 1302 the following new section:
``Sec. 1303. Cost-of-living adjustments
    ``(a) In the computation of cost-of-living adjustments for fiscal 
years 1998 through 2002 in the rates of dependency and indemnity 
compensation payable under this chapter, such adjustments (except as 
provided in subsection (b)) shall be made by a uniform percentage that 
is no more than the percentage equal to the social security increase 
for that fiscal year, with all increased monthly rates (other than 
increased rates equal to a whole dollar amount) rounded down to the 
next lower whole dollar amount.
    ``(b)(1) Cost-of-living adjustments for each of fiscal years 1998 
through 2002 in old-law DIC rates shall be in a whole dollar amount 
that is no greater than the amount by which the new-law DIC rate is 
increased for that fiscal year as determined under subsection (a).
    ``(2) For purposes of paragraph (1):
            ``(A) The term `old-law DIC rates' means the dollar amounts 
        in effect under section 1311(a)(3) of this title.
            ``(B) The term `new-law DIC rate' means the dollar amount 
        in effect under section 1311(a)(1) of this title.
    ``(c) For purposes of this section, the term `social security 
increase' means the percentage by which benefit amounts payable under 
title II of the Social Security Act (42 U.S.C. 401 et seq.) are 
increased for any fiscal year as a result of a determination under 
section 215(i) of such Act (42 U.S.C. 415(i)).''.
    (2) The table of sections at the beginning of such chapter is 
amended by inserting after the item relating to section 1302 the 
following new item:

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

SEC. 8032. INCREASE IN AMOUNT OF HOME LOAN FEES FOR THE PURCHASE OF 
              REPOSSESSED HOMES FROM THE DEPARTMENT OF VETERANS 
              AFFAIRS.

    Section 3729(a) of title 38, United States Code, is amended--
            (1) in paragraph (2)--
                    (A) in subparagraph (A), by striking out ``or 
                3733(a)'';
                    (B) in subparagraph (D), by striking out ``and'' at 
                the end;
                    (C) in subparagraph (E), by striking out the period 
                at the end and inserting in lieu thereof ``; and''; and
                    (D) by adding at the end the following:
            ``(F) in the case of a loan made under section 3733(a) of 
        this title, the amount of such fee shall be 2.25 percent of the 
        total loan amount.''; and
            (2) in paragraph (4), as amended by section 8012(1) of this 
        Act, by striking out ``or (E)'' and inserting in lieu thereof 
        ``(E), or (F)''.

SEC. 8033. WITHHOLDING OF PAYMENTS AND BENEFITS.

    (a) Notice Required in Lieu of Consent or Court Order.--Section 
3726 of title 38, United States Code, is amended--
            (1) by inserting ``(a)'' before ``No officer''; and
            (2) by striking out ``unless'' and all that follows and 
        inserting in lieu thereof the following: ``unless the Secretary 
        provides such veteran or surviving spouse with notice by 
        certified mail with return receipt requested of the authority 
        of the Secretary to waive the payment of indebtedness under 
        section 5302(b) of this title.
    ``(b) If the Secretary does not waive the entire amount of the 
liability, the Secretary shall then determine whether the veteran or 
surviving spouse should be released from liability under section 
3713(b) of this title.
    ``(c) If the Secretary determines that the veteran or surviving 
spouse should not be released from liability, the Secretary shall 
notify the veteran or surviving spouse of that determination and 
provide a notice of the procedure for appealing that determination, 
unless the Secretary has previously made such determination and 
notified the veteran or surviving spouse of the procedure for appealing 
the determination.''.
    (b) Conforming Amendment.--Section 5302(b) of such title is amended 
by inserting ``with return receipt requested'' after ``certified 
mail''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to any indebtedness to the United States arising 
pursuant to chapter 37 of title 38, United States Code, before, on, or 
after the date of enactment of this Act.