[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2973 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 2973

  To amend title XVIII of the Social Security Act to provide for the 
   expeditious coverage of new medical technology under the Medicare 
Program and to establish an Office of Technology and Innovation within 
             the Centers for Medicare & Medicaid Services.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 2, 2001

  Mr. Ramstad (for himself and Mrs. Thurman) introduced the following 
  bill; which was referred to the Committee on Ways and Means, and in 
 addition to the Committee on Energy and Commerce, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the juridiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
  To amend title XVIII of the Social Security Act to provide for the 
   expeditious coverage of new medical technology under the Medicare 
Program and to establish an Office of Technology and Innovation within 
             the Centers for Medicare & Medicaid Services.

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

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

    (a) Short Title.--The amendments made by this Act may be cited as 
the ``Medicare Innovation Responsiveness Act of 2001''.
    (b) References.--Except as otherwise specified, whenever in this 
Act an amendment or repeal is expressed in terms of an amendment to or 
repeal of a section or other provision, the references shall be 
considered to be made to that section or other provision of the Social 
Security Act.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; references; table of contents.
Sec. 2. Deadlines for implementing national coverage, coding, and 
                            payment determinations.
Sec. 3. Office of Technology and Innovation.
Sec. 4. Annual adjustments to Medicare payment systems for changes in 
                            technology and medical practice using 
                            internal and external data.
Sec. 5. Recognition of new medical technologies under inpatient 
                            hospital PPS.
Sec. 6. Improvements to the HCPCS coding assignment, inpatient coding 
                            assignment, and drg assignment processes.
Sec. 7. Improving inherent reasonableness.

SEC. 2. DEADLINES FOR IMPLEMENTING NATIONAL COVERAGE, CODING, AND 
              PAYMENT DETERMINATIONS.

