[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4985 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 4985

   To amend title XVIII of the Social Security Act to revitalize the 
   Medicare+Choice Program, establish a Medicare+Choice competition 
program, and to improve payments to hospitals and other providers under 
                    part A of the Medicare Program.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 21, 2002

  Mr. Tauzin 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 jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
   To amend title XVIII of the Social Security Act to revitalize the 
   Medicare+Choice Program, establish a Medicare+Choice competition 
program, and to improve payments to hospitals and other providers under 
                    part A of the Medicare Program.

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

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

    (a) Equalizing Payments Between Fee-for-Service and 
Medicare+Choice.--
            (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                    ``(D) Based on 100 percent of fee-for-service 
                costs.--
                            ``(i) In general.--For 2003 and 2004, the 
                        adjusted average per capita cost for the year 
                        involved, determined under section 1876(a)(4) 
                        for the Medicare+Choice payment area for 
                        services covered under parts A and B for 
                        individuals entitled to benefits under part A 
                        and enrolled under part B who are not enrolled 
                        in a Medicare+Choice plan under this part for 
                        the year, but adjusted to exclude costs 
                        attributable to payments under section 1886(h).
                            ``(ii) Inclusion of costs of va and dod 
                        military facility services to medicare-eligible 
                        beneficiaries.--In determining the adjusted 
                        average per capita cost under clause (i) for a 
                        year, such cost shall be adjusted to include 
                        the Secretary's estimate, on a per capita 
                        basis, of the amount of additional payments 
                        that would have been made in the area involved 
                        under this title if individuals entitled to 
                        benefits under this title had not received 
                        services from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.''.
            (2) Conforming amendment.--Such section is further amended, 
        in the matter before subparagraph (A), by striking ``or (C)'' 
        and inserting ``(C), or (D)''.
    (b) Revision of Blend.--
            (1) Revision of national average used in calculation of 
        blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 1395w-
        23(c)(4)(B)(i)(II)) is amended by inserting ``who (with respect 
        to determinations for 2003 and for 2004) are enrolled in a 
        Medicare+Choice plan'' after ``the average number of medicare 
        beneficiaries''.
            (2) Change in budget neutrality.--Section 1853(c) (42 
        U.S.C. 1395w-23(c)) is amended--
                    (A) in paragraph (1)(A), by inserting ``(for a year 
                before 2003)'' after ``multiplied''; and
                    (B) in paragraph (5), by inserting ``(before 
                2003)'' after ``for each year''.
    (c) Revision in Minimum Percentage Increase for 2003 and 2004.--
Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is amended by 
striking clause (iv) and inserting the following:
                            ``(iv) For 2002, 102 percent of the annual 
                        Medicare+Choice capitation rate under this 
                        paragraph for the area for 2001.
                            ``(v) For 2003 and 2004, 103 percent of the 
                        annual Medicare+Choice capitation rate under 
                        this paragraph for the area for the previous 
                        year.
                            ``(vi) For 2005 and each succeeding year, 
                        102 percent of the annual Medicare+Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.''.
    (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-Eligible Beneficiaries in Calculation of Medicare+Choice 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is 
amended--
            (1) in subparagraph (A), by striking ``subparagraph (B)'' 
        and inserting ``subparagraphs (B) and (E)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible beneficiaries.--
                In determining the area-specific Medicare+Choice 
                capitation rate under subparagraph (A) for a year 
                (beginning with 2003), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
or the Department of Veterans Affairs.''.
    (e) Announcement of Revised Medicare+Choice Payment Rates.--Within 
2 weeks after the date of the enactment of this Act, the Secretary 
shall determine, and shall announce (in a manner intended to provide 
notice to interested parties) Medicare+Choice capitation rates under 
section 1853 of the Social Security Act (42 U.S.C. 1395w-23) for 2003, 
revised in accordance with the provisions of this section.
    (f) MedPAC Study of AAPCC.--
            (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)). 
        Such study shall examine--
                    (A) the bases for variation in such costs between 
                different areas, including differences in input prices, 
                utilization, and practice patterns;
                    (B) the appropriate geographic area for payment 
                under the Medicare+Choice program under part C of title 
                XVIII of such Act; and
                    (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
            (2) Report.--Not later than 9 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1). Such 
        report shall include recommendations regarding changes in the 
        methods for computing the adjusted average per capita cost 
        among different areas.

SEC. 202. MAKING PERMANENT CHANGE IN MEDICARE+CHOICE REPORTING 
              DEADLINES AND ANNUAL, COORDINATED ELECTION PERIOD.

    (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year (or July 1 of 
each year before 2002)''.
    (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended by striking ``and 
after 2005, the month of November before such year and with respect to 
2003, 2004, and 2005'' and inserting ``, the month of November before 
such year and with respect to 2003 and any subsequent year''.
    (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended by striking ``and after 2005 not later than March 1 before 
the calendar year concerned and for 2004 and 2005'' and inserting ``not 
later than March 1 before the calendar year concerned and for 2004 and 
each subsequent year''.
    (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION.

    (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
            ``(3) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare+Choice 
        plans which are offered by Medicare+Choice organizations under 
        this part.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 204. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
              BENEFICIARIES.

