[Congressional Record Volume 143, Number 81 (Wednesday, June 11, 1997)]
[Senate]
[Pages S5511-S5526]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FEINGOLD:

  S. 879. A bill to provide for home and community-based services for 
individuals with disabilities, and for other purposes; to the Committee 
on Finance.


        LONG-TERM CARE REFORM AND DEFICIT REDUCTION ACT OF 1997

  Mr. FEINGOLD. Mr. President, I am pleased to introduce S. 879, the 
Long-Term Care Reform and Deficit Reduction Act of 1997, legislation to 
reform fundamentally the way we provide long-term care in this country.
  This legislation gives States the flexibility to establish a system 
of consumer-oriented, consumer-directed home and community-based long-
term care services for individuals with disabilities of any age. It 
does so while reducing the deficit by $30.4 billion over the next 5 
years, and $145.7 billion over the next 10 years with the potential for 
even greater savings.
  Mr. President, the bill is based on Wisconsin's home and community-
based long-term care program, the Community Options Program, called 
COP, which has been a national model of reform. COP was the keystone of 
Wisconsin's long-term care reforms that have saved Wisconsin taxpayers 
hundreds of millions of dollars.
  The legislation is also similar, in large part, to the excellent 
bipartisan long-term care proposals developed by the Senate Committee 
on Labor and Human Resources as well as the Senate Committee on Finance 
during the 103d Congress, which in turn stemmed from the long-term care 
reforms included in President Clinton's health care reform proposal. 
Unlike so many other aspects of health care reform, the long-term care 
provisions that came out of the two Senate committees, that were 
included in the Mitchell compromise measure, and that were part of the 
proposals produced by the standing committees in the other body, 
received bipartisan support. It is somewhat remarkable that when there 
was so much controversy over so many issues relating to health care 
reform that there was so much agreement over the need to include long-
term care reform.
  Mr. President, the success of the Wisconsin program upon which this 
measure is based stems in large part from its flexibility, a 
flexibility that benefits both individual consumers of long-term care 
as well as local administrators.
  This legislation reflects that same kind of flexibility. First and 
foremost, it does so by not creating a new, unfunded mandate. This 
program is entirely optional for States, and beyond four core 
services--assessment, care planning, personal assistance, and case 
management--those States choosing to participate will be free to decide 
what additional services, if any, they want to offer. States would be 
able but not required to offer such things as homemaker services, home 
modifications, respite, assistive devices, adult day care, supported 
employment, home health care, or any other service that would help keep 
a disabled individual at home or in the community.

  Equally important, the measure provides both some initial funding, 
and the ability of States to recapture the bulk of the savings they can 
generate within the current long-term care system. The bill directs the 
Secretary of Health and Human Services to submit to Congress a proposal 
by which States could retain, in this new more flexible program, 75 
percent of the Federal Medicaid long-term care savings they are able to 
generate. This not only provides a direct incentive for States to 
produce Medicaid savings, it also directly links the future of this 
reform to its ability to deliver results.
  The legislation also creates a small hospital link pilot program 
based on our experiences in Wisconsin where such an initiative has 
helped direct individuals needing long-term care services out of 
hospitals, and back to their own homes and communities. The hospital 
discharge is a critical point of embarkation into the long-term care 
system for many, and this program helps ensure that those who leave a 
hospital in need of long-term care can receive needed services where 
they prefer them--in their own homes.
  Mr. President, though I am convinced that long-term care reform can 
result in substantial savings to taxpayers--and this has been our 
experience in Wisconsin--this measure does not depend on hypothetical 
savings for funding. This measure includes funding provisions 
consisting of specific savings within the health care system. Those 
savings include extending and making permanent the Medicare secondary 
payer provisions; establishing a prospective payment system under 
Medicare for nursing homes; eliminating the technical errors in the 
reimbursement of certain outpatient hospital services, known as the 
formula-driven overpayments; and, reforming the way Medicare risk 
contractors are reimbursed.
  Mr. President, this last provision, fixing the payment system for 
Medicare HMO's, deserves special notice. The current system of 
reimbursement is flawed, and results in grossly inequitable 
distribution of costs and benefits within Medicare. Because the risk 
contract reimbursement formula is driven by the average fee-for-service 
costs in an area, Medicare beneficiaries in States like Wisconsin, 
where Medicare's standard fee-for-service costs are kept low, are 
punished. By contrast, areas with higher costs, including costs driven 
by unnecessary utilization and even waste, fraud, and abuse, are 
rewarded with generous benefit packages and little or no copayments.
  This system of incentives is backward, and I am pleased to include a 
proposal to bring some sense and equity to Medicare's reimbursement of 
risk contracts as part of this measure.
  Mr. President, the offsetting reductions in this measure produce 
savings of $34.1 billion over 5 years, and $166.2 billion over 10 
years. Altogether, including the long-term care reforms and grants to 
States, the bill produces net deficit reduction of $30.4 billion over 5 
years, and $145.7 billion over 10 years.
  This must be the approach we adopt, even for those proposals which 
experience shows will result in savings. By including funding 
provisions in this long-term care reform measure, we ensure that any 
additional savings produced by these reforms will only further reduce 
the budget deficit.
  And there is strong evidence that there will be additional savings, 
as we have seen in Wisconsin. Between 1980 and 1993, while the rest of 
the country experienced increased Medicaid nursing home use of 35 
percent, thanks to Wisconsin's long-term care reforms, Medicaid nursing 
home bed use actually dropped 16 percent in the State, saving Wisconsin 
taxpayers hundreds of millions of dollars.
  Mr. President, aside from the immediate benefits of reducing the 
budget deficit, we need long-term care reform in its own right.
  While the population of those needing long-term care is growing much

[[Page S5512]]

faster than those providing indirect support as taxpayers, informal 
care, which is largely provided by families, has been stretched to the 
limit by the economics of health care and the increasing age of the 
caregivers themselves.
  The default system of formal long-term care, currently funded through 
the Medicaid Program, requires that individuals impoverish themselves 
before they can receive needed care, and it largely limits care to 
expensive institutional settings.
  Failure to reform long-term care will inevitably lead to increased 
use of the Medicaid system--the most expensive long-term care 
alternative for taxpayers, and the least desirable for consumers.
  Mr. President, there are few statistical forecasts as accurate as 
those dealing with our population, and estimates show that the 
population needing long-term care will explode during the next few 
decades. The elderly are the fastest growing segment of our population, 
with those over age 85--individuals most in need of long-term care--the 
fastest growing segment of the elderly. The over-85 population will 
triple in size between 1980 and 2030, and will be nearly seven times 
larger in 2050 than in 1980.
  The growth in the population of elderly needing some assistance is 
expected to be equally dramatic. Activities of daily living, or ADL's, 
are a common measure of need for long-term care services. These 
activities include eating, transferring in and out of bed, toileting, 
dressing, and bathing. In 1988, approximately 6.9 million elderly could 
not perform all of these activities. By 2000, this population is 
expected to increase to 9 million, and by 2040 to 18 million.

  Mr. President, that we have been able to stave off a long-term care 
crisis to date is due in large part to the direct caregiving provided 
by millions of families for their elderly and disabled family members. 
But here also we see that the demographic changes of the next several 
decades will result in increased strain on the current system.
  While the number of people in need of care is increasing rapidly, the 
population supporting those individuals, either through direct 
caregiving, or indirectly through their taxes, is growing much more 
slowly, and thus is shrinking in comparison.
  In 1900, there were about 7 elderly individuals for every 100 people 
of working age. As of 1990, the ratio was about 20 elderly for every 
100, by 2020 the ratio will be 29 per 100, and after that it will rise 
to 38 per 100 by 2030.
  These population differences will be further aggravated by the 
changing nature of the family and the work force. As the Alzheimer's 
Association has noted, smaller families, delayed childbearing, more 
women in the work force, higher divorce rates, and increased mobility 
all mean there will be fewer primary caregivers available, and far less 
informal support for those who do continue to provide care to family 
members in need of long-term care services.
  Mr. President, while some elderly are relatively well off, thanks in 
part to programs like Social Security and Medicare that have kept many 
out of poverty, it is also true that too many seniors still find 
themselves living near or below the poverty line. This is especially 
true for those needing long-term care, who, on average, are poorer than 
those who do not need long-term care. In 1990, about 27 percent of 
people needing help with some activity of daily living survived on 
incomes below the poverty level, compared with 17 percent of all older 
people. About half of impaired elderly have income under 150 percent of 
poverty, compared with 35 percent of all elderly, and, according to 
Families USA, while 20 percent of the population as a whole had annual 
family income under $15,685 in 1992, nearly half of the disabled 
population had income under that level.
  Further aggravating the problem is that informal family member 
caregivers are getting older. These caregivers are already an average 
of 57, with 36 percent of caregivers 65 or older. As the population 
ages, so will the average age of caregivers, and as the population of 
caregivers increases, their ability to provide adequate informal care 
diminishes.
  Mr. President, all in all our country faces a rapidly growing 
population needing long-term care services, a population which is 
disproportionately poor. At the same time, the group of family 
caregivers, that has kept most of the population needing long-term care 
out of Government programs like Medicaid, is shrinking relative to 
those in need of services, and is becoming progressively older.
  The inescapable result of these trends is substantial pressure on 
Government provided long-term care services--services that are 
inadequate in several fundamental ways.
  First, with some exceptions, the current system fails to build 
effectively on the informal care provided by families.
  Mr. President, most people with disabilities, even with severe 
disabilities, rely on care in their home from family and friends. The 
Alzheimer's Association estimates that families provide between 80 and 
90 percent of all care at home, willingly and without pay. The 
association estimates that this informal off-budget care would cost $54 
billion to replace.
  This last figure can be only an estimate, not because it doesn't 
fairly represent the services currently being provided by family 
members, but because comparable services are largely unavailable from 
the long-term care system. The variety of home- and community-based 
services provided by family members simply do not exist in many areas.
  Mr. President, the prevalence of family-provided caregiving affirms 
that, in reforming our long-term care system, it is vital that we build 
on top of the existing informal care that is being provided, not try to 
substitute for that care by imposing a new system. The goal of long-
term care reform is first to enable family caregivers to continue to 
provide the care they currently give and that their family members 
prefer.
  Mr. President, another weakness of the current long-term care system 
is the lack of a home and community service capacity. This is due in 
part to the inadequacies of the Medicaid Program. Enacted in 1965, 
Medicaid was primarily a response to the acute care needs of the poor. 
Though Congress did not envision Medicaid as a long-term care program, 
it quickly became the primary source of Government funds for long-term 
care services.
  For many years, those long-term services provided under Medicaid were 
almost exclusively institutionally based. Not until institutional 
services, such as nursing homes, had become well established were 
community- and home-based services funded.
  The result of the head start given institutional long-term care 
services has been a continuing bias toward institutions in our long-
term care programs. The rate of nursing home use by the elderly since 
the advent of Medicare and Medicaid has doubled, while the community 
and home-based alternatives to institutional care are considered 
exceptions to institutional care. A State must get a waiver from the 
Federal Government in order to qualify for community and home-based 
nonmedical service alternatives under Medicaid and, in many cases, an 
individual must otherwise be headed to an institution in order to 
qualify for those Medicaid funded community and home-based alternative 
programs.
  More significantly, there remains an absolute entitlement to 
institutional care that does not exist for the home and community-based 
waiver alternatives.
  Mr. President, many families have been able to provide long-term care 
services themselves to their elderly and disabled family members, but 
the lack of even partial support services makes it increasingly 
difficult for families to choose to keep their family members at home.
  According to a 1991 Alzheimer's Association study, the family 
caregiving alternative to Government funded long-term care is likely to 
disappear not because of the increasing impairment of the long-term 
care consumer, but because of the physical, emotional, or financial 
exhaustion of the caregiver:

       Family caregivers suffer more stress-related illness, 
     resulting from exhaustion, lowered immune functions, and 
     injuries, than the general population . . . Depression among 
     caregivers of the frail elderly is as high as 43 to 46 
     percent, nearly three times the norm. . . . The likelihood of 
     health problems is heightened by the relatively high age of 
     caregivers: the average is 57. Thirty-six percent of 
     caregivers are 65 or older.

  Mr. President, the impact on the economy of the family caregiver is 
also

[[Page S5513]]

significant. Beyond the obvious strain on the personal economy of those 
families with members needing long-term care services, there is also a 
significant effect on employers.
  One-quarter of American workers over the age of 30 care for an 
elderly parent, and this percentage is expected to increase with 40 
percent of workers expecting to be caring for aging parents in the next 
5 years.
  These are impressive statistics when one considers that caregivers 
report missing a week and a half of work each year in order to provide 
care, and nearly one-third of working caregivers have either quit their 
job or reduced their work hours because of their caregiving 
responsibilities.

  For those working 20 hours or fewer a week, over half have reduced 
their work hours because of caregiving responsibilities.
  Mr. President, long-term care is very much a woman's issue. Women 
live longer than men, and make up a greater portion of the population 
needing care. And women are much more likely to be the family member 
that is providing care to a loved one who needs long-term care. One in 
five women have a parent living in their home, and nearly half of adult 
daughters who are caregivers are unemployed. Over a quarter of these 
women said they either quit their jobs or retired early just to provide 
care for an older person.
  In addition to the impact on caregivers as employees, workers, and 
family breadwinners, there is also a measurable impact on their 
personal health. As the Alzheimer's Association study noted, caregivers 
are more likely to be in poor health than the general population, and 
are three times more likely to suffer from depression, a condition that 
raises the risk of other ailments such as exhaustion, lowered immune 
function, stress-related illness, and injury related to their 
caregiving responsibilities.
  Compounding both the work-related and health-related problems, the 
burden of this kind of caregiving can increase over time. The 
Alzheimer's Association study noted that unlike caring for a child, 
which diminishes over time as the child matures and becomes more 
independent, caregiving responsibilities for an aging parent often 
increase as they become more dependent and require more care.
  Mr. President, failure to reform long-term care will also lead to 
cost shifting and will undermine our efforts both to contain acute care 
costs and further reduce the deficit.
  Thanks in large part to the lack of universal coverage and the 
attendant shared responsibility, the health care system has become 
expert at shifting costs. Federal and State policymakers, in attempting 
to control costs, have often only created bigger incentives to shift 
costs as they try to clamp down in one area only to see utilization 
jump in another. All too often, no real savings are achieved in the 
end.
  This was seen, for example, when the Federal Government changed 
several aspects of Medicare reimbursements. Patients were discharged 
from hospitals quicker and sicker than they had been before with a 
resulting increase in utilization in other areas, including long-term 
care services such as skilled nursing facilities.
  This example is particularly appropriate. As efforts are made to 
limit costs in the acute care system, it is precisely this kind of 
shifting, from the acute care side to the long-term care side, that 
will occur unless long-term care reforms are pursued.
  A grandmother who is discharged from a hospital by an HMO seeking to 
lower its costs, may have little alternative but to enter a nursing 
home. Long-term care reform could provide her family with sufficient 
additional supports to be able to care for that grandmother in her own 
home, and at significantly lower cost to the family and the system as a 
whole.
  But, Mr. President, as important as it is to gain control of our 
health care costs, long-term care reform is needed first and foremost 
as a matter of humanity.
  In my own State of Wisconsin, long-term care has been the focus of 
significant reforms since the early 1980's.
  One long-term care administrator, Chuck McLaughlin of Black River 
Falls, WI, testified before a field hearing of the Senate Aging 
Committee in the 103d Congress that prior to those reforms, he saw an 
almost complete absence of community or home-based long-term care 
services for people in need of support.
  This was especially visible for older disabled individuals. Except 
for those seniors with sufficient resources to create their own system 
of in-home supports, he saw many forced to enter nursing homes who 
would have liked to have remained in their own home or community.
  McLaughlin noted that though some eventually adjusted to leaving 
their home and entering the nursing home, others never did.

       I saw people who simply willed their own death because they 
     saw no reason to continue living. These were people who were 
     literally torn from familiar places and familiar people. 
     People who had lost the continuity of their lives and the 
     history that so richly made them into who they were now. 
     People who had nurtured and sustained their communities which 
     in turn provided them with positive status in that community. 
     These people were truly uprooted and adrift in an alien 
     environment lacking familiar sights, sounds, and smells. Many 
     of them simply chose not to live any longer. While the 
     medical care they received was excellent, they were more than 
     just their physical bodies. Modern medicine has no treatment 
     for a broken spirit.

  Mr. President, for many, the current long-term care system continues 
to be so inflexible as to be inhumane.
  Mr. President, there are many reasons for pursuing long-term care 
reform--certainly more than are addressed here. But the one which may 
be the most meaningful for those actually needing long-term care is the 
ability to make their own choice about what kinds of services they will 
receive. In particular, this will mean the chance to remain as 
independent as possible, living at home or in the community or, if they 
choose, in an institution.
  Survey after survey reveal the overwhelming preference for home-based 
care, and these findings are consistent with the anecdotal evidence 
available from just about every family facing some kind of long-term 
care need.
  Ann Hauser, a 74-year-old woman who retired after 30 years as a ward 
clerk in a Milwaukee hospital, offered testimony at a May 9, 1994, 
field hearing of the Senate Special Committee on Aging that is typical 
of what many have said over the years.
  Now living at home with help from Wisconsin's home and community-
based long-term care program, the Community Options Program [COP], Ms. 
Hauser related a number of problems she had experienced while in 
different nursing homes.

       While at this nursing home and the others, I was to 
     continue on IV antibiotics and needed some, but not total 
     assistance for chair transfers. Before much time had passed, 
     I was assisted in moving around so seldom that I lost muscle 
     tone. Within 5 months, I became bedridden. The Heuer lift 
     became a cop-out, and I learned that I was better to refuse 
     it so that I would keep the use of some of my muscles. The 
     less active I became, the more depressed I became. I was 
     going downhill fast.
       How could I be happy in places that allowed the aides to 
     switch the TV station on my television to their favorite soap 
     operas (when I don't even like shows like that)? Furthermore, 
     when I would remind them that I was at their mercy to finish 
     my bed bath as they stopped to watch just one more minute, 
     they would take away my remote control while I shivered and 
     waited.

  The particulars of Ms. Hauser's experience are less important than 
the overall loss of control and independence that she experienced, 
something that is common for many in nursing homes. As Ms. Hauser 
noted:

       How could I thrive in an environment that counted on my 
     remaining inactive when I had been so active until now?

  Dorothy Freund also gave testimony at the May 9 field hearing. At the 
time, she was a nursing home resident. Ms. Freund, who received her 
B.A. from Ohio State University, majored in English, and later received 
an additional degree from Maclean College of Drama, Speech, and Voice 
in Chicago.
  After a brief stay in a hospital for treatment to her ankle, she came 
to a nursing home for further treatment. She gave up her apartment, 
because it was not designed for maneuvering in a wheelchair, and she 
has been on the COP waiting list for a year and a half.
  Ms. Freund testified that she enjoys helping people, and this was 
obvious to those at the hearing as she related her efforts to tutor a 
nursing assistant who had worked at the nursing home. The aide decided 
that she would like to become a nurse, to get her LPN, but

[[Page S5514]]

needed to get her high school diploma. Ms. Freund helped her with 
English, geometry, government, and geography, and, thanks in large part 
to Ms. Freund's efforts, the nursing assistant did receive her high 
school diploma.
  Ms. Freund spoke about her experience and her thoughts on living in a 
nursing home:

       Then why not stay at the nursing home and help others in 
     the same way? It is not an atmosphere of peace and quiet for 
     any length of time. I'm not deprecating the nursing home and 
     its quality of care. They are always looking for ways to 
     improve situations and to solve problems that arise. Nor am I 
     downgrading those who are trying their best to give that 
     care. But when the shouting, moaning, screaming, and babbling 
     all go on at the same time it can be bedlam. It may erupt at 
     any moment. . . . The frustrations of being stuffed in a 
     nursing home, the struggle to ride out the storms, and keep 
     one's head above the turbulent waters, can seem overwhelming 
     when there's not even a gleam at the end of the tunnel. But I 
     just can't resign myself to a life of Bingo and Roll-a-ball. 
     ``Don't give up; there must be a way,'' I keep telling 
     myself.