    (a) In General.--Section 1862 (42 U.S.C. 1395y) is amended by 
inserting after subsection (c) the following new subsection:
    ``(d)(1) In making a national coverage determination (as defined in 
paragraph (1)(B) of section 1869(f)) the Secretary shall ensure that--
            ``(A) the public is afforded notice and opportunity to 
        comment prior to implementation by the Secretary of the 
        determination;
            ``(B) meetings of advisory committees established under 
        section 1114(f) with respect to the determination are made on 
        the record;
            ``(C) in making the determination, the Secretary has 
        considered applicable information (including clinical 
        experience and medical, technical, and scientific evidence) 
        with respect to the subject matter of the determination;
            ``(D) in issuing the determination, provide a clear 
        statement of the basis for the determination (including 
        responses to comments received from the public), the 
        assumptions underlying that basis; and
            ``(E) make available to the public the data (other than 
        proprietary data) considered in making the determination.
    ``(2)(A) Subject to the succeeding provisions of this paragraph, in 
making a national coverage determination, upon receipt of a request for 
the national coverage determination from an interested party, the 
Secretary shall make the national coverage determination under 
subparagraph (B) and implement (if applicable) the determination 
pursuant to subparagraph (C) for that new technology within the 
following timeframes:
            ``(i) In the case of a national coverage determination that 
        does not require a technology assessment described in 
        subparagraph (E), not later than the end of the 6-month period 
        that begins on the date a request for the national coverage 
        determination has been received by the Secretary, 
        notwithstanding the receipt by the Secretary of new evidence 
        (if any) during such period.
            ``(ii) In the case of a national coverage determination 
        that requires such a technology assessment, not later than the 
        end of the 12-month period that begins on the date a request 
        for the national coverage determination has been received by 
        the Secretary.
In this subparagraph, the term `interested party' means individuals 
entitled to benefits under part A, or enrolled under part B, or both, 
who are in need of the items or services that are the subject of the 
coverage determination, providers of services, physicians, 
practitioners, suppliers, and manufacturers of such items or services.
    ``(B) In making a national coverage determination under this 
subsection, the Secretary shall take one of the following actions:
            ``(i) Issue a national coverage determination, with or 
        without limitations.
            ``(ii) Issue a national noncoverage determination.
            ``(iii) Issue a determination that no national coverage or 
        noncoverage determination is appropriate as of the end of such 
        period with respect to national coverage of such items or 
        services.
    ``(C) With respect to the implementation a national coverage 
determination made under subparagraph (B)(i), the Secretary shall--
            ``(i) determine what code, if any, is assigned to the 
        particular item or service;
            ``(ii) determine the amount of payment to be made under 
        this title for the item or service;
            ``(iii) in the case of inpatient hospital services for 
        which payment is made under section 1886(d), assign the item or 
        service, and codes for the item or service, to appropriate 
        diagnosis related groups;
            ``(iv) incorporate the coverage, coding, and payment 
        determinations into the information processing systems of the 
Secretary and fiscal intermediaries and carriers; and
            ``(v) take such other steps as are necessary to make 
        payments for the item or service no later than the end of the 
        applicable period described in subparagraph (A).
    ``(D) If the Secretary fails to take an action under subparagraph 
(B) within the applicable period under subparagraph (A), the Secretary 
shall issue a notice that includes the following information:
            ``(i) A statement that a national coverage determination 
        under subparagraph (B) cannot be made and (if applicable) 
        implemented under subparagraph (C) within the applicable time 
        period.
            ``(ii) The identification of substantive issues 
        outstanding.
            ``(iii) A statement of what is required, including the 
        process involved, to resolve those issues.
            ``(iv) The date by which the Secretary will make a national 
        coverage determination under subparagraph (B) and (if 
        applicable) implement the national coverage determination under 
        subparagraph (C).
    ``(E)(i) A technology assessment referred to in subparagraph (A) is 
a formal, written technology assessment, conducted by an entity or 
organization other than the Centers for Medicare & Medicaid Services 
(in this subparagraph referred to as the `CMS'), or review by an 
advisory committee appointed to advise the Administrator of the CMS on 
matters relating to the interpretation, application, or implementation 
of subsection (a), that the Administrator reasonably finds, in a 
written notice issued before the end of the 6-month period specified in 
subparagraph (A)(i), that such an assessment or review is necessary for 
the Administrator to make the national coverage determination.
    ``(ii) Such technology assessment or review shall only be 
considered necessary if the CMS lacks adequate expertise to evaluate 
the matter itself.
    ``(F) In making a national coverage determination under 
subparagraph (B), the Secretary shall include all the information 
described in subparagraphs (C) and (D) of paragraph (1), and in the 
case of the implementation of the national coverage determination, 
applicable codes and payment amounts for the new item or service.''.
    (b) Conforming Amendment.--Subsection (a) of such section is 
amended by striking the third sentence.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act, and apply to requests 
for national coverage determinations made on or after the date that is 
90 days after such effective date.

SEC. 3. OFFICE OF TECHNOLOGY AND INNOVATION.

    (a) Establishment.--Not later than 90 days after the date of 
enactment of this Act, the Secretary of Health and Human Services shall 
establish an Office of Technology and Innovation in the Centers for 
Medicare & Medicaid Services.
    (b) Director.--The Office of Technology and Innovation shall be 
headed by a Director appointed by the Secretary. The Director shall be 
in direct line of authority to the Administrator of the Centers for 
Medicare & Medicaid Services. The Director shall be a noncareer 
appointee in the Senior Executive Service (as defined in section 
3132(a)(7) of title 5, United States Code).
    (c) Duties.--The duties of the Director are as follows:
            (1) Promoting access to new technologies.--The Director 
        shall promote access by medicare beneficiaries to new medical 
        technologies and innovations.
            (2) Improvement and oversight of implementation of coverage 
        determinations.--The Director shall--
                    (A) improve collaboration and coordination between 
                officials responsible for the coverage, coding, and 
                payment processes in order to facilitate timely access 
                to new items and services for beneficiaries;
                    (B) monitor the decisionmaking of the Secretary on 
                coverage, coding, and payment for new items or 
                services;
                    (C) Information center.--The Director shall serve 
                as a source of information for interested parties 
                regarding the Secretary's activities concerning new 
                items or services, including assisting such parties in 
                securing determinations, and the implementation of 
                determinations, respecting coverage, coding, and 
                payment under title XVIII of the Social Security Act, 
                including implementation of the steps described in 
                section 1869(f)(4)(A) of such Act (42 U.S.C. 
                1395ff(f)(4)(A)).
                    (D) Preparation of reports to Congress.--The 
                Director shall prepare reports to Congress required 
                under section 1869(f)(7) of such Act (42 U.S.C. 
                1395ff(f)(7)), and shall make such reports available to 
                the public.