    (a) Treatment as Coordinated Care Plan.--Section 1851(a)(2)(A) (42 
U.S.C. 1395w-21(a)(2)(A)) is amended by adding at the end the following 
new sentence: ``Specialized Medicare+Choice plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any type of 
coordinated care plan.''.
    (b) Specialized Medicare+Choice Plan for Special Needs 
Beneficiaries Defined.--Section 1859(b) (42 U.S.C. 1395w-29(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Specialized medicare+choice plans for special needs 
        beneficiaries.--
                    ``(A) In general.--The term `specialized 
                Medicare+Choice plan for special needs beneficiaries' 
                means a Medicare+Choice plan that exclusively serves 
special needs beneficiaries (as defined in subparagraph (B)).
                    ``(B) Special needs beneficiary.--The term `special 
                needs beneficiary' means a Medicare+Choice eligible 
                individual who--
                            ``(i) is institutionalized (as defined by 
                        the Secretary);
                            ``(ii) is entitled to medical assistance 
                        under a State plan under title XIX; or
                            ``(iii) meets such requirements as the 
                        Secretary may determine would benefit from 
                        enrollment in such a specialized 
                        Medicare+Choice plan described in subparagraph 
                        (A) for individuals with severe or disabling 
                        chronic conditions.''.
    (c) Restriction on Enrollment Permitted.--Section 1859 (42 U.S.C. 
1395w-29) is amended by adding at the end the following new subsection:
    ``(f) Restriction on Enrollment for Specialized Medicare+Choice 
Plans for Special Needs Beneficiaries.--In the case of a specialized 
Medicare+Choice plan (as defined in subsection (b)(4)), notwithstanding 
any other provision of this part and in accordance with regulations of 
the Secretary and for periods before January 1, 2007, the plan may 
restrict the enrollment of individuals under the plan to individuals 
who are within one or more classes of special needs beneficiaries.''.
    (d) Report to Congress.--Not later than December 31, 2005, the 
Medicare Benefits Administrator shall submit to Congress a report that 
assesses the impact of specialized Medicare+Choice plans for special 
needs beneficiaries on the cost and quality of services provided to 
enrollees. Such report shall include an assessment of the costs and 
savings to the medicare program as a result of amendments made by 
subsections (a), (b), and (c).
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a), 
        (b), and (c) shall take effect upon the date of the enactment 
        of this Act.
            (2) Deadline for issuance of requirements for special needs 
        beneficiaries; transition.--No later than 6 months after the 
        date of the enactment of this Act, the Secretary of Health and 
        Human Services shall issue final regulations to establish 
        requirements for special needs beneficiaries under section 
        1859(b)(4)(B)(iii) of the Social Security Act, as added by 
        subsection (b).

SEC. 205. MEDICARE MSAS.

    (a) Exemption From Quality Assurance Program Requirement.--
            (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
        22(e)(1)) is amended by inserting ``(other than MSA plans)'' 
        after ``Medicare+Choice plans''.
            (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-
        22) is amended--
                    (A) in subsection (c)(1)(I), by inserting before 
                the period at the end the following: ``if required 
                under such section''; and
                    (B) in subparagraphs (A) and (B) of subsection 
                (e)(2), by striking ``, a non-network MSA plan,'' and 
                ``, non-network msa plans,'' each place it appears.
    (b) Making Program Permanent and Eliminating Cap.--Section 
1851(b)(4) (42 U.S.C. 1395w-21(b)(4)) is amended--
            (1) in the heading of subparagraph (A), by striking ``on a 
        demonstration basis'';
            (2) by striking the first sentence of subparagraph (A); and
            (3) by striking the second sentence of subparagraph (C).
    (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) 
(42 U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an 
organization offering a MSA plan'' after ``section 1851(a)(2)(A)''.
    (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
21(e)(5)(A)) is amended--
            (1) by adding ``or'' at the end of clause (i);
            (2) by striking ``, or'' at the end of clause (ii) and 
        inserting a semicolon; and
            (3) by striking clause (iii).

SEC. 206. EXTENSION OF REASONABLE COST AND SHMO CONTRACTS.

    (a) Reasonable Cost Contracts.--
            (1) In general.--Section 1876(h)(5)(C) (42 U.S.C. 
        1395mm(h)(5)(C)) is amended--
                    (A) by inserting ``(i)'' after ``(C)'';
                    (B) by inserting before the period the following: 
                ``, except (subject to clause (ii)) in the case of a 
                contract for an area which is not covered in the 
                service area of 1 or more coordinated care 
                Medicare+Choice plans under part C''; and
                    (C) by adding at the end the following new clause:
    ``(ii) In the case in which--
            ``(I) a reasonable cost reimbursement contract includes an 
        area in its service area as of a date that is after December 
        31, 2003;
            ``(II) such area is no longer included in such service area 
        after such date by reason of the operation of clause (i) 
        because of the inclusion of such area within the service area 
        of a Medicare+Choice plan; and
            ``(III) all Medicare+Choice plans subsequently terminate 
        coverage in such area;
such reasonable cost reimbursement contract may be extended and renewed 
to cover such area (so long as it is not included in the service area 
of any Medicare+Choice plan).''.
            (2) Study.--The Medicare Benefits Administrator shall 
        conduct a study of an appropriate transition for plans offered 
        under reasonable cost contracts under section 1876 of the 
        Social Security Act on and after January 1, 2005. Such a 
        transition may take into account whether there are one or more 
        coordinated care Medicare+Choice plans being offered in the 
        areas involved. Not later than February 1, 2004, the 
        Administrator shall submit to Congress a report on such study 
        and shall include recommendations regarding any changes in the 
amendment made by paragraph (1) as the Administrator determines to be 
appropriate.
    (b) Extension of Social Health Maintenance Organization (SHMO) 
Demonstration Project.--
            (1) In general.--Section 4018(b)(1) of the Omnibus Budget 
        Reconciliation Act of 1987 is amended by striking ``the date 
        that is 30 months after the date that the Secretary submits to 
        Congress the report described in section 4014(c) of the 
        Balanced Budget Act of 1997'' and inserting ``December 31, 
        2004''.
            (2) SHMOs offering medicare+choice plans.--Nothing in such 
        section 4018 shall be construed as preventing a social health 
        maintenance organization from offering a Medicare+Choice plan 
        under part C of title XVIII of the Social Security Act.

            Subtitle B--Medicare+Choice Competition Program

SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.