  Ms. Freund's testimony, again, is typical of the experiences of many 
needing long-term care. And it bears emphasizing that the desire to 
live in one's own home, and to be able to function as independently as 
possible, exists despite the high quality of care that is provided in 
most nursing homes.
  Mr. President, this should come as no surprise in a society that 
values independence so highly. We cannot expect an individual's value 
system to change the instant they require some long-term care, though 
this is precisely how our current long-term care system is structured.

  If for no other reason, we need to reform our long-term care system 
to reflect the values we cherish as a nation, to live, as we wish, 
independently, in our own homes and communities.
  Mr. President, during the debate over comprehensive health care 
reform in the 103d Congress, I issued a report reviewing the long-term 
care provisions in President Clinton's health care reform legislation 
and offering some modifications to those provisions based on our 
experience in Wisconsin. In that report, I noted that Chuck 
McLaughlin's eloquent comments on the importance of community were not 
only relevant, even central, to the discussion of long-term care, but 
that community must also be the focus of our efforts in many other 
areas of our lives as Americans and citizens of the world.
  More often than not, the critical problems we face stem from a 
failure of community or a lack of adequate community-based supports--
for example jobs and economic development, housing, crime, and 
education. These and other important issues are usually confronted by 
policymakers at a distance--from Washington, DC or from State 
capitals--essentially from the top down.
  Too often we have tried to solve these challenges, including the 
challenge of long-term care, by imposing a superior vision from above. 
This approach has led to inflexible systems that cannot react to 
individual needs, but rather end up trying to fit the problem to their 
own structure.
  This fundamental weakness is often enough to undermine even the 
sometimes huge amounts of money that we send along to implement the 
problem solving. It also limits the kinds of creative approaches those 
who are ``on the ground'' may see as useful and necessary.
  Mr. President, just as we have a need to reinvent government to 
respond more efficiently to our country's needs and our national 
deficit, we need also to reinvent community to allow flexible 
approaches to problems, and to allow those in the community to exercise 
their judgment as to how best to solve problems.
  A great strength of the Wisconsin long-term care reforms, and 
especially the home and community-based benefit on which this 
legislation is based, is that it is focused on the needs of the 
individual. Eligibility is based on disability, not age, and services 
are centered around the particular needs of an individual rather than 
the perceived needs of a group.

  The approach this legislation takes is not only appropriate, but 
integral to the nature of long-term care.
  Mr. President, the population needing long-term care services is a 
diverse group with widely differing needs.
  Of the many misconceptions about long-term care, and about programs 
providing long-term care services, the most common may be that long-
term care is purely an elderly issue. Though it is true that the 
elderly make up the largest part of the population needing long-term 
care services, long-term care is an issue facing millions of younger 
Americans. Approximately 1 million children have severe disabilities 
that require long-term care services.
  Beyond the wide difference in the ages of those needing long-term 
care services, there is a diversity of needs, including the needs of 
the caregiving family members who may need a variety of different long-
term care services.
  From individuals with cerebral palsy to families that have a loved 
one afflicted with Alzheimer's disease, however well intentioned, no 
one set of services will address the individual needs of long-term care 
consumers.
  Rather than trying to fit all of those needing long-term care 
services into one set of services, this legislation lets case managers, 
working with long-term care consumers and their families, determine 
just what services are needed and preferred.
  Mr. President, the failure to enact comprehensive reform will not 
interrupt my own efforts to advocate and push individual reforms that 
respond to the needs of people and that can help save our health care 
system money.
  In home and community-based long-term care reform, we can achieve 
both.
  For taxpayers in Wisconsin, COP has saved hundreds of millions of 
dollars that would otherwise have been spent on more expensive 
institutional care.
  At the same time, COP has provided an alternative that allows the 
consumer to participate in determining the plan of care and in the 
execution of that plan.
  But, Mr. President, at the Federal level we are behind Wisconsin and 
other States in reforming long-term care. Despite the creation of 
community-based Medicaid waiver programs, consumers are, for the most 
part, faced with few alternatives. This proposal will begin to provide 
the flexibility State government needs to provide consumer-oriented and 
consumer-directed services.

  Mr. President, I ask unanimous consent that a summary of the measure, 
followed by the complete text of the legislation, be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 879

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

Sec. 1. Short title; table of contents.

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

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

      TITLE II--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

Sec. 201. Definitions.
Sec. 202. Payment objectives.
Sec. 203. Powers and duties of the Secretary.
Sec. 204. Relationship to title XVIII of the Social Security Act.
Sec. 205. Establishment of resident classification system.
Sec. 206. Cost centers for nursing facility payment.
Sec. 207. Resident assessment.
Sec. 208. The per diem rate for nursing service costs.
Sec. 209. The per diem rate for administrative and general costs.
Sec. 210. Payment for fee-for-service ancillary services.
Sec. 211. Reimbursement of selected ancillary services and other costs.

[[Page S5515]]

Sec. 212. Per diem payment for property costs.
Sec. 213. Mid-year rate adjustments.
Sec. 214. Exception to payment methods for new and low volume nursing 
              facilities.
Sec. 215. Appeal procedures.
Sec. 216. Transition period.
Sec. 217. Effective date; inconsistent provisions.

               TITLE III--ADDITIONAL MEDICARE PROVISIONS

Sec. 301. Elimination of formula-driven overpayments for certain 
              outpatient hospital services.
Sec. 302. Permanent extension of certain secondary payer provisions.
Sec. 303. Financing and quality modernization and reform.
    TITLE I--HOME AND COMMUNITY-BASED SERVICES FOR INDIVIDUALS WITH 
                              DISABILITIES

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

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

     SEC. 102. STATE PLANS.

       (a) Plan Requirements.--In order to be approved under 
     subsection (b), a State plan for home and community-based 
     services for individuals with disabilities must meet the 
     following requirements:
       (1) State maintenance of effort.--
       (A) In general.--A State plan under this title shall 
     provide that the State will, during any fiscal year that the 
     State is furnishing services under this title, make 
     expenditures of State funds in an amount equal to the State 
     maintenance of effort amount for the year determined under 
     subparagraph (B) for furnishing the services described in 
     subparagraph (C) under the State plan under this title or 
     under the State plan under title XIX of the Social Security 
     Act (42 U.S.C. 1396 et seq.).
       (B) State maintenance of effort amount.--
       (i) In general.--The maintenance of effort amount for a 
     State for a fiscal year is an amount equal to--

       (I) for fiscal year 1999, the base amount for the State (as 
     determined under clause (ii)) updated through the midpoint of 
     fiscal year 1999 by the estimated percentage change in the 
     index described in clause (iii) during the period beginning 
     on October 1, 1997, and ending at that midpoint; and
       (II) for succeeding fiscal years, an amount equal to the 
     amount determined under this clause for the previous fiscal 
     year updated through the midpoint of the year by the 
     estimated percentage change in the index described in clause 
     (iii) during the 12-month period ending at that midpoint, 
     with appropriate adjustments to reflect previous 
     underestimations or overestimations under this clause in the 
     projected percentage change in such index.

       (ii) State base amount.--The base amount for a State is an 
     amount equal to the total expenditures from State funds made 
     under the State plan under title XIX of the Social Security 
     Act (42 U.S.C. 1396 et seq.) during fiscal year 1997 with 
     respect to medical assistance consisting of the services 
     described in subparagraph (C).
       (iii) Index described.--For purposes of clause (i), the 
     Secretary shall develop an index that reflects the projected 
     increases in spending for services under subparagraph (C), 
     adjusted for differences among the States.
       (C) Medicaid services described.--The services described in 
     this subparagraph are the following:
       (i) Personal care services (as described in section 
     1905(a)(24) of the Social Security Act (42 U.S.C. 
     1396d(a)(24))).
       (ii) Home or community-based services furnished under a 
     waiver granted under subsection (c), (d), or (e) of section 
     1915 of such Act (42 U.S.C. 1396n).
       (iii) Home and community care furnished to functionally 
     disabled elderly individuals under section 1929 of such Act 
     (42 U.S.C. 1396t).
       (iv) Community supported living arrangements services under 
     section 1930 of such Act (42 U.S.C. 1396u).
       (v) Services furnished in a hospital, nursing facility, 
     intermediate care facility for the mentally retarded, or 
     other institutional setting specified by the Secretary.
       (2) Eligibility.--
       (A) In general.--Within the amounts provided by the State 
     and under section 108 for such plan, the plan shall provide 
     that services under the plan will be available to individuals 
     with disabilities (as defined in section 103(a)) in the 
     State.
       (B) Initial screening.--The plan shall provide a process 
     for the initial screening of an individual who appears to 
     have some reasonable likelihood of being an individual with 
     disabilities. Any such process shall require the provision of 
     assistance to individuals who wish to apply but whose 
     disability limits their ability to apply. The initial 
     screening and the determination of disability (as defined 
     under section 103(b)(1)) shall be conducted by a public 
     agency.
       (C) Restrictions.--
       (i) In general.--The plan may not limit the eligibility of 
     individuals with disabilities based on--