SEC. 4. ANNUAL ADJUSTMENTS TO MEDICARE PAYMENT SYSTEMS FOR CHANGES IN 
              TECHNOLOGY AND MEDICAL PRACTICE USING INTERNAL AND 
              EXTERNAL DATA.

    (a) Inpatient PPS.--Section 1886(d)(4) (42 U.S.C. 1395ww(d)(4)) is 
amended by adding at the end the following new subparagraph:
    ``(D)(i)(I) In determining annual adjustments under subparagraph 
(C), the Secretary may not decline to use data held by the Secretary in 
the administration of the program established under this title if the 
data reflect a representative sample of cases or may not establish a 
uniform period of time (such as one year) from which such data must be 
drawn.
    ``(II) The Secretary shall establish a reasonable deadline for the 
submission of a request for adjustment based on data held by the 
Secretary to be used in making the adjustments required by subparagraph 
(C). In no event may the deadline established under this paragraph be 
more than 8 months before the first day of the payment update period 
for which the adjustment or adjustments to which the data relate would 
be effective.
    ``(ii)(I) Subject to the succeeding provisions of this clause, in 
determining the adjustments under subparagraph (C), the Secretary shall 
utilize data other than data held by the Secretary in the 
administration of the program established under this title if such 
other data are based on a representative sample of cases.
    ``(II) In determining the adjustments under subparagraph (C), the 
Secretary may not decline to use data other than data held by the 
Secretary if such other data enable the Secretary to identify or refine 
data held by the Secretary for use in making such an adjustment and 
such data are based on a representative sample of cases; or may not 
establish a uniform period of time (such as one year) from which such 
data must be drawn.
    ``(III) Nothing in this clause shall be construed as requiring the 
Secretary to identify all claims submitted under the payment system 
established under this subsection involving the use of a medical 
technology before the Secretary may make the adjustments under this 
subparagraph with respect to such technology; or as authorizing the 
Secretary to defer action on such an adjustment until all such claims 
are identifiable.
    ``(IV) The Secretary shall establish a reasonable deadline for the 
submission of data other than data held by the Secretary to be used in 
making the adjustments required by subparagraph (C). In no event may 
the deadline established under this subclause be more than 10 months 
before the first day of the payment update period for which the 
adjustment or adjustments to which the data relate would be effective.
    ``(V) For purposes of this clause, the term `sufficient external 
data' means data that can reasonably be provided by the sponsor of the 
application for additional payment, or that is derived from an 
investigation conducted under section 520(g) of the Federal Food, Drug, 
and Cosmetic Act.''.
    (b) Physician Fee Schedule.--Section 1848(c)(2) (42 U.S.C. 1395w-
4(c)(2)) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Use of data.--
                            ``(i) Internal Data Held by the 
                        Secretary.--
                                    ``(I) In general.--In determining 
                                annual adjustments under subparagraph 
                                (B)(ii), the Secretary may not decline 
                                to use data held by the Secretary in 
                                the administration of the program 
                                established under this title if the 
                                data reflect a representative sample of 
                                cases or may not establish a uniform 
                                period of time (such as one year) from 
                                which such data must be drawn.
                                    ``(II) Deadline for supplying 
                                internal data.--The Secretary shall 
                                establish a reasonable deadline for the 
                                submission of a request for adjustment 
                                based on data held by the Secretary to 
                                be used in making the adjustments 
                                required by subparagraph (B)(ii). In no 
                                event may the deadline established 
                                under this paragraph be more than 8 
                                months before the first day of the 
                                payment update period for which the 
                                adjustment or adjustments to which the 
                                data relate would be effective.
                            ``(ii) External Data.--
                                    ``(I) In general.--Subject to the 
                                succeeding provisions of this clause, 
                                in determining the adjustments under 
                                subparagraph (B)(ii), the Secretary 
                                shall utilize data other than data held 
                                by the Secretary in the administration 
                                of the program established under this 
                                title if such other data are based on a 
                                representative sample of cases.
                                    ``(II) External data facilitating 
                                the use of internal data.--In 
                                determining the adjustments under 
                                subparagraph (B)(ii), the Secretary may 
                                not decline to use data other than data 
                                held by the Secretary if such other 