    (a) Submission of Bid Amounts.--Section 1854 (42 U.S.C. 1395w-24) 
is amended--
            (1) by amending the heading to read as follows:

                     ``submission of bid amounts'';

            (2) in subsection (a)(1)(A)--
                    (A) by striking ``(A)'' and inserting ``(A)(i) if 
                the following year is before 2005,''; and
                    (B) by inserting before the semicolon at the end 
                the following: `` or (ii) if the following year is 2005 
                or later, the information described in paragraph 
                (6)(A)''; and
            (3) by adding at the end of subsection (a) the following:
            ``(6) Submission of bid amounts by medicare+choice 
        organizations.--
                    ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                            ``(i) The monthly aggregate bid amount for 
                        provision of all items and services under this 
                        part and the actuarial basis for determining 
                        such amount.
                            ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                    ``(I) the provision of statutory 
                                non-drug benefits (such portion 
                                referred to in this part as the 
                                `unadjusted non-drug monthly bid 
                                amount');
                                    ``(II) the provision of statutory 
                                prescription drug benefits; and
                                    ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                            ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                    ``(B) Statutory benefits defined.--For purposes of 
                this part:
                            ``(i) The term `statutory non-drug 
                        benefits' means benefits under parts A and B.
                            ``(ii) The term `statutory prescription 
                        drug benefits' means benefits under part D.
                            ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                    ``(C) Acceptance and negotiation of bid amounts.--
                The Administrator has the authority to negotiate 
                regarding monthly bid amounts submitted under 
                subparagraph (A) (and the proportion described in 
                subparagraph (A)(ii)). The Administrator may reject 
                such a bid amount or proportion if the Administrator 
                determines that such amount or proportion is not 
                supported by the actuarial bases provided under 
                subparagraph (A).''.
    (b) Providing for Beneficiary Savings for Certain Plans.--
            (1) In general.--Section 1854(b) (42 U.S.C. 1395w-24(b)) is 
        amended--
                    (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                    ``(C) Beneficiary rebate rule.--
                            ``(i) Requirement.--The Medicare+Choice 
                        plan shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of the average per 
                        capita savings (if any) described in paragraph 
                        (3) applicable to the plan and year involved.
                            ``(ii) Form of rebate.--A rebate required 
                        under this subparagraph shall be provided--
                                    ``(I) through the crediting of the 
                                amount of the rebate towards the 
                                Medicare+Choice monthly supplementary 
                                beneficiary premium or the premium 
                                imposed for prescription drug coverage 
                                under part D;
                                    ``(II) through a direct monthly 
                                payment (through electronic funds 
                                transfer or otherwise); or
                                    ``(III) through other means 
                                approved by the Medicare Benefits 
                                Administrator,
                        or any combination thereof.''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Computation of average per capita monthly savings.--
        For purposes of paragraph (1)(C)(i), the average per capita 
        monthly savings referred to in such paragraph for a 
        Medicare+Choice plan and year is computed as follows:
                    ``(A) Determination of state-wide average risk 
                adjustment.--
                            ``(i) In general.--The Medicare Benefits 
                        Administrator shall determine, at the same time 
                        rates are promulgated under section 1853(b)(1) 
                        (beginning with 2005), for each State the 
                        average of the risk adjustment factors to be 
                        applied to enrollees under section 
1853(a)(1)(A) in that State. In the case of a State in which a 
Medicare+Choice plan was offered in the previous year, the 
Administrator may compute such average based upon risk adjustment 
factors applied in that State in a previous year.
                            ``(ii) Treatment of new states.--In the 
                        case of a State in which no Medicare+Choice 
                        plan was offered in the previous year, the 
                        Administrator shall estimate such average. In 
                        making such estimate, the Administrator may use 
                        average risk adjustment factors applied to 
                        comparable States or applied on a national 
                        basis.
                    ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each Medicare+Choice plan 
                offered in a State, the Administrator shall--
                            ``(i) adjust the fee-for-service area-
                        specific non-drug benchmark amount by the 
                        applicable average risk adjustment factor 
                        computed under subparagraph (A); and
                            ``(ii) adjust the unadjusted non-drug 
                        monthly bid amount by such applicable average 
                        risk adjustment factor.
                    ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph is equal to the amount 
                (if any) by which--
                            ``(i) the risk-adjusted benchmark amount 
                        computed under subparagraph (B)(i), exceeds
                            ``(ii) the risk-adjusted bid computed under 
                        subparagraph (B)(ii).
                    ``(D) Authority to determine risk adjustment for 
                areas other than states.--The Administrator may provide 
                for the determination and application of risk 
                adjustment factors under this paragraph on the basis of 
                areas other than States.''.
            (2) Computation of fee-for-service area-specific non-drug 
        benchmark.--Section 1853 (42 U.S.C. 1395w-23) is amended by 
        adding at the end the following new subsection:
    ``(j) Computation of Fee-for-Service Area-Specific Non-Drug 
Benchmark Amount.--For purposes of this part, the term `fee-for-service 
area-specific non-drug benchmark amount' means, with respect to a 
Medicare+Choice payment area for a month in a year, an amount equal to 
the greater of the following (but in no case less than \1/12\ of the 
rate computed under subsection (c)(1), without regard to subparagraph 
(A), for the year):
            ``(1) Based on 100 percent of fee-for-service costs in the 
        area.--An amount equal to \1/12\ of 100 percent (for 2005 
        through 2007, or 95 percent for 2008 and years thereafter) of 
        the adjusted average per capita cost for the year involved, 
        determined under section 1876(a)(4) for the Medicare+Choice 
        payment area, for the area and the year involved, for services 
        covered under parts A and B for individuals entitled to 
        benefits under part A and enrolled under part B who are not 
        enrolled in a Medicare+Choice plan under this part for the 
        year, and adjusted to exclude from such cost the amount the 
        Medicare Benefits Administrator estimates is payable for costs 
        described in subclauses (I) and (II) of subsection (c)(3)(C)(i) 
        for the year involved and also adjusted in the manner described 
        in subsection (c)(1)(D)(ii) (relating to inclusion of costs of 
        VA and DOD military facility services to medicare-eligible 
        beneficiaries).
            ``(2) Minimum monthly amount.--The minimum amount specified 
        in this paragraph is the amount specified in subsection 
        (c)(1)(B)(iv) for the year involved.''.
    (c) Payment of Plans Based on Bid Amounts.--
            (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-23) 
        is amended by striking ``in an amount'' and all that follows 
        and inserting the following: ``in an amount determined as 
        follows:
                            ``(i) Payment before 2005.--For years 
                        before 2005, the payment amount shall be equal 
                        to \1/12\ of the annual Medicare+Choice 
                        capitation rate (as calculated under subsection 
                        (c)) with respect to that individual for that 
                        area, reduced by the amount of any reduction 
                        elected under section 1854(f)(1)(E) and 
                        adjusted under clause (iii).
                            ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2005.--For years 
                        beginning with 2005--
                                    ``(I) Plans with bids below 
                                benchmark.--In the case of a plan for 
                                which there are average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment under this 
                                subsection is equal to the unadjusted 
                                non-drug monthly bid amount, adjusted 
                                under clause (iii), plus the amount of 
                                the monthly rebate computed under 
                                section 1854(b)(1)(C)(i) for that plan 
                                and year.
                                    ``(II) Plans with bids at or above 
                                benchmark.--In the case of a plan for 
                                which there are no average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment amount under 
                                this subsection is equal to the fee-
                                for-service area-specific non-drug 
                                benchmark amount, adjusted under clause 
                                (iii).
                            ``(iii) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted non-drug 
                        monthly bid amount under clause (ii)(I), and 
                        the fee-for-service area-specific non-drug 
benchmark amount under clause (ii)(II) for such risk factors as age, 
disability status, gender, institutional status, and such other factors 
as the Administrator determines to be appropriate, including adjustment 
for health status under paragraph (3), so as to ensure actuarial 
equivalence. The Administrator may add to, modify, or substitute for 
such adjustment factors if such changes will improve the determination 
of actuarial equivalence.
                            ``(iv) Reference to subsidy payment for 
                        statutory drug benefits.--In the case in which 
                        an enrollee is enrolled under part D, the 
                        Medicare+Choice organization also is entitled 
                        to a subsidy payment amount under section 
                        1860H.''.
    (d) Conforming Amendments.--
            (1) Protection against beneficiary selection.--Section 
        1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by 
        adding at the end the following: ``The Administrator shall not 
        approve a plan of an organization if the Administrator 
        determines that the benefits are designed to substantially 
        discourage enrollment by certain Medicare+Choice eligible 
        individuals with the organization.''.
            (2) Conforming amendment to premium terminology.--
        Subparagraphs (A) and (B) of section 1854(b)(2) (42 U.S.C. 
        1395w-24(b)(2)) are amended to read as follows:
                    ``(A) Medicare+Choice monthly basic beneficiary 
                premium.--The term `Medicare+Choice monthly basic 
                beneficiary premium' means, with respect to a 
                Medicare+Choice plan--
                            ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                            ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if any) by 
                        which the unadjusted non-drug monthly bid 
                        amount exceeds the fee-for-service area-
                        specific non-drug benchmark amount.
                    ``(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice monthly 
                supplemental beneficiary premium' means, with respect 
                to a Medicare+Choice plan, the portion of the aggregate 
                monthly bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of nonstatutory 
                benefits.''.
            (3) Requirement for uniform bid amounts.--Section 1854(c) 
        (42 U.S.C. 1395w-24(c)) is amended to read as follows:
    ``(c) Uniform Bid Amounts.--The Medicare+Choice monthly bid amount 
submitted under subsection (a)(6) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled in the plan.''.
            (4) Permitting beneficiary rebates.--
                    (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except as 
                provided under section 1854(b)(1)(C)'' after ``or 
                otherwise''.
                    (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) is 
                amended by inserting ``, except as provided under 
                subsection (b)(1)(C),'' after ``and may not provide''.
    (e) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for months beginning with January 2005.

SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-DEMONSTRATION AREAS.

    (a) Identification of Competitive-Demonstration Areas for 
Demonstration Program; Computation of Choice Non-Drug Benchmarks.--
Section 1853, as amended by section 211(b)(2), is amended by adding at 
the end the following new subsection:
    ``(k) Establishment of Competitive Demonstration Program.--
            ``(1) Designation of competitive-demonstration areas as 
        part of program.--
                    ``(A) In general.--For purposes of this part, the 
                Administrator shall establish a demonstration program 
                under which the Administrator designates 
                Medicare+Choice areas as competitive-demonstration 
                areas consistent with the following limitations:
                            ``(i) Limitation on number of areas that 
                        may be designated.--The Administrator may not 
                        designate more than 4 areas as competitive-
                        demonstration areas.
                            ``(ii) Limitation on period of designation 
                        of any area.--The Administrator may not 
                        designate any area as a competitive-
                        demonstration area for a period of more than 2 
                        years.
                The Administrator has the discretion to decide whether 
                or not to designate as a competitive-demonstration area 
                an area that qualifies for such designation.
                    ``(B) Qualifications for designation.--For purposes 
                of this title, a Medicare+Choice area (which is a 
                metropolitan statistical area or other area with a 
                substantial number of Medicare+Choice enrollees) may 
                not be designated as a `competitive-demonstration area' 
                for a 2-year period beginning with a year unless the 
                Administrator determines, by such date before the 
                beginning of the year as the Administrator determines 
                appropriate, that--
                            ``(i) there will be offered during the open 
                        enrollment period under this part before the 
                        beginning of the year at least 2 
                        Medicare+Choice plans (in addition to the fee-
                        for-service program under parts A and B), each 
                        offered by a different Medicare+Choice 
                        organization; and
                            ``(ii) during March of the previous year at 
                        least 50 percent of the number 
of Medicare+Choice eligible individuals who reside in the area were 
enrolled in a Medicare+Choice plan.
            ``(2) Choice non-drug benchmark amount.--For purposes of 
        this part, the term `choice non-drug benchmark amount' means, 
        with respect to a Medicare+Choice payment area for a month in a 
        year, the sum of the 2 components described in paragraph (3) 
        for the area and year. The Administrator shall compute such 
        benchmark amount for each competitive-demonstration area before 
        the beginning of each annual, coordinated election period under 
        section 1851(e)(3)(B) for each year (beginning with 2005) in 
        which it is designated as such an area.
            ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an area and a year 
        are the following:
                    ``(A) Fee-for-service component weighted by 
                national fee-for-service market share.--The product of 
                the following:
                            ``(i) National fee-for-service market 
                        share.--The national fee-for-service market 
                        share percentage (determined under paragraph 
                        (5)) for the year.
                            ``(ii) Fee-for-service area-specific non-
                        drug bid.--The fee-for-service area-specific 
                        non-drug bid (as defined in paragraph (6)) for 
                        the area and year.
                    ``(B) M+C component weighted by national 
                medicare+choice market share.--The product of the 
                following:
                            ``(i) National medicare+choice market 
                        share.--1 minus the national fee-for-service 
                        market share percentage for the year.
                            ``(ii) Weighted average of plan bids in 
                        area.--The weighted average of the plan bids 
                        for the area and year (as determined under 
                        paragraph (4)(A)).
            ``(4) Determination of weighted average bids for an area.--
                    ``(A) In general.--For purposes of paragraph 
                (3)(B)(ii), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare+Choice plans described in subparagraph (C) 
                in the area and year:
                            ``(i) Proportion of each plan's enrollees 
                        in the area.--The number of individuals 
                        described in subparagraph (B), divided by the 
                        total number of such individuals for all 
                        Medicare+Choice plans described in subparagraph 
                        (C) for that area and year.
                            ``(ii) Monthly non-drug bid amount.--The 
                        unadjusted non-drug monthly bid amount.
                    ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare+Choice plan described in 
                subparagraph (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during March 
                of the previous year.
                    ``(C) Exclusion of plans not offered in previous 
                year.--For an area and year, the Medicare+Choice plans 
                described in this subparagraph are plans that are 
                offered in the area and year and were offered in the 
                area in March of the previous year.
            ``(5) Computation of national fee-for-service market share 
        percentage.--The Administrator shall determine, for a year, the 
        proportion (in this subsection referred to as the `national 
        fee-for-service market share percentage') of Medicare+Choice 
        eligible individuals who during March of the previous year were 
        not enrolled in a Medicare+Choice plan.
            ``(6) Fee-for-service area-specific non-drug bid.--For 
        purposes of this part, the term `fee-for-service area-specific 
        non-drug bid' means, for an area and year, the amount described 
        in section 1853(j)(1) for the area and year, except that any 
        reference to a percent of less than 100 percent shall be deemed 
        a reference to 100 percent.''.
    (b) Application of Choice Non-Drug Benchmark in Competitive-
Demonstration Areas.--
            (1) In general.--Section 1854 is amended--
                    (A) in subsection (b)(1)(C)(i), as added by section 
                211(b)(1)(A), by striking ``(i) Requirement.--If'' and 
                inserting ``(i) Requirement for non-competitive-
                demonstration areas.--In the case of a Medicare+Choice 
                payment area that is not a competitive-demonstration 
                area designated under section 1853(k)(1), if'';
                    (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new clause:
                            ``(ii) Requirement for competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is designated 
                        as a competitive-demonstration area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (4) for a Medicare+Choice plan and year, the 
                        Medicare+Choice plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.'';
                    (C) by adding at the end of subsection (b), as 
                amended by section 211(b)(1), the following new 
                paragraph:
            ``(4) Computation of average per capita monthly savings for 
        competitive-demonstration areas.--For purposes of paragraph 
        (1)(C)(ii), the average per capita monthly savings referred to 
        in such paragraph for a Medicare+Choice plan and year shall be 
        computed in the same manner as the average per capita monthly 
        savings is computed under paragraph (3) except that the 
        reference to the fee-for-service area-specific non-drug 
        benchmark in paragraph (3)(B)(i) (or to the benchmark amount as 
        adjusted under paragraph (3)(C)(i)) is deemed to be a reference 
to the choice non-drug benchmark amount (or such amount as adjusted in 
the manner described in paragraph (3)(B)(i)).''; and
                    (D) in subsection (d), as amended by section 
                211(d)(4), by inserting ``and subsection (b)(1)(D)'' 
                after ``subsection (b)(1)(C),''.
            (2) Conforming amendments.--
                    (A) Payment of plans.--Section 1853(a)(1)(A)(ii), 
                as amended by section 211(c)(1), is amended--
                            (i) in subclause (I), by inserting ``(or, 
                        in the case of a competitive-demonstration 
                        area, the choice non-drug benchmark amount)'' 
                        after ``benchmark amount''; and
                            (ii) in subclauses (I) and (II), by 
                        inserting ``(or, in the case of a competitive-
                        demonstration area, described in section 
                        1854(b)(4))'' after ``section 1854(b)(1)(C)''.
                    (B) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 211(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive-demonstration area, the choice non-drug 
                benchmark amount)'' after ``benchmark amount''.
    (c) Premium Adjustment.--Section 1839 (42 U.S.C. 1395r) is amended 
by adding at the end the following new subsection:
    ``(h)(1) In the case of an individual who resides in a competitive-
demonstration area designated under section 1851(k)(1) and who is not 
enrolled in a Medicare+Choice plan under part C, the monthly premium 
otherwise applied under this part (determined without regard to 
subsections (b) and (f) or any adjustment under this subsection) shall 
be adjusted as follows: If the fee-for-service area-specific non-drug 
bid (as defined in section 1853(k)(6)) for the Medicare+Choice area in 
which the individual resides for a month--
            ``(A) does not exceed the choice non-drug benchmark (as 
        determined under section 1853(k)(2)) for such area, the amount 
        of the premium for the individual for the month shall be 
        reduced by an amount equal to 75 percent of the amount by which 
        such benchmark exceeds such fee-for-service bid; or
            ``(B) exceeds such choice non-drug benchmark, the amount of 
        the premium for the individual for the month shall be adjusted 
        to ensure that--
                    ``(i) the sum of the amount of the adjusted premium 
                and the choice non-drug benchmark for the area, is 
                equal to
                    ``(ii) the sum of the unadjusted premium plus 
                amount of the fee-for-service area-specific non-drug 
                bid for the area.
    ``(2) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) in the premium otherwise applicable 
under this part to zero or from requiring the provision of a rebate to 
the extent such premium would otherwise be required to be less than 
zero.
    ``(3) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
    ``(4) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 1840(a)), 
the Medicare Benefits Administrator shall transmit to the Commissioner 
of Social Security--
            ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the adjustment (if 
        any) under this subsection for each individual enrolled under 
        this part for each month during the year; and
            ``(B) periodically throughout the year, information to 
        update the information previously transmitted under this 
        paragraph for the year.''.
    (d) Conforming Amendment.--Section 1844(c) (42 U.S.C. 1395w(c)) is 
amended by inserting ``and without regard to any premium adjustment 
effected under section 1839(h)'' before the period at the end.
    (e) Report on Demonstration Program.--Not later than 6 months after 
the date on which the designation of the 4th competitive-demonstration 
area under section 1851(k)(1) of the Social Security Act ends, the 
Medicare Payment Advisory Commission shall submit to Congress a report 
on the impact of the demonstration program under the amendments made by 
this section, including such impact on premiums of medicare 
beneficiaries, savings to the medicare program, and on adverse 
selection.
    (f) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for periods beginning on or after 
January 1, 2005.