       (I) income;
       (II) age;
       (III) residential setting (other than with respect to an 
     institutional setting, in accordance with clause (ii)); or
       (IV) other grounds specified by the Secretary;

     except that through fiscal year 2007, the Secretary may 
     permit a State to limit eligibility based on level of 
     disability or geography (if the State ensures a balance 
     between urban and rural areas).
       (ii) Institutional setting.--The plan may limit the 
     eligibility of individuals with disabilities based on the 
     definition of the term ``institutional setting'', as 
     determined by the State.
       (D) Continuation of services.--The plan must provide 
     assurances that, in the case of an individual receiving 
     medical assistance for home and community-based services 
     under the State medicaid plan under title XIX of the Social 
     Security Act (42 U.S.C. 1396 et seq.) as of the date a 
     State's plan is approved under this title, the State will 
     continue to make available (either under this plan, under the 
     State medicaid plan, or otherwise) to such individual an 
     appropriate level of assistance for home and community-based 
     services, taking into account the level of assistance 
     provided as of such date and the individual's need for home 
     and community-based services.
       (3) Services.--
       (A) Needs assessment.--Not later than the end of the second 
     year of implementation, the plan or its amendments shall 
     include the results of a statewide assessment of the needs of 
     individuals with disabilities in a format required by the 
     Secretary. The needs assessment shall include demographic 
     data concerning the number of individuals within each 
     category of disability described in this title, and the 
     services available to meet the needs of such individuals.
       (B) Specification.--Consistent with section 104, the plan 
     shall specify--
       (i) the services made available under the plan;
       (ii) the extent and manner in which such services are 
     allocated and made available to individuals with 
     disabilities; and
       (iii) the manner in which services under the plan are 
     coordinated with each other and with health and long-term 
     care services available outside the plan for individuals with 
     disabilities.
       (C) Taking into account informal care.--A State plan may 
     take into account, in determining the amount and array of 
     services made available to covered individuals with 
     disabilities, the availability of informal care. Any 
     individual plan of care developed under section 104(b)(1)(B) 
     that includes informal care shall be required to verify the 
     availability of such care.
       (D) Allocation.--The State plan--
       (i) shall specify how services under the plan will be 
     allocated among covered individuals with disabilities;
       (ii) shall attempt to meet the needs of individuals with a 
     variety of disabilities within the limits of available 
     funding;
       (iii) shall include services that assist all categories of 
     individuals with disabilities, regardless of their age or the 
     nature of their disabling conditions;
       (iv) shall demonstrate that services are allocated 
     equitably, in accordance with the needs assessment required 
     under subparagraph (A); and
       (v) shall ensure that--

       (I) the proportion of the population of low-income 
     individuals with disabilities in the State that represents 
     individuals with disabilities who are provided home and 
     community-based services either under the plan, under the 
     State medicaid plan, or under both, is not less than
       (II) the proportion of the population of the State that 
     represents individuals who are low-income individuals.

       (E) Limitation on licensure or certification.--The State 
     may not subject consumer-directed providers of personal 
     assistance services to licensure, certification, or other 
     requirements that the Secretary finds not to be necessary for 
     the health and safety of individuals with disabilities.
       (F) Consumer choice.--To the extent feasible, the State 
     shall follow the choice of an individual with disabilities 
     (or that individual's designated representative who may be a 
     family member) regarding which covered services to receive 
     and the providers who will provide such services.
       (4) Cost sharing.--The plan may impose cost sharing with 
     respect to covered services in accordance with section 105.
       (5) Types of providers and requirements for 
     participation.--The plan shall specify--
       (A) the types of service providers eligible to participate 
     in the program under the plan, which shall include consumer-
     directed providers of personal assistance services, except 
     that the plan--
       (i) may not limit benefits to services provided by 
     registered nurses or licensed practical nurses; and
       (ii) may not limit benefits to services provided by 
     agencies or providers certified

[[Page S5516]]

     under title XVIII of the Social Security Act (42 U.S.C. 1395 
     et seq.); and
       (B) any requirements for participation applicable to each 
     type of service provider.
       (6) Provider reimbursement.--
       (A) Payment methods.--The plan shall specify the payment 
     methods to be used to reimburse providers for services 
     furnished under the plan. Such methods may include 
     retrospective reimbursement on a fee-for-service basis, 
     prepayment on a capitation basis, payment by cash or vouchers 
     to individuals with disabilities, or any combination of these 
     methods. In the case of payment to consumer-directed 
     providers of personal assistance services, including payment 
     through the use of cash or vouchers, the plan shall specify 
     how the plan will assure compliance with applicable 
     employment tax and health care coverage provisions.
       (B) Payment rates.--The plan shall specify the methods and 
     criteria to be used to set payment rates for--
       (i) agency administered services furnished under the plan; 
     and
       (ii) consumer-directed personal assistance services 
     furnished under the plan, including cash payments or vouchers 
     to individuals with disabilities, except that such payments 
     shall be adequate to cover amounts required under applicable 
     employment tax and health care coverage provisions.
       (C) Plan payment as payment in full.--The plan shall 
     restrict payment under the plan for covered services to those 
     providers that agree to accept the payment under the plan (at 
     the rates established pursuant to subparagraph (B)) and any 
     cost sharing permitted under section 105 as payment in full 
     for services furnished under the plan.
       (7) Quality assurance and safeguards.--The State plan shall 
     provide for quality assurance and safeguards for applicants 
     and beneficiaries in accordance with section 106.
       (8) Advisory group.--The State plan shall--
       (A) assure the establishment and maintenance of an advisory 
     group in accordance with section 107(b); and
       (B) include the documentation prepared by the group under 
     section 107(b)(4).
       (9) Administration and access.--
       (A) State agency.--The plan shall designate a State agency 
     or agencies to administer (or to supervise the administration 
     of) the plan.
       (B) Coordination.--The plan shall specify how it will--
       (i) coordinate services provided under the plan, including 
     eligibility prescreening, service coordination, and referrals 
     for individuals with disabilities who are ineligible for 
     services under this title with the State medicaid plan under 
     title XIX of the Social Security Act (42 U.S.C. 1396 et 
     seq.), titles V and XX of such Act (42 U.S.C. 701 et seq. and 
     1397 et seq.), programs under the Older Americans Act of 1965 
     (42 U.S.C. 3001 et seq.), programs under the Developmental 
     Disabilities Assistance and Bill of Rights Act (42 U.S.C. 
     6000 et seq.), programs under the Individuals with 
     Disabilities Education Act (20 U.S.C. 1400 et seq.), and any 
     other Federal or State programs that provide services or 
     assistance targeted to individuals with disabilities; and
       (ii) coordinate with health plans.
       (C) Administrative expenditures.--Effective beginning with 
     fiscal year 2007, the plan shall contain assurances that not 
     more than 10 percent of expenditures under the plan for all 
     quarters in any fiscal year shall be for administrative 
     costs.
       (D) Information and assistance.--The plan shall provide for 
     a single point of access to apply for services under the 
     State program for individuals with disabilities. 
     Notwithstanding the preceding sentence, the plan may 
     designate separate points of access to the State program for 
     individuals under 22 years of age, for individuals 65 years 
     of age or older, or for other appropriate classes of 
     individuals.
       (10) Reports and information to secretary; audits.--The 
     plan shall provide that the State will furnish to the 
     Secretary--
       (A) such reports, and will cooperate with such audits, as 
     the Secretary determines are needed concerning the State's 
     administration of its plan under this title, including the 
     processing of claims under the plan; and
       (B) such data and information as the Secretary may require 
     in a uniform format as specified by the Secretary.
       (11) Use of state funds for matching.--The plan shall 
     provide assurances that Federal funds will not be used to 
     provide for the State share of expenditures under this title.
       (12) Health care worker redeployment.--The plan shall 
     provide for the following:
       (A) Before initiating the process of implementing the State 
     program under such plan, negotiations will be commenced with 
     labor unions representing the employees of the affected 
     hospitals or other facilities.
       (B) Negotiations under subparagraph (A) will address the 
     following:
       (i) The impact of the implementation of the program upon 
     the workforce.
       (ii) Methods to redeploy workers to positions in the 
     proposed system, in the case of workers affected by the 
     program.
       (C) The plan will provide evidence that there has been 
     compliance with subparagraphs (A) and (B), including a 
     description of the results of the negotiations.
       (13) Terminology.--The plan shall adhere to uniform 
     definitions of terms, as specified by the Secretary.
       (b) Approval of Plans.--The Secretary shall approve a plan 
     submitted by a State if the Secretary determines that the 
     plan--
       (1) was developed by the State after a public comment 
     period of not less than 30 days; and
       (2) meets the requirements of subsection (a).

     The approval of such a plan shall take effect as of the first 
     day of the first fiscal year beginning after the date of such 
     approval (except that any approval made before October 1, 
     1998, shall be effective as of such date). In order to budget 
     funds allotted under this title, the Secretary shall 
     establish a deadline for the submission of such a plan before 
     the beginning of a fiscal year as a condition of its approval 
     effective with that fiscal year. Any significant changes to 
     the State plan shall be submitted to the Secretary in the 
     form of plan amendments and shall be subject to approval by 
     the Secretary.
       (c) Monitoring.--The Secretary shall annually monitor the 
     compliance of State plans with the requirements of this title 
     according to specified performance standards. In accordance 
     with section 108(e), States that fail to comply with such 
     requirements may be subject to a reduction in the Federal 
     matching rates available to the State under section 108(a) or 
     the withholding of Federal funds for services or 
     administration until such time as compliance is achieved.
       (d) Technical Assistance.--The Secretary shall ensure the 
     availability of ongoing technical assistance to States under 
     this section. Such assistance shall include serving as a 
     clearinghouse for information regarding successful practices 
     in providing long-term care services.
       (e) Regulations.--The Secretary shall issue such 
     regulations as may be appropriate to carry out this title on 
     a timely basis.

     SEC. 103. INDIVIDUALS WITH DISABILITIES DEFINED.