                                data enable the Secretary to identify 
                                or refine data held by the Secretary 
                                for use in making such an adjustment 
                                and such data are based on a 
                                representative sample of cases; or may 
                                not establish a uniform period of time 
                                (such as one year) from which such data 
                                must be drawn.
                                    ``(III) Clarification.--Nothing in 
                                this clause shall be construed as 
                                requiring the Secretary to identify all 
                                claims submitted under the payment 
                                system established under this section 
                                involving the use of a medical 
                                technology before the Secretary may 
                                make the adjustments under this 
                                subparagraph with respect to such 
                                technology; or as authorizing the 
                                Secretary to defer action on such an 
                                adjustment until all such claims are 
                                identifiable.
                                    ``(IV) Deadline for supplying 
                                external data.--The Secretary shall 
                                establish a reasonable deadline for the 
                                submission of data other than data held 
                                by the Secretary to be used in making 
                                the adjustments required by 
                                subparagraph (B)(ii). In no event may 
                                the deadline established under this 
                                subclause be more than 10 months before 
                                the first day of the payment update 
                                period for which the adjustment or 
                                adjustments to which the data relate 
                                would be effective.
                                    ``(V) Definition.--For purposes of 
                                this clause, the term `sufficient 
                                external data' means data that can 
                                reasonably be provided by the sponsor 
                                of the application for additional 
                                payment, or that is derived from an 
                                investigation conducted under section 
                                520(g) of the Federal Food, Drug, and 
                                Cosmetic Act.''.
    (c) Ambulatory Surgical Center Payments.--Section 1833(i)(2) (42 
U.S.C. 1395l(i)(2)) is amended by adding at the end the following new 
subparagraphs:
    ``(D) The Secretary shall review not less often than annually and 
revise the updates under subparagraphs (A) and (B) 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.
    ``(E)(i)(I) In revising the updates under subparagraph (D), the 
Secretary may not decline to use data held by the Secretary in the 
administration of the program established under this title if the data 
reflect a representative sample of cases or may not establish a uniform 
period of time (such as one year) from which such data must be drawn.
    ``(II) The Secretary shall establish a reasonable deadline for the 
submission of a request for revised updates based on data held by the 
Secretary to be used in making the revised updates under subparagraph 
(D). In no event may the deadline established under this paragraph be 
more than 8 months before the first day of the payment update period 
for which the adjustment or adjustments to which the data relate would 
be effective.
    ``(ii)(I) Subject to the succeeding provisions of this clause, in 
determining the revised updates under subparagraph (D), the Secretary 
shall utilize data other than data held by the Secretary in the 
administration of the program established under this title if such 
other data are based on a representative sample of cases.
    ``(II) In determining the revised updates under subparagraph (D), 
the Secretary may not decline to use data other than data held by the 
Secretary if such other data enable the Secretary to identify or refine 
data held by the Secretary for use in making such an adjustment and 
such data are based on a representative sample of cases; or may not 
establish a uniform period of time (such as one year) from which such 
data must be drawn.
    ``(III) Nothing in this clause shall be construed as requiring the 
Secretary to identify all claims submitted under the payment system 
established under this paragraph involving the use of a medical 
technology before the Secretary may make the revised adjustments under 
subparagraph (D) with respect to such technology; or as authorizing the 
Secretary to defer action on such a revised update until all such 
claims are identifiable.
    ``(IV) The Secretary shall establish a reasonable deadline for the 
submission of data other than data held by the Secretary to be used in 
making the revised updates required by subparagraph (D). In no event 
may the deadline established under this subclause be more than 10 
months before the first day of the payment update period for which the 
adjustment or adjustments to which the data relate would be effective.
    ``(V) For purposes of this clause, the term `sufficient external 
data' means data that can reasonably be provided by the sponsor of the 
application for additional payment, or that is derived from an 
investigation conducted under section 520(g) of the Federal Food, Drug, 