SEC. 213. CONFORMING AMENDMENTS.

    (a) Conforming Amendments Relating to Bids.--
            (1) Section 1854 (42 U.S.C. 1395w-24) is amended--
                    (A) in the heading by inserting ``and bid amounts'' 
                after ``premiums'';
                    (B) in the heading of subsection (a), by inserting 
                ``and Bid Amounts'' after ``Premiums''; and
                    (C) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after ``filed 
                under''.
    (b) Additional Conforming Amendments.--
            (1) Annual determination and announcement of certain 
        factors.--Section 1853(b) (42 U.S.C. 1395w-23(b)) is amended--
                    (A) in paragraph (1), by striking ``the calendar 
                year concerned'' and all that follows and inserting the 
                following: ``the calendar year concerned with respect 
                to each Medicare+Choice payment area, the following:
                    ``(A) Pre-competition information.--For years 
                before 2005, the following:
                            ``(i) Medicare+choice capitation rates.--
                        The annual Medicare+Choice capitation rate for 
                        each Medicare+Choice payment area for the year.
                            ``(ii) Adjustment factors.--The risk and 
                        other factors to be used in adjusting such 
                        rates under subsection (a)(1)(A) for payments 
                        for months in that year.
                    ``(B) Competition information.--For years beginning 
                with 2005, the following:
                            ``(i) Benchmarks.--The fee-for-service 
                        area-specific non-drug benchmark under section 
                        1853(j) and, if applicable, the choice non-drug 
                        benchmark under section 1853(k)(2), for the 
                        year involved and, if applicable, the national 
                        fee-for-service market share percentage.
                            ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 
                        1853(a)(1)(A)(iii) (relating to demographic 
                        adjustment), section 1853(a)(1)(B) (relating to 
                        adjustment for end-stage renal disease), and 
                        section 1853(a)(3) (relating to health status 
                        adjustment).
                            ``(iii) Projected fee-for-service bid.--In 
                        the case of a competitive area, the projected 
                        fee-for-service area-specific non-drug bid (as 
                        determined under subsection (k)(6)) for the 
                        area.
                            ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare+Choice plan in 
                        the area.''; and
                    (B) in paragraph (3), by striking ``in sufficient 
                detail'' and all that follows up to the period at the 
                end.
            (2) Repeal of provisions relating to adjusted community 
        rate (acr).--
                    (A) In general.--Subsections (e) and (f) of section 
                1854 (42 U.S.C. 1395w-24) are repealed.
                    (B) Conforming amendment.--Section 1839(a)(2) (42 
                U.S.C. 1395r(a)(2)) is amended by striking ``, and to 
                reflect'' and all that follows and inserting a period.
            (3) Prospective implementation of national coverage 
        determinations.--Section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)) 
        is amended to read as follows:
            ``(5) Prospective implementation of national coverage 
        determinations.--The Secretary shall only implement a national 
        coverage determination that will result in a significant change 
        in the costs to a Medicare+Choice organization in a prospective 
        manner that applies to announcements made under section 1853(b) 
        after the date of the implementation of the determination.''.
            (4) Permitting geographic adjustment to consolidate 
        multiple medicare+choice payment areas in a state into a single 
        statewide medicare+choice payment area.--Section 1853(d)(3) (42 
        U.S.C. 1395w-23(e)(3)) is amended--
                    (A) by amending clause (i) of subparagraph (A) to 
                read as follows:
                            ``(i) to a single statewide Medicare+Choice 
                        payment area,''; and
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(B) Budget neutrality adjustment.--In the case of 
                a State requesting an adjustment under this paragraph, 
                the Medicare Benefits Administrator shall initially 
                (and annually thereafter) 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) Effective Date.--The amendments made by this section shall 
apply to payments and premiums for periods beginning on or after 
January 1, 2005.

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

    Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended to read as follows:
            ``(XVIII) for fiscal year 2003, the market basket 
        percentage increase for sole community hospitals and such 
        increase minus 0.25 percentage points for other hospitals, 
        and''.

SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF 
              MEDICAL EDUCATION (IME).

    Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
            (1) in subclause (VI) by striking ``and'' at the end;
            (2) by redesignating subclause (VII) as subclause (IX);
            (3) in subclause (VIII) as so redesignated, by striking 
        ``2002'' and inserting ``2004''; and
            (4) by inserting after subclause (VI) the following new 
        subclause:
                    ``(VII) during fiscal year 2003, `c' is equal to 
                1.47;
                    ``(VIII) during fiscal year 2004, `c' is equal to 
                1.45; and''.

SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
              HOSPITAL PPS.

    (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
    ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
    (b) Eligibility Standard.--
            (1) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                    (A) by inserting ``(I)'' after ``(vi)''; and
                    (B) by adding at the end the following new 
                subclause:
    ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of a 
significant sample of specific discharges in which the service or 
technology has been used.''.
            (2) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
        (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
        ``(applying a threshold specified by the Secretary that is the 
        lesser of 50 percent of the national average standardized 
        amount for operating costs of inpatient hospital services for 
        all hospitals and all diagnosis-related groups or one standard 
        deviation for the diagnosis-related group involved)'' after 
        ``is inadequate''.
            (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
    ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
or 526 of the Federal Food, Drug, and Cosmetic Act, approved under 
section 314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, for which 
priority review has been provided under section 515(d)(5) of such Act, 
or is a substantially equivalent device for which an expedited review 
is provided under section 513(f) of such Act.''.
            (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is 
        amended--
                    (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified to meet 
                the requirements of clause (viii).''; and
                    (B) by adding at the end the following new clause:
    ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries as follows:
            ``(I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for which an 
        application for additional payment under this subparagraph is 
        pending.
            ``(II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding whether the 
        service or technology represents a substantial improvement.
            ``(III) The Secretary shall provide for a meeting at which 
        organizations representing hospitals, physicians, medicare 
        beneficiaries, manufacturers, and any other interested party 
        may present comments, recommendations, and data to the clinical 
        staff of the Centers for Medicare & Medicaid Services before 
        publication of a notice of proposed rulemaking regarding 
        whether service or technology represents a substantial 
        improvement.''.
    (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the 
following new clause:
    ``(ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary shall seek 
to identify one or more diagnosis-related groups associated with such 
technology, based on similar clinical or anatomical characteristics and 
the cost of the technology. Within such groups the Secretary shall 
assign an eligible new technology into a diagnosis-related group where 
the average costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under this 
subparagraph shall be made with respect to such new technology and this 
clause shall not affect the application of paragraph (4)(C)(iii).''.
    (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
    (e) Effective Date.--
            (1) In general.--The Secretary shall implement the 
        amendments made by this section so that they apply to 
        classification for fiscal years beginning with fiscal year 
        2004.
            (2) Reconsiderations of applications for fiscal year 2003 
        that are denied.--In the case of an application for a 
        classification of a medical service or technology as a new 
        medical service or technology under section 1886(d)(5)(K) of 
        the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
        filed for fiscal year 2003 and that is denied--
                    (A) the Secretary shall automatically reconsider 
                the application as an application for fiscal year 2004 
                under the amendments made by this section; and
                    (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

    Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (i), by striking ``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 inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                    (B) in clause (ii), by striking ``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)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
            (2) by adding at the end the following new subparagraph:
    ``(E) For purposes of subparagraph (A), for discharges occurring--
            ``(i) between October 1, 1987, and September 30, 1997, the 
        applicable Puerto Rico percentage is 75 percent and the 
        applicable Federal percentage is 25 percent;
            ``(ii) on or after October 1, 1997, and before October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
            ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 45 percent and the applicable Federal percentage 
        is 55 percent;
            ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 40 percent and the applicable Federal percentage 
        is 60 percent;
            ``(v) during fiscal year 2006, the applicable Puerto Rico 
        percentage is 35 percent and the applicable Federal percentage 
        is 65 percent;
            ``(vi) during fiscal year 2007, the applicable Puerto Rico 
        percentage is 30 percent and the applicable Federal percentage 
        is 70 percent; and
            ``(vii) on or after October 1, 2007, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 405. REFERENCE TO PROVISION RELATING TO ENHANCED DISPROPORTIONATE 
              SHARE HOSPITAL (DSH) PAYMENTS FOR RURAL HOSPITALS AND 
              URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

    For provision enhancing disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals with fewer than 100 
beds, see section 302.

SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR PHASED-IN INCREASE 
              IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN AREAS 
              TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED AMOUNT.

    For provision phasing in over a 2-year period an increase in the 
standardized amount for rural and small urban areas to achieve a 
single, uniform, standardized amount, see section 303.

SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT UPDATES IN THE 
              WEIGHTS USED IN HOSPITAL MARKET BASKET.

    For provision providing for more frequent updates in the weights 
used in hospital market basket, see section 304.

SEC. 408. REFERENCE TO PROVISION MAKING IMPROVEMENTS TO CRITICAL ACCESS 
              HOSPITAL PROGRAM.

    For provision providing making improvements to critical access 
hospital program, see section 305.

             Subtitle B--Skilled Nursing Facility Services

SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

    (a) Temporary Increase in Nursing Component of PPS Federal Rate.--
Section 312(a) of BIPA is amended by adding at the end the following 
new sentence: ``The Secretary of Health and Human Services shall 
increase by 8 percent the nursing component of the case-mix adjusted 
Federal prospective payment rate specified in Tables 3 and 4 of the 
final rule published in the Federal Register by the Health Care 
Financing Administration on July 31, 2000 (65 Fed. Reg. 46770) and as 
subsequently updated under section 1888(e)(4)(E)(ii) of the Social 
Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective for services 
furnished on or after October 1, 2002, and before October 1, 2005.''.
    (b) Adjustment to RUGs for AIDS Residents.--
            (1) In general.--Paragraph (12) of section 1888(e) (42 
        U.S.C. 1395yy(e)) is amended to read as follows:
            ``(12) Adjustment for residents with aids.--
                    ``(A) In general.--Subject to subparagraph (B), in 
                the case of a resident of a skilled nursing facility 
                who is afflicted with acquired immune deficiency 
                syndrome (AIDS), the per diem amount of payment 
                otherwise applicable shall be increased by 128 percent 
                to reflect increased costs associated with such 
                residents.
                    ``(B) Sunset.--Subparagraph (A) shall not apply on 
                and after such date as the Secretary certifies that 
                there is an appropriate adjustment in the case mix 
                under paragraph (4)(G)(i) to compensate for the 
                increased costs associated with residents described in 
                such subparagraph.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to services furnished on or after October 1, 2003.