       (a) In General.--For purposes of this title, the term 
     ``individual with disabilities'' means any individual within 
     1 or more of the following categories:
       (1) Individuals requiring help with activities of daily 
     living.--An individual of any age who--
       (A) requires hands-on or standby assistance, supervision, 
     or cueing (as defined in regulations) to perform 3 or more 
     activities of daily living (as defined in subsection (d)); 
     and
       (B) is expected to require such assistance, supervision, or 
     cueing for a chronic condition that will last at least 180 
     days.
       (2) Individuals who require supervision due to cognitive or 
     other mental impairments.--An individual of any age--
       (A) who requires supervision to protect himself or herself 
     from threats to health or safety due to impaired judgment, or 
     who requires supervision due to symptoms of 1 or more serious 
     behavioral problems (that is on a list of such problems 
     specified by the Secretary); and
       (B) who is expected to require such supervision for a 
     chronic condition that will last at least 180 days.

     Not later than 2 years after the date of enactment of this 
     Act, the Secretary shall make recommendations regarding the 
     most appropriate duration of disability under this paragraph.
       (3) Individuals with severe or profound mental 
     retardation.--An individual of any age who has severe or 
     profound mental retardation (as determined according to a 
     protocol specified by the Secretary).
       (4) Individuals with medical management needs.--An 
     individual of any age who due to a physical cognitive or 
     other mental impairment requires assistance to manage his or 
     her medical or nursing care (as determined by the Secretary).
       (5) Young children with severe disabilities.--An individual 
     under 6 years of age who--
       (A) has a severe disability or chronic medical condition 
     that limits functioning in a manner that is comparable in 
     severity to the standards established under paragraphs (1), 
     (2), or (3); and
       (B) is expected to have such a disability or condition for 
     at least 180 days.

     The Secretary shall elaborate the criteria for children under 
     6 years of age based on an analysis of Phase I (1994) and II 
     (1996) of the National Disability Survey.
       (6) State option with respect to individuals with 
     comparable disabilities.--Not more than 5 percent of a 
     State's allotment for services under this title may be 
     expended for the provision of services to individuals with 
     severe disabilities and long-term medical or nursing needs 
     that are comparable in severity to the criteria described in 
     paragraphs (1) through (5), but who fail to meet the criteria 
     in any single category under such paragraphs.
       (b) Determination.--
       (1) In general.--In formulating eligibility criteria under 
     subsection (a), the Secretary shall establish criteria for 
     assessing the functional level of disability among all 
     categories of individuals with disabilities that are 
     comparable in severity, regardless of the age or the nature 
     of the disabling condition of the individual. The 
     determination of whether an individual is an individual with 
     disabilities shall be made by a public or nonprofit agency 
     that is specified under the State plan and that is not a 
     provider of home and community-based services under this 
     title and by using a uniform protocol consisting of an 
     initial screening and a determination of disability specified 
     by the Secretary. A State may not impose cost sharing with 
     respect to a determination of disability. A State may collect 
     additional information,

[[Page S5517]]

     at the time of obtaining information to make such 
     determination, in order to provide for the assessment and 
     plan described in section 104(b) or for other purposes.
       (2) Periodic reassessment.--The determination that an 
     individual is an individual with disabilities shall be 
     considered to be effective under the State plan for a period 
     of not more than 6 months (or for such longer period in such 
     cases as a significant change in an individual's condition 
     that may affect such determination is unlikely). A 
     reassessment shall be made if there is a significant change 
     in an individual's condition that may affect such 
     determination.
       (c) Eligibility Criteria.--The Secretary shall reassess the 
     validity of the eligibility criteria described in subsection 
     (a) as new knowledge regarding the assessments of functional 
     disabilities becomes available. The Secretary shall report to 
     the Congress on its findings under the preceding sentence as 
     determined appropriate by the Secretary.
       (d) Activity of Daily Living Defined.--In this title, the 
     term ``activity of daily living'' means any of the following: 
     eating, toileting, dressing, bathing, and transferring.
       (e) Individuals With Cognitive or Other Mental Impairments 
     Defined.--In this title, the term ``individuals with 
     cognitive or other mental impairments'' means an individual 
     with Alzheimer's disease, dementia, autism, mental illness, 
     mental retardation, congenital or acquired brain injury, or 
     any other severe mental condition.

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

       (a) Specification.--
       (1) In general.--Subject to the succeeding provisions of 
     this section, the State plan under this title shall specify--
       (A) the home and community-based services available under 
     the plan to individuals with disabilities (or to such 
     categories of such individuals); and
       (B) any limits with respect to such services.
       (2) Flexibility in meeting individual needs.--Subject to 
     subsection (e)(2), such services may be delivered in an 
     individual's home, a range of community residential 
     arrangements, or outside the home.
       (b) Requirement for Needs Assessment and Plan of Care.--
       (1) In general.--The State plan shall provide for home and 
     community-based services to an individual with disabilities 
     only if the following requirements are met:
       (A) Comprehensive assessment.--
       (i) In general.--A comprehensive assessment of an 
     individual's need for home and community-based services 
     (regardless of whether all needed services are available 
     under the plan) shall be made in accordance with a uniform, 
     comprehensive assessment tool that shall be used by a State 
     under this paragraph with the approval of the Secretary. The 
     comprehensive assessment shall be made by a public or 
     nonprofit agency that is specified under the State plan and 
     that is not a provider of home and community-based services 
     under this title.
       (ii) Exception.--The State may elect to waive the 
     provisions of clause (i) if--

       (I) with respect to any area of the State, the State has 
     determined that there is an insufficient pool of entities 
     willing to perform comprehensive assessments in such area due 
     to a low population of individuals eligible for home and 
     community-based services under this title residing in the 
     area; and
       (II) the State plan specifies procedures that the State 
     will implement in order to avoid conflicts of interest.

       (B) Individualized plan of care.--
       (i) In general.--An individualized plan of care based on 
     the assessment made under subparagraph (A) shall be developed 
     by a public or nonprofit agency that is specified under the 
     State plan and that is not a provider of home and community-
     based services under this title, except that the State may 
     elect to waive the provisions of this sentence if, with 
     respect to any area of the State, the State has determined 
     there is an insufficient pool of entities willing to develop 
     individualized plans of care in such area due to a low 
     population of individuals eligible for home and community-
     based services under this title residing in the area, and the 
     State plan specifies procedures that the State will implement 
     in order to avoid conflicts of interest.
       (ii) Requirements with respect to plan of care.--A plan of 
     care under this subparagraph shall--

       (I) specify which services included under the individual 
     plan will be provided under the State plan under this title;
       (II) identify (to the extent possible) how the individual 
     will be provided any services specified under the plan of 
     care and not provided under the State plan;
       (III) specify how the provision of services to the 
     individual under the plan will be coordinated with the 
     provision of other health care services to the individual; 
     and
       (IV) be reviewed and updated every 6 months (or more 
     frequently if there is a change in the individual's 
     condition).

     The State shall make reasonable efforts to identify and 
     arrange for services described in subclause (II). Nothing in 
     this subsection shall be construed as requiring a State 
     (under the State plan or otherwise) to provide all the 
     services specified in such a plan.
       (C) Involvement of individuals.--The individualized plan of 
     care under subparagraph (B) for an individual with 
     disabilities shall--
       (i) be developed by qualified individuals (specified in 
     subparagraph (B));
       (ii) be developed and implemented in close consultation 
     with the individual (or the individual's designated 
     representative); and
       (iii) be approved by the individual (or the individual's 
     designated representative).
       (c) Requirement for Care Management.--
       (1) In general.--The State shall make available to each 
     category of individuals with disabilities care management 
     services that at a minimum include--
       (A) arrangements for the provision of such services; and
       (B) monitoring of the delivery of services.
       (2) Care management services.--
       (A) In general.--Except as provided in subparagraph (B), 
     the care management services described in paragraph (1) shall 
     be provided by a public or private entity that is not 
     providing home and community-based services under this title.
       (B) Exception.--A person who provides home and community-
     based services under this title may provide care management 
     services if--
       (i) the State determines that there is an insufficient pool 
     of entities willing to provide such services in an area due 
     to a low population of individuals eligible for home and 
     community-based services under this title residing in such 
     area; and
       (ii) the State plan specifies procedures that the State 
     will implement in order to avoid conflicts of interest.
       (d) Mandatory Coverage of Personal Assistance Services.--
     The State plan shall include, in the array of services made 
     available to each category of individuals with disabilities, 
     both agency-administered and consumer-directed personal 
     assistance services (as defined in subsection (h)).
       (e) Additional Services.--
       (1) Types of services.--Subject to subsection (f), services 
     available under a State plan under this title may include any 
     (or all) of the following:
       (A) Homemaker and chore assistance.
       (B) Home modifications.
       (C) Respite services.
       (D) Assistive technology devices, as defined in section 
     3(2) of the Technology-Related Assistance for Individuals 
     With Disabilities Act of 1988 (29 U.S.C. 2202(2)).
       (E) Adult day services.
       (F) Habilitation and rehabilitation.
       (G) Supported employment.
       (H) Home health services.
       (I) Transportation.
       (J) Any other care or assistive services specified by the 
     State and approved by the Secretary that will help 
     individuals with disabilities to remain in their homes and 
     communities.
       (2) Criteria for selection of services.--The State electing 
     services under paragraph (1) shall specify in the State 
     plan--
       (A) the methods and standards used to select the types, and 
     the amount, duration, and scope, of services to be covered 
     under the plan and to be available to each category of 
     individuals with disabilities; and
       (B) how the types, and the amount, duration, and scope, of 
     services specified, within the limits of available funding, 
     provide substantial assistance in living independently to 
     individuals within each of the categories of individuals with 
     disabilities.
       (f) Exclusions and Limitations.--A State plan may not 
     provide for coverage of--
       (1) room and board;
       (2) services furnished in a hospital, nursing facility, 
     intermediate care facility for the mentally retarded, or 
     other institutional setting specified by the Secretary; or
       (3) items and services to the extent coverage is provided 
     for the individual under a health plan or the medicare 
     program.
       (g) Payment for Services.--In order to pay for covered 
     services, a State plan may provide for the use of--
       (1) vouchers;
       (2) cash payments directly to individuals with 
     disabilities;
       (3) capitation payments to health plans; and
       (4) payment to providers.
       (h) Personal Assistance Services.--
       (1) In general.--For purposes of this title, the term 
     ``personal assistance services'' means those services 
     specified under the State plan as personal assistance 
     services and shall include at least hands-on and standby 
     assistance, supervision, cueing with activities of daily 
     living, and such instrumental activities of daily living as 
     deemed necessary or appropriate, whether agency-administered 
     or consumer-directed (as defined in paragraph (2)). Such 
     services shall include services that are determined to be 
     necessary to help all categories of individuals with 
     disabilities, regardless of the age of such individuals or 
     the nature of the disabling conditions of such individuals.
       (2) Consumer-directed.--For purposes of this title:
       (A) In general.--The term ``consumer-directed'' means, with 
     reference to personal assistance services or the provider of 
     such services, services that are provided by an individual 
     who is selected and managed (and, at the option of the 
     service recipient, trained) by the individual receiving the 
     services.
       (B) State responsibilities.--A State plan shall ensure that 
     where services are provided in a consumer-directed manner, 
     the State shall create or contract with an entity, other than 
     the consumer or the individual provider, to--
       (i) inform both recipients and providers of rights and 
     responsibilities under all applicable Federal labor and tax 
     law; and
       (ii) assume responsibility for providing effective billing, 
     payments for services, tax