and Cosmetic Act.''.
    (d) Outpatient PPS.--Section 1833(t)(9) (42 U.S.C. 1395l(t)(9)) is 
amended by adding at the end the following new subparagraph:
                    ``(D) Use of data.--
                            ``(i) Internal Data Held by the 
                        Secretary.--
                                    ``(I) In general.--In determining 
                                annual adjustments under subparagraph 
                                (A), the Secretary may not decline to 
                                use data held by the Secretary in the 
                                administration of the program 
                                established under this title if the 
                                data reflect a representative sample of 
                                cases or may not establish a uniform 
                                period of time (such as one year) from 
                                which such data must be drawn.
                                    ``(II) Deadline for supplying 
                                internal data.--The Secretary shall 
                                establish a reasonable deadline for the 
                                submission of a request for adjustment 
                                based on data held by the Secretary to 
                                be used in making the adjustments 
                                required by subparagraph (A). In no 
                                event may the deadline established 
                                under this paragraph be more than 8 
                                months before the first day of the 
                                payment update period for which the 
                                adjustment or adjustments to which the 
                                data relate would be effective.
                            ``(ii) External Data.--
                                    ``(I) In general.--Subject to the 
                                succeeding provisions of this clause, 
                                in determining the adjustments under 
                                subparagraph (A), the Secretary shall 
                                utilize data other than data held by 
                                the Secretary in the administration of 
                                the program established under this 
                                title if such other data are based on a 
                                representative sample of cases.
                                    ``(II) External data facilitating 
                                the use of internal data.--In 
                                determining the adjustments under 
                                subparagraph (A), the Secretary may not 
                                decline to use data other than data 
                                held by the Secretary if such other 
                                data enable the Secretary to identify 
                                or refine data held by the Secretary 
                                for use in making such an adjustment 
                                and such data are based on a 
                                representative sample of cases; or may 
                                not establish a uniform period of time 
                                (such as one year) from which such data 
                                must be drawn.
                                    ``(III) Clarification.--Nothing in 
                                this clause shall be construed as 
                                requiring the Secretary to identify all 
                                claims submitted under the payment 
                                system established under this 
                                subsection involving the use of a 
                                medical technology before the Secretary 
                                may make the adjustments under this 
                                subparagraph with respect to such 
                                technology; or as authorizing the 
                                Secretary to defer action on such an 
                                adjustment until all such claims are 
                                identifiable.
                                    ``(IV) Deadline for supplying 
                                external data.--The Secretary shall 
                                establish a reasonable deadline for the 
                                submission of data other than data held 
                                by the Secretary to be used in making 
                                the adjustments required by 
                                subparagraph (A). In no event may the 
                                deadline established under this 
                                subclause be more than 10 months before 
                                the first day of the payment update 
                                period for which the adjustment or 
                                adjustments to which the data relate 
                                would be effective.
                                    ``(V) Definition.--For purposes of 
                                this clause, the term `sufficient 
                                external data' means data that can 
                                reasonably be provided by the sponsor 
                                of the application for additional 
                                payment, or that is derived from an 
                                investigation conducted under 
section 520(g) of the Federal Food, Drug, and Cosmetic Act.''.
    (e) Effective Dates.--The amendments made by this section shall 
apply with respect to items and services furnished on or after October 
1, 2002.