                          Subtitle C--Hospice

SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERVICES.

    (a) Coverage of Hospice Consultation Services.--Section 1812(a) (42 
U.S.C. 1395d(a)) is amended--
            (1) by striking ``and'' at the end of paragraph (3);
            (2) by striking the period at the end of paragraph (4) and 
        inserting ``; and''; and
            (3) by inserting after paragraph (4) the following new 
        paragraph:
            ``(5) for individuals who are terminally ill, have not made 
        an election under subsection (d)(1), and have not have 
        previously received services under this paragraph, services 
        that are furnished by a physician who is the medical director 
        or an employee of a hospice program and that consist of--
                    ``(A) an evaluation of the individual's need for 
                pain and symptom management;
                    ``(B) counseling the individual with respect to 
                end-of-life issues and care options; and
                    ``(C) advising the individual regarding advanced 
                care planning.''.
    (b) Payment.--Section 1814(i) (42 U.S.C. l395f(i)) is amended by 
adding at the end the following new paragraph:
    ``(4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made under 
this part shall be equal to an amount equivalent to the amount 
established for an office or other outpatient visit for evaluation and 
management associated with presenting problems of moderate severity 
under the fee schedule established under section 1848(b), other than 
the portion of such amount attributable to the practice expense 
component.''.
    (c) Conforming Amendment.--Section 1861(dd)(2)(A)(i) (42 U.S.C. 
1395x(dd)(2)(A)(i)) is amended by inserting before the comma at the end 
the following: ``and services described in section 1812(a)(5)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to services provided by a hospice program on or after January 1, 
2004.

SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN 
              A FRONTIER AREA.

    (a) In General.--Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) is 
amended by adding at the end the following new subparagraph:
    ``(D) With respect to hospice care furnished in a frontier area on 
or after January 1, 2003, and before January 1, 2008, the payment rates 
otherwise established for such care shall be increased by 10 percent. 
For purposes of this subparagraph, the term `frontier area' means a 
county in which the population density is less than 7 persons per 
square mile.''.
    (b) Report on Costs.--Not later than January 1, 2007, the 
Comptroller General of the United States shall submit to Congress a 
report on the costs of furnishing hospice care in frontier areas. Such 
report shall include recommendations regarding the appropriateness of 
extending, and modifying, the payment increase provided under the 
amendment made by subsection (a).

SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.

    (a) In General.--The Secretary shall conduct a demonstration 
project for the delivery of hospice care to medicare beneficiaries in 
rural areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the home for lack of an appropriate caregiver 
are provided such care in a facility of 20 or fewer beds which offers, 
within its walls, the full range of services provided by hospice 
programs under section 1861(dd) of the Social Security Act (42 U.S.C. 
1395x(dd)).
    (b) Scope of Project.--The Secretary shall conduct the project 
under this section with respect to no more than 3 hospice programs over 
a period of not longer than 5 years each.
    (c) Compliance With Conditions.--Under the demonstration project--
            (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be required 
        to offer services outside of the home or to meet the 
        requirements of section 1861(dd)(2)(A)(iii) of the Social 
        Security Act; and
            (2) payments for hospice care shall be made at the rates 
        otherwise applicable to such care under title XVIII of such 
        Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
    (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

                      Subtitle D--Other Provisions

SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

    (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the use of recovery 
audit contractors under the Medicare Integrity Program in identifying 
and recouping overpayments under the medicare program for services for 
which payment is made under part A of title XVIII of the Social 
Security Act. Under the project--
            (1) payment may be made to such a contractor on a 
        contingent basis;
            (2) a percentage of the amount recovered may be retained by 
        the Secretary and shall be available to the program management 
        account of the Centers for Medicare & Medicaid Services; and
            (3) the Secretary shall examine the efficacy of such use 
        with respect to duplicative payments, accuracy of coding, and 
        other payment policies in which overpayments arise.
    (b) Scope and Duration.--The project shall cover at least 2 States 
and at least 3 contractors and shall last for not longer than 3 years.
    (c) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (a).
    (d) Qualifications of Contractors.--
            (1) In general.--The Secretary shall enter into a recovery 
        audit contract under this section with an entity only if the 
        entity has staff that has knowledge of and experience with the 
        payment rules and regulations under the medicare program or the 
        entity has or will contract with another entity that has such 
        knowledgeable and experienced staff.
            (2) Ineligibility of certain contractors.--The Secretary 
        may not enter into a recovery audit contract under this section 
        with an entity to the extent that the entity is a fiscal 
        intermediary under section 1816 of the Social Security Act (42 
        U.S.C. 1395h), a carrier under section 1842 of such Act (42 
        U.S.C. 1395u), or a Medicare Administrative Contractor under 
        section 1874A of such Act, or any other entity that carries out 
        the type of activities with respect to providers of services 
        under part A that would constitute a conflict of interest, as 
        determined by the Secretary.
            (3) Preference for entities with demonstrated proficiency 
        with private insurers.--In awarding contracts to recovery audit 
        contractors under this section, the Secretary shall give 
        preference to those entities that the Secretary determines have 
        demonstrated proficiency in recovery audits with private 
        insurers or under the medicaid program under title XIX of such 
        Act.
    (e) Report.--The Secretary of Health and Human Services shall 
submit to Congress a report on the project not later than 6 months 
after the date of its completion. Such reports shall include 
information on the impact of the project on savings to the medicare 
program and recommendations on the cost-effectiveness of extending or 
expanding the project.
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