[[Page S5518]]

     withholding, unemployment insurance, and workers' 
     compensation coverage, and act as the employer of the home 
     care provider.
       (C) Right of consumers.--Notwithstanding the State 
     responsibilities described in subparagraph (B), service 
     recipients, and, where appropriate, their designated 
     representative, shall retain the right to independently 
     select, hire, terminate, and direct (including manage, train, 
     schedule, and verify services provided) the work of a home 
     care provider.
       (3) Agency administered.--For purposes of this title, the 
     term ``agency-administered'' means, with respect to such 
     services, services that are not consumer-directed.

     SEC. 105. COST SHARING.

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

     SEC. 106. QUALITY ASSURANCE AND SAFEGUARDS.

       (a) Quality Assurance.--
       (1) In general.--The State plan shall specify how the State 
     will ensure and monitor the quality of services, including--
       (A) safeguarding the health and safety of individuals with 
     disabilities;
       (B) setting the minimum standards for agency providers and 
     how such standards will be enforced;
       (C) setting the minimum competency requirements for agency 
     provider employees who provide direct services under this 
     title and how the competency of such employees will be 
     enforced;
       (D) obtaining meaningful consumer input, including consumer 
     surveys that measure the extent to which participants receive 
     the services described in the plan of care and participant 
     satisfaction with such services;
       (E) establishing a process to receive, investigate, and 
     resolve allegations of neglect or abuse;
       (F) establishing optional training programs for individuals 
     with disabilities in the use and direction of consumer 
     directed providers of personal assistance services;
       (G) establishing an appeals procedure for eligibility 
     denials and a grievance procedure for disagreements with the 
     terms of an individualized plan of care;
       (H) providing for participation in quality assurance 
     activities; and
       (I) specifying the role of the Long-Term Care Ombudsman 
     (under the Older Americans Act of 1965 (42 U.S.C. 3001 et 
     seq.)) and the protection and advocacy system (established 
     under section 142 of the Developmental Disabilities 
     Assistance and Bill of Rights Act (42 U.S.C. 6042)) in 
     assuring quality of services and protecting the rights of 
     individuals with disabilities.
       (2) Issuance of regulations.--Not later than 1 year after 
     the date of enactment of this Act, the Secretary shall issue 
     regulations implementing the quality provisions of this 
     subsection.
       (b) Federal Standards.--The State plan shall adhere to 
     Federal quality standards in the following areas:
       (1) Case review of a specified sample of client records.
       (2) The mandatory reporting of abuse, neglect, or 
     exploitation.
       (3) The development of a registry of provider agencies or 
     home care workers and consumer directed providers of personal 
     assistance services against whom any complaints have been 
     sustained, which shall be available to the public.
       (4) Sanctions to be imposed on States or providers, 
     including disqualification from the program, if minimum 
     standards are not met.
       (5) Surveys of client satisfaction.
       (6) State optional training programs for informal 
     caregivers.
       (c) Client Advocacy.--
       (1) In general.--The State plan shall provide that the 
     State will expend the amount allocated under section 
     109(b)(2) for client advocacy activities. The State may use 
     such funds to augment the budgets of the Long-Term Care 
     Ombudsman (under the Older Americans Act of 1965 (42 U.S.C. 
     3001 et seq.) and the protection and advocacy system 
     (established under section 142 of the Developmental 
     Disabilities Assistance and Bill of Rights Act (42 U.S.C. 
     6042)) or may establish a separate and independent client 
     advocacy office in accordance with paragraph (2) to 
     administer a new program designed to advocate for client 
     rights.
       (2) Client advocacy office.--
       (A) In general.--A client advocacy office established under 
     this paragraph shall--
       (i) identify, investigate, and resolve complaints that--

       (I) are made by, or on behalf of, clients; and
       (II) relate to action, inaction, or decisions, that may 
     adversely affect the health, safety, welfare, or rights of 
     the clients (including the welfare and rights of the clients 
     with respect to the appointment and activities of guardians 
     and representative payees), of--

       (aa) providers, or representatives of providers, of long-
     term care services;
       (bb) public agencies; or
       (cc) health and social service agencies;
       (ii) provide services to assist the clients in protecting 
     the health, safety, welfare, and rights of the clients;
       (iii) inform the clients about means of obtaining services 
     provided by providers or agencies described in clause (i)(II) 
     or services described in clause (ii);
       (iv) ensure that the clients have regular and timely access 
     to the services provided through the office and that the 
     clients and complainants receive timely responses from 
     representatives of the office to complaints; and
       (v) represent the interests of the clients before 
     governmental agencies and seek administrative, legal, and 
     other remedies to protect the health, safety, welfare, and 
     rights of the clients with regard to the provisions of this 
     title.
       (B) Contracts and arrangements.--
       (i) In general.--Except as provided in clause (ii), the 
     State agency may establish and operate the office, and carry 
     out the program, directly, or by contract or other 
     arrangement with any public agency or nonprofit private 
     organization.
       (ii) Licensing and certification organizations; 
     associations.--The State agency may not enter into the 
     contract or other arrangement described in clause (i) with an 
     agency or organization that is responsible for licensing, 
     certifying, or providing long-term care services in the 
     State.
       (d) Safeguards.--
       (1) Confidentiality.--The State plan shall provide 
     safeguards that restrict the use or disclosure of information 
     concerning applicants and beneficiaries to purposes directly 
     connected with the administration of the plan.
       (2) Safeguards against abuse.--The State plans shall 
     provide safeguards against physical, emotional, or financial 
     abuse or exploitation (specifically including appropriate 
     safeguards in cases where payment for program benefits is 
     made by cash payments or vouchers given directly to 
     individuals with disabilities). All providers of services 
     shall be required to register with the State agency.
       (3) Regulations.--Not later than October 1, 1998, the 
     Secretary shall promulgate regulations with respect to the 
     requirements on States under this subsection.
       (e) Specified Rights.--The State plan shall provide that in 
     furnishing home and community-based services under the plan 
     the following individual rights are protected:
       (1) The right to be fully informed in advance, orally and 
     in writing, of the care to be provided, to be fully informed 
     in advance of any changes in care to be provided, and (except 
     with respect to an individual determined incompetent) to 
     participate in planning care or changes in care.
       (2) The right to--
       (A) voice grievances with respect to services that are (or 
     fail to be) furnished without discrimination or reprisal for 
     voicing grievances;
       (B) be told how to complain to State and local authorities; 
     and
       (C) prompt resolution of any grievances or complaints.
       (3) The right to confidentiality of personal and clinical 
     records and the right to have access to such records.
       (4) The right to privacy and to have one's property treated 
     with respect.
       (5) The right to refuse all or part of any care and to be 
     informed of the likely consequences of such refusal.
       (6) The right to education or training for oneself and for 
     members of one's family or household on the management of 
     care.
       (7) The right to be free from physical or mental abuse, 
     corporal punishment, and any physical or chemical restraints 
     imposed for purposes of discipline or convenience and not 
     included in an individual's plan of care.
       (8) The right to be fully informed orally and in writing of 
     the individual's rights.
       (9) The right to a free choice of providers.
       (10) The right to direct provider activities when an 
     individual is competent and willing to direct such 
     activities.

     SEC. 107. ADVISORY GROUPS.

       (a) Federal Advisory Group.--
       (1) Establishment.--The Secretary shall establish an 
     advisory group, to advise the Secretary and States on all 
     aspects of the program under this title.
       (2) Composition.--The group shall be composed of 
     individuals with disabilities and

[[Page S5519]]

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

     SEC. 108. PAYMENTS TO STATES.

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

     SEC. 109. APPROPRIATIONS; ALLOTMENTS TO STATES.

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

[[Page S5520]]

       (4) Reallocations.--Any amounts allotted to States under 
     this subsection for a year that are not expended in such year 
     shall remain available for State programs under this title 
     and may be reallocated to States as the Secretary determines 
     appropriate.
       (c) State Entitlement.--This title constitutes budget 
     authority in advance of appropriations Acts, and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts described in subsection (a).

     SEC. 110. FEDERAL EVALUATIONS.

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

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

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

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

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

[[Page S5521]]

     appropriated under subsection (e), the Secretary shall 
     prepare and submit to the appropriate committees of Congress, 
     a report concerning the results of the evaluations and 
     reports conducted and prepared under paragraph (1).
       ``(e) Authorization of Appropriations.--There are 
     authorized to be appropriated to carry out this section, 
     $5,000,000 for each of the fiscal years 1998 through 2000.''.
      TITLE II--PROSPECTIVE PAYMENT SYSTEM FOR NURSING FACILITIES

     SEC. 201. DEFINITIONS.

       In this title:
       (1) Acuity payment.--The term ``acuity payment'' means a 
     fixed amount that will be added to the facility-specific 
     prices for certain resident classes designated by the 
     Secretary as requiring heavy care.
       (2) Aggregated resident invoice.--The term ``aggregated 
     resident invoice'' means a compilation of the per resident 
     invoices of a nursing facility which contain the number of 
     resident days for each resident and the resident class of 
     each resident at the nursing facility during a particular 
     month.
       (3) Allowable costs.--The term ``allowable costs'' means 
     costs which HCFA has determined to be necessary for a nursing 
     facility to incur according to the Provider Reimbursement 
     Manual (in this title referred to as ``HCFA-Pub. 15'').
       (4) Base year.--The term ``base year'' means the most 
     recent cost reporting period (consisting of a period which is 
     12 months in length, except for facilities with new owners, 
     in which case the period is not less than 4 months and not 
     more than 13 months) for which cost data of nursing 
     facilities is available to be used for the determination of a 
     prospective rate.
       (5) Case mix weight.--The term ``case mix weight'' means 
     the total case mix score of a facility calculated by 
     multiplying the resident days in each resident class by the 
     relative weight assigned to each resident class, and summing 
     the resulting products across all resident classes.
       (6) Complex medical equipment.--The term ``complex medical 
     equipment'' means items such as ventilators, intermittent 
     positive pressure breathing machines, nebulizers, suction 
     pumps, continuous positive airway pressure devices, and bead 
     beds such as air fluidized beds.
       (7) Distinct part nursing facility.--The term ``distinct 
     part nursing facility'' means an institution which has a 
     distinct part that is certified under title XVIII of the 
     Social Security Act (42 U.S.C. 1395 et seq.) and meets the 
     requirements of section 201.1 of the Skilled Nursing Facility 
     Manual published by HCFA (in this title referred to as 
     ``HCFA-Pub. 12'').
       (8) Efficiency incentive.--The term ``efficiency 
     incentive'' means a payment made to a nursing facility in 
     recognition of incurring costs below a prespecified level.
       (9) Fixed equipment.--The term ``fixed equipment'' means 
     equipment which meets the definition of building equipment in 
     section 104.3 of HCFA-Pub. 15, including attachments to 
     buildings such as wiring, electrical fixtures, plumbing, 
     elevators, heating systems, and air conditioning systems.
       (10) Geographic ceiling.--The term ``geographic ceiling'' 
     means a limitation on payments in any given cost center for 
     nursing facilities in 1 of no fewer than 8 geographic 
     regions, further subdivided into rural and urban areas, as 
     designated by the Secretary.
       (11) HCFA.--The term ``HCFA'' means the Health Care 
     Financing Administration.
       (12) Heavy care.--The term ``heavy care'' means an 
     exceptionally high level of care which the Secretary has 
     determined is required for residents in certain resident 
     classes.
       (13) Indexed forward.--The term ``indexed forward'' means 
     an adjustment made to a per diem rate to account for cost 
     increases due to inflation or other factors during an 
     intervening period following the base year and projecting 
     such cost increases for a future period in which the rate 
     applies. Indexing forward under this title shall be 
     determined from the midpoint of the base year to the midpoint 
     of the rate year.
       (14) MDS.--The term ``MDS'' means a resident assessment 
     instrument, currently recognized by HCFA, any extensions to 
     MDS, and any extensions to accommodate subacute care which 
     contain an appropriate core of assessment items with 
     definitions and coding categories needed to comprehensively 
     assess a nursing facility resident.
       (15) Major movable equipment.--The term ``major movable 
     equipment'' means equipment that meets the definition of 
     major movable equipment in section 104.4 of HCFA-Pub. 15.
       (16) Nursing facility.--The term ``nursing facility'' means 
     an institution that meets the requirements of a ``skilled 
     nursing facility'' under section 1819(a) of the Social 
     Security Act (42 U.S.C. 1395i-3(a)) and of a ``nursing 
     facility'' under section 1919(a) of that Act (42 U.S.C. 
     1396r(a)).
       (17) Per bed limit.--The term ``per bed limit'' means a 
     per-bed ceiling on the fair asset value of a nursing facility 
     for 1 of the geographic regions designated by the Secretary.
       (18) Per diem rate.--The term ``per diem rate'' refers to a 
     rate of payment for the costs of covered services for a 
     resident day.
       (19) Relative weight.--The term ``relative weight'' means 
     the index of the value of the resources required for a given 
     resident class relative to the value of resources of either a 
     base resident class or the average of all the resident 
     classes.
       (20) R.S. means index.--The term ``R.S. Means Index'' means 
     the index of the R. S. Means Company, Inc., specific to 
     commercial or industrial institutionalized nursing 
     facilities, that is based upon a survey of prices of common 
     building materials and wage rates for nursing facility 
     construction.
       (21) Rebase.--The term ``rebase'' means the process of 
     updating nursing facility cost data for a subsequent rate 
     year using a more recent base year.
       (22) Rental rate.--The term ``rental rate'' means a 
     percentage that will be multiplied by the fair asset value of 
     property to determine the total annual rental payment in lieu 
     of property costs.
       (23) Resident classification system.--The term ``resident 
     classification system'' means a system that categorizes 
     residents into different resident classes according to 
     similarity of their assessed condition and required services 
     of the residents.
       (24) Resident day.--The term ``resident day'' means the 
     period of services for 1 resident, regardless of payment 
     source, for 1 continuous 24 hours of services. The day of 
     admission of the resident constitutes a resident day but the 
     day of discharge does not constitute a resident day. Bed hold 
     days are not to be considered resident days, and bed hold day 
     revenues are not to be offset.
       (25) Resource utilization groups, version iii.--The term 
     ``Resource Utilization Groups, Version III'' (in this title 
     referred to as ``RUG-III'') refers to a category-based 
     resident classification system used to classify nursing 
     facility residents into mutually exclusive RUG-III groups. 
     Residents in each RUG-III group utilize similar quantities 
     and patterns of resources.
       (26) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (27) Subacute care.--The term ``subacute care'' means 
     comprehensive inpatient care designed for an individual that 
     has an acute illness, injury, or exacerbation of a disease 
     process. The care is goal oriented treatment rendered 
     immediately after, or instead of, acute hospitalization to 
     treat 1 or more specific active complex medical conditions or 
     to administer 1 or more technically complex treatments, in 
     the context of a person's underlying long-term conditions and 
     overall situation. In most cases, the individual's condition 
     is such that the care does not depend heavily on high 
     technology monitoring or complex diagnostic procedures. 
     Subacute care requires the coordinated services of an 
     interdisciplinary team including physicians, nurses, and 
     other relevant professional disciplines, who are trained and 
     knowledgeable to assess and manage these specific conditions 
     and perform the necessary procedures. Subacute care is given 
     as part of a specifically defined program, regardless of the 
     site. Subacute care is generally more intensive than 
     traditional nursing facility care and less than acute care. 
     It requires frequent (daily to weekly) recurrent patient 
     assessment and review of the clinical course and treatment 
     plan for a limited (several days to several months) time 
     period, until the condition is stabilized or a predetermined 
     treatment course is completed.

     SEC. 202. PAYMENT OBJECTIVES.

       Payment rates under the Prospective Payment System for 
     nursing facilities shall reflect the following objectives:
       (1) To maintain an equitable and fair balance between cost 
     containment and quality of care in nursing facilities.
       (2) To encourage nursing facilities to admit residents 
     without regard to such residents' source of payment.
       (3) To provide an incentive to nursing facilities to admit 
     and provide care to persons in need of comparatively greater 
     care, including those in need of subacute care.
       (4) To maintain administrative simplicity, for both nursing 
     facilities and the Secretary.
       (5) To encourage investment in buildings and improvements 
     to nursing facilities (capital formation) as necessary to 
     maintain quality and access.

     SEC. 203. POWERS AND DUTIES OF THE SECRETARY.

       (a) Rules and Regulations.--The Secretary shall establish 
     by regulation all rules and regulations necessary for 
     implementation of this title. The rates determined under this 
     title shall be determined in a budget neutral manner and 
     shall reflect the objectives described in section 202 of this 
     title.
       (b) Filing requirements.--The Secretary may require that 
     each nursing facility file such data, statistics, schedules, 
     or information as required to enable the Secretary to 
     implement this title.

     SEC. 204. RELATIONSHIP TO TITLE XVIII OF THE SOCIAL SECURITY 
                   ACT.

       (a) In General.--No provision in this title shall replace, 
     or otherwise affect, the skilled nursing facility benefit 
     under title XVIII of the Social Security Act (42 U.S.C. 1395 
     et seq.).
       (b) Provisions of HCFA-15.--The provisions of HCFA-Pub. 15 
     shall apply to the determination of allowable costs under 
     this title except to the extent that such provisions conflict 
     with any other provision in this title.

     SEC. 205. ESTABLISHMENT OF RESIDENT CLASSIFICATION SYSTEM.

       (a) In General.--
       (1) Establishment.--The Secretary shall establish a 
     resident classification system which shall group residents 
     into classes according to similarity of their assessed 
     condition and required services.

[[Page S5522]]

       (2) Model for system.--The resident classification system 
     shall be modelled after the RUG-III system and all updated 
     versions of that system, and shall be expanded into subacute 
     categories and costs of care.
       (3) Reflective of certain time and costs.--The resident 
     classification system shall reflect of the necessary 
     professional and paraprofessional nursing staff time and 
     costs required to address the care needs of nursing facility 
     residents.
       (b) Relative Weight for Each Resident Class.--
       (1) In general.--The Secretary shall assign a relative 
     weight for each resident class based on the relative value of 
     the resources required for each resident class. If the 
     Secretary determines it to be appropriate, the assignment of 
     relative weights for resident classes shall be developed for 
     each geographic region as determined in accordance with 
     subsection (c).
       (2) Utilization of mdss.--In assigning the relative weights 
     of the resident classes in a geographic region, the Secretary 
     shall utilize information derived from the most recent MDSs 
     of all the nursing facilities in a geographic region.
       (3) Recalibrated every 3 years.--Every 3 years the 
     Secretary shall recalibrate the relative weights of the 
     resident classes in each geographic region based on any 
     changes in the cost or amount of resources required for the 
     care of a resident in the resident class.
       (c) Geographic Regions; Peer Groupings.--
       (1) Geographic regions.--The Secretary shall designate at 
     least 3 geographic regions for the total United States. 
     Within each geographic region, the Secretary shall take 
     appropriate account of variations in cost between urban and 
     rural areas.
       (2) Peer grouping.--The Secretary shall ensure that there 
     are no peer grouping of nursing facilities based on facility 
     size or whether the nursing facilities are hospital-based or 
     not.

     SEC. 206. COST CENTERS FOR NURSING FACILITY PAYMENT.

       (a) Payment Rates.--Consistent with the objectives 
     described in section 202 of this title, the Secretary shall 
     determine payment rates for nursing facilities using the 
     following cost/service groupings:
       (1) The nursing service cost center shall include salaries 
     and wages for the Director of Nursing, quality assurance 
     nurses, registered nurses, licensed practical nurses, nurse 
     aides (including wages related to initial and ongoing nurse 
     aid training and other ongoing or periodic training costs 
     incurred by nursing personnel), contract nursing, fringe 
     benefits and payroll taxes associated therewith, medical 
     records, and nursing supplies.
       (2) The administrative and general cost center shall 
     include all expenses (including salaries, benefits, and other 
     costs) related to administration, plant operation, 
     maintenance and repair, housekeeping, dietary (excluding raw 
     food), central services and supply (excluding medical or 
     nursing supplies), laundry, and social services, excluding 
     overhead allocations to ancillary services.
       (3) Ancillary services that are paid on a fee-for-service 
     basis shall include physical therapy, occupational therapy, 
     speech therapy, respiratory therapy, and hyperalimentation. 
     The fee-for-service ancillary service payments under part A 
     of title XVIII of the Social Security Act (42 U.S.C. 1395 et 
     seq.) shall not affect the reimbursement of ancillary 
     services under part B of title XVIII of that Act (42 U.S.C. 
     1395j et seq.).
       (4) The cost center for selected ancillary services and 
     other costs shall include drugs, raw food, IV therapy, x-ray 
     services, laboratory services, property tax, property 
     insurance, and all other costs not included in the other 4 
     cost-of-service groupings.
       (5) The property cost center shall include depreciation on 
     the buildings and fixed equipment, major movable equipment, 
     motor vehicles, land improvements, amortization of leasehold 
     improvements, lease acquisition costs, capital leases, 
     interest on capital indebtedness, mortgage interest, lease 
     costs, and equipment rental expense.
       (b) Per Diem Rate.--The Secretary shall pay nursing 
     facilities a prospective, facility-specific, per diem rate 
     based on the sum of the per diem rates established for the 
     nursing service, administrative and general, and property 
     cost centers.
       (c) Facility-Specific Prospective Rate.--The Secretary 
     shall pay nursing facilities a facility-specific prospective 
     rate for each unit of the fee-for-service ancillary services 
     as determined in accordance with section 210 of this title.
       (d) Reimbursement for Selective Ancillary Services.--
     Nursing facilities shall be reimbursed by the Secretary for 
     selected ancillary services and other costs on a 
     retrospective basis in accordance with section 211 of this 
     title.

     SEC. 207. RESIDENT ASSESSMENT.

       (a) In General.--In order to be eligible for payments under 
     this title, a nursing facility shall perform a resident 
     assessment in accordance with section 1819(b)(3) of the 
     Social Security Act (42 U.S.C. 1395i-3(b)(3)) within 14 days 
     of admission of the resident and at such other times as 
     required by that section.
       (b) Resident Class.--The resident assessment shall be used 
     to determine the resident class of each resident in the 
     nursing facility for purposes of determining the per diem 
     rate for the nursing service cost center in accordance with 
     section 208 of this title.

     SEC. 208. THE PER DIEM RATE FOR NURSING SERVICE COSTS.

       (a) In General.--
       (1) Nursing service cost center rate.--The Secretary shall 
     calculate the nursing service cost center rate using a 
     prospective, facility-specific per diem rate based on the 
     nursing facility's case-mix weight and nursing service costs 
     during the base year.
       (2) Case-mix weight.--For purposes of paragraph (1), the 
     case-mix weight of a nursing facility shall be obtained by 
     multiplying the number of resident days in each resident 
     class at a nursing facility during the base year by the 
     relative weight assigned to each resident class in the 
     appropriate geographic region. Once this calculation is 
     performed for each resident class in the nursing facility, 
     the sum of these products shall constitute the case-mix 
     weight for the nursing facility.
       (3) Facility nursing unit value.--A facility nursing unit 
     value for the nursing facility for the base year shall be 
     obtained by dividing the nursing service costs for the base 
     year, which shall be indexed forward from the midpoint of the 
     base period to the midpoint of the rate period using the DRI 
     McGraw-Hill HCFA Nursing Home Without Capital Market Basket, 
     by the case-mix weight of the nursing facility for the base 
     year.
       (4) Facility-specific nursing services price.--A facility-
     specific nursing services price for each resident class shall 
     be obtained my multiplying the lower of the indexed facility 
     unit value of the nursing facility during the base year or 
     the geographic ceiling, as determined in accordance with 
     subsection (b), by the relative weight of the resident class.
       (5) Patient classifications.--For patient classifications 
     associated with the use of complex medical equipment and 
     other specialized, noncustomary equipment (particularly 
     subacute classifications), the Secretary shall provide for a 
     daily allowance for such equipment based upon the amortized 
     value of such equipment over the life of the equipment.
       (6) Selected resident classifications.--For selected 
     resident classifications (particularly subacute 
     classifications) requiring additional or specialized medical 
     administrative staff, the Secretary shall provide for a daily 
     allowance to cover these costs.
       (7) Designation of certain resident classes.--The Secretary 
     shall designate certain resident classes, such as subacute 
     resident classes, as requiring heavy care. An acuity payment 
     of 3 percent of the facility-specific nursing services price 
     shall be added to the facility-specific price for each 
     resident that the Secretary has designated as requiring heavy 
     care.
       (8) Per diem rate.--The per diem rate for the nursing 
     service cost center for each resident in a resident class 
     shall constitute the facility-specific price, plus the acuity 
     payment where appropriate.
       (9) Per diem rate rebased annually.--The Secretary shall 
     annually rebate the per diem rate for the nursing service 
     cost center, including the facility-specific price and the 
     acuity payment.
       (10) Payment.--To determine the payment amount to a nursing 
     facility for the nursing service cost center, the Secretary 
     shall multiply the per diem rate (including the acuity 
     payment) for a resident class by the number of resident days 
     for each resident class based on aggregated resident invoices 
     which each nursing facility shall submit on a monthly basis.
       (b) Geographic Ceiling.--
       (1) Facility unit value.--The facility unit value 
     identified in subsection (a)(3) shall be subjected to 
     geographic ceilings established for the geographic regions 
     designated by the Secretary in section 205 of this title.
       (2) Determination.--
       (A) In general.--The Secretary shall determine the 
     geographic ceiling by creating an array of indexed facility 
     unit values in a geographic region from lowest to highest. 
     Based on this array, the Secretary shall identify a fixed 
     proportion between the indexed facility unit value of the 
     nursing facility which contained the medianth resident day in 
     the array (except as provided in subsection (b)(4) of this 
     section) and the indexed facility unit value of the nursing 
     facility which contained the 95th percentile resident day in 
     that array during the first year of operation of the 
     Prospective Payment System for nursing facilities. The fixed 
     proportion shall remain the same in subsequent years.
       (B) Subsequent years.--To obtain the geographic ceiling on 
     the indexed facility unit value for nursing facilities in a 
     geographic region in each subsequent year, the fixed 
     proportion identified pursuant to subparagraph (A) shall be 
     multiplied by the indexed facility unit value of the nursing 
     facility which contained the medianth resident day in the 
     array of facility unit values for the geographic region 
     during the base year.
       (3) Exclusions from determination.--For purposes of 
     determining the geographic ceiling for a nursing service cost 
     center, the Secretary shall exclude low volume and new 
     nursing facilities (as defined in section 214 of this title).
       (c) Exceptions to Geographic Ceiling.--The Secretary shall 
     establish by regulation procedures for allowing exceptions to 
     the geographic ceiling imposed on a nursing service cost 
     center. The procedure shall permit exceptions based on the 
     following factors:
       (1) Local supply or labor shortages which substantially 
     increase costs to specific nursing facilities.

[[Page S5523]]

       (2) Higher per resident day usage of contract nursing 
     personnel, if utilization of contract nursing personnel is 
     warranted by local circumstances and the provider has taken 
     all reasonable measures to minimize contract personnel 
     expense.
       (3) Extraordinarily low proportion of distinct part nursing 
     facilities in a geographic region resulting in a geographic 
     ceiling that unfairly restricts the reimbursement of distinct 
     part facilities.
       (4) Regulatory changes that increase costs to only a subset 
     of the nursing facility industry.
       (5) The offering of a new institutional health service or 
     treatment program by a nursing facility (in order to account 
     for initial startup costs).
       (6) Disproportionate usage of part-time employees, where 
     adequate numbers of full-time employees cannot reasonably be 
     obtained.
       (7) Other cost producing factors specified by the Secretary 
     in regulations that are specific to a subset of facilities in 
     a geographic region (except case-mix variation).

     SEC. 209. THE PER DIEM RATE FOR ADMINISTRATIVE AND GENERAL 
                   COSTS.

       (a) In General.--
       (1) Payment.--The Secretary shall make payments for the 
     administrative and general cost center by using a facility-
     specific, prospective, per diem rate.
       (2) Standards for per diem rate.--The Secretary shall 
     assign a per diem rate to a nursing facility by applying 2 
     standards that is calculated as follows:