SEC. 5. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PPS.

    Subparagraphs (K) and (L) of section 1886(d)(5) (42 U.S.C. 
1395ww(d)(5)) are amended to read as follows:
                    ``(K)(i) The Secretary shall by regulation 
                establish a mechanism under which new medical services 
                and technologies are incorporated into the payment 
                system established under this subsection. Such 
                mechanism shall--
                            ``(I) meet the requirements of this 
                        subparagraph and subparagraph (L); and
                            ``(II) apply to all discharges occurring on 
                        or after October 1, 2002.
                The Secretary may establish such mechanism by interim 
                final regulation (in the publications required by 
                subsection (e)(5) for a fiscal year or otherwise).
                    ``(ii) The Secretary--
                            ``(I) shall accept an application for 
                        incorporation of a new medical service or 
                        technology into such system that is submitted 
                        on or after the date on which a request is made 
                        for assignment of an inpatient hospital code 
                        (as defined in clause (viii)(I)) for the 
                        service or technology;
                            ``(II) shall permit an applicant to submit 
                        a separate application with respect to each 
                        diagnosis-related group established under 
                        paragraph (4) that the applicant believes 
                        (based on principal and secondary diagnoses and 
                        other variables used to assign specific 
                        hospital discharges to such groups) will 
                        involve the use of such service or technology 
                        or to include all such groups in a single, 
                        consolidated application;
                            ``(III) shall identify all such groups 
                        (established under paragraph (4)) that the 
                        Secretary determines (based on principal and 
                        secondary diagnoses and other variables used to 
                        assign specific hospital discharges to such 
                        groups) will involve the use of such service or 
                        technology and, if any groups so identified are 
                        groups other than those included in such 
                        application, shall notify the applicant and 
                        invite the applicant to revise, expand, or 
                        resubmit the application (or a portion thereof) 
                        to include information with respect to such 
                        group or groups; and
                            ``(IV) shall make a separate determination 
                        under clause (iii), with respect to such 
                        service or technology, for each diagnosis-
                        related group identified by the Secretary under 
                        subclause (III) for which an application has 
                        been submitted, at such time after receipt of 
                        such application as will ensure that the 
                        service or technology is incorporated into such 
                        system not later than 8 months (in the case of 
                        an application supported by sufficient internal 
                        data (as determined under paragraph (4)(D)(i))) 
                        or 10 months (in the case of an application 
                        supported by sufficient external data (as 
                        defined in paragraph (4)(D)(ii)(V))) after the 
                        deadline established for receipt of such 
                        applications.
                    ``(iii) After identifying diagnosis-related groups 
                under clause (ii)(III), the Secretary shall determine, 
                with respect to each such group for which an 
                application has been received, whether payment shall be 
                made under such system, with respect to discharges 
                involving such service or technology that would be 
                classified within such group, based on--
                            ``(I) in the case of a group with respect 
                        to which the requirements of clause (v) are 
                        met, such diagnosis-related group; or
                            ``(II) in the case of a group with respect 
                        to which the requirements of clause (v) are not 
                        met, a new-technology group established under 
                        subparagraph (L).
                    ``(iv) In making the determination described in 
                clause (iii), the Secretary shall compare--
                            ``(I) the estimated average cost incurred 
                        (determined by the Secretary taking into 
                        account data submitted in support of an 
                        application) for discharges of patients 
                        receiving care involving a new medical service 
                        or technology who were (or would have been) 
                        classified within a diagnosis-related group 
                        (based on principal and secondary diagnoses and 
                        variables used to assign specific hospital 
                        discharges to such group), with
                            ``(II) the discharge-weighted average of 
                        the national DRG prospective payment rates 
                        established under paragraph (3) for hospitals 
                        located in large urban and other areas 
                        (described in subparagraph (A)(iv) of such 
                        subparagraph) for such diagnosis-related group.
                    ``(v) The Secretary shall provide that payment for 
                discharges of patients with the same diagnoses and 
                variables that are used to classify specific hospital 
                discharges to a diagnosis-related group established 
                under paragraph (4) and involving a new medical service 
                or technology will be based on the diagnosis-related 
                group if--
                            ``(I) the discharge-weighted average 
                        national DRG prospective payment rate 
                        determined under clause (iv)(II) for such group 
                        equals or exceeds 90 percent of the estimated 
                        average cost determined under clause (iv)(I); 
                        and
                            ``(II) the amount (if any) by which the 
                        estimated average cost determined under clause 
(iv)(I) exceeds the discharge-weighted average national DRG prospective 
payment rate determined under clause (iv)(II) for such group is not 
greater than $2,500.
                    ``(vi) The Secretary shall provide that, if the 
                requirements of subclause (I) and (II) of clause (v) 
                are not met with respect to a diagnosis-related group 
                established under paragraph (4) and discharges 
                involving a service or technology that would (but for 
                this subparagraph) be classified within such group--
                            ``(I) payment for such discharges will be 
                        based on a new-technology group established 
                        under subparagraph (L); and
                            ``(II) such discharges will be classified 
                        within a group established under subparagraph 
                        (L) for which the rates established under such 
                        subparagraph meet the requirements of 
                        subparagraph (K)(v) (determined by applying the 
                        methodology specified in subparagraph (K)(iv) 
                        to such rates).
                    ``(vii) The Secretary shall--
                            ``(I) treat a medical service or technology 
                        as `new' for purposes of this subparagraph for 
                        the 3-year period beginning on the date on 
                        which an inpatient hospital code is assigned 
                        with respect to the service or technology (and, 
                        in the case of a service or technology for 
                        which such a code was assigned before the date 
                        of the enactment of this paragraph, for any 
                        portion of such period that occurs on or after 
                        the effective date of this subparagraph);
                            ``(II) determine payment for such service 
                        or technology on the basis described in clause 
                        (v) or (vi), as the case may be, during such 
                        period (or portion thereof); and
                            ``(III) provide for the collection of data 
                        with respect to the costs incurred during such 
                        period (or portion thereof) with respect to 
                        such service or technology for use in making 
                        adjustments under paragraph (4)(C) and in 
                        determining the appropriate diagnosis-related 
                        group to which discharges involving such 
                        service or technology will be classified after 
                        such period.
                    ``(viii) For purposes of this subparagraph--
                            ``(I) the term `inpatient hospital code' 
                        means any code that is used with respect to 
                        inpatient hospital services for which payment 
                        may be made under this subsection and includes 
                        an alphanumeric code issued under the 
                        International Classification of Diseases, 9th 
                        Revision, Clinical Modification (`ICD-9-CM') 
                        and its subsequent revisions; and
                            ``(II) the term `new medical service or 
                        technology' means a medical service or 
                        technology that, when compared with existing 
                        medical services and technologies, 
                        substantially improves the diagnosis or 
                        treatment provided to individuals entitled to 
                        benefits under this title.
                    ``(L)(i) Before the beginning of each fiscal year 
                (beginning with fiscal year 2003), the Secretary shall 
                establish new-technology groups into which discharges 
                involving a new medical service or technology will be 
                classified as provided in subparagraph (K)(vi).
                    ``(ii) Such groups shall, using the applicable 
                standardized amounts under this subsection and 
                appropriate weighting factors, produce prospective 
                payment rates that reflect such cost cohorts as the 
                Secretary determines will be necessary to assure that a 
                new-technology group described in subparagraph 
                (K)(vi)(II) will be available during such fiscal year 
                to assign discharges involving a new service or 
                technology for which no diagnosis-related group 
                established under paragraph (4) satisfies the 
                requirements of subclauses (I) and (II) of subparagraph 
                (K)(v).
                    ``(iii) The prospective payment rates established 
                under clause (ii) shall be adjusted in the same manner 
                as national DRG prospective payment rates determined 
                under paragraph (3).''.

SEC. 6. IMPROVEMENTS TO THE HCPCS CODING ASSIGNMENT, INPATIENT CODING 
              ASSIGNMENT, AND DRG ASSIGNMENT PROCESSES.

    (a) Inpatient PPS.--Section 1886(d)(5)(K) (42 U.S.C. 
1395ww(d)(5)(K)) is amended by adding at the end the following new 
clauses:
    ``(vii) The Secretary shall by regulation establish a process that 
provides for the assignment of inpatient hospital codes (as defined in 
clause (iii)) each calendar quarter for new medical services and 
technologies. Such process shall--
            ``(I) ensure that new codes are assigned and implemented no 
        later than 180 days after a request is received; and
            ``(II) provide for the opportunity to apply for the 
        assignment of an inpatient hospital code under subclause (I) to 
        items that are the subject of an application submitted for 
        investigation under section 520(g) of the Federal Food, Drug 
        and Cosmetic Act (21 U.S.C. 360j(g).
The assignment of any inpatient hospital code shall affect a weighting 
factor described in paragraph (4)(B) only at the time of an adjustment 
under paragraph (4)(C)(i).''.
    (b) HCPCS Level II Codes.--
            (1) Process for assignment of codes for new technologies.--
        The Secretary shall by regulation establish a process that 
        provides for the assignment of HCPCS Level II codes each 
        calendar quarter for new medical services and technologies. 
        Such process shall ensure that codes are assigned and 
        implemented no later than 180 days after a formal application 
        for such a code is received.
            (2) Definition.--In this subsection, the term ``HCPCS Level 
        II codes'' means the level II alphanumeric codes under the 
        Health Care Financing Administration Common Procedure Coding 
        System (HCPCS).
    (c) Permanent Retention of HCPCS Level III Codes.--Section 532(a) 
of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (114 Stat. 2763A-547), as enacted into law by 
section 1(a)(6) of Public Law 106-554, is amended by striking ``through 
December 31, 2003,''.
    (d) Effective Date.--The amendments made subsections (a) and (b) 
shall apply with respect to applications for new ICD-9-CM codes 
received on or after October 1, 2002.

SEC. 7. IMPROVING INHERENT REASONABLENESS.

    (a) In General.--Section 1842(b)(8) (42 U.S.C. 1395u(b)(8)) is 
amended--
            (1) in subparagraph (A)(i), by inserting ``and valid data'' 
        after ``factors'' each place it appears;
            (2) in subparagraph (A)(ii)--
                    (A) by striking ``apply factors that would'';
                    (B) by striking ``during any year''; and
                    (C) by striking ``from such payment during the 
                preceding year'' and inserting in lieu thereof, ``over 
                any 5-consecutive-year period'';
            (3) in subparagraph (B)--
                    (A) by striking ``of the payment amount for a 
                year'' and inserting ``over any 5-consecutive-year 
                period''; and
                    (B) by redesignating clause (iii) as clause (iv), 
                by striking ``and'' at the end of clause (ii), and by 
                inserting after such clause (ii) the following new 
                clause:
            ``(iii) the Secretary's determination is based on valid 
        data, and''; and
            (4) by adding at the end the following new subparagraph:
    ``(E) As used in this paragraph and paragraph (9):
            ``(i) The term `valid data' means, with respect to an item 
        or service, data that--
                    ``(I) are representative of market data for the 
                most common appropriate form of such item or service 
                used by, or on behalf of, individuals entitled to 
                benefits under this part, taking into account each mode 
                of distribution through which such form of such item or 
                service is made available for use by, or on behalf of, 
                such entitled individuals;
                    ``(II) are collected and analyzed in a consistent 
                manner, as specified by the terms of a written 
                protocol;
                    ``(III) constitute valid retail data if the item or 
                service is available in a retail setting; and
                    ``(IV) satisfy such additional requirements as the 
                Secretary may by regulation describe.
            ``(ii) The term `valid retail data' means survey data on 
        retail prices for the items or services that--
                    ``(I) satisfy the requirements of subclauses (I) 
                and (II) of clause (i) and any applicable requirement 
                described by the Secretary under subclause (IV) of such 
                clause; and
                    ``(II) are derived from a random representative 
                sampling of all retail prices for such items and 
                services at stores in the United States (with such 
                sampling accomplished by means of inspections of such 
                items and services on the premises of stores, as 
                specified by the terms of a written protocol).
            ``(iii) The term `5-consecutive-year period' includes a 
        portion of such period.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply with respect to any determination, or proposed determination, 
made on or after January 1, 2002.
                                 <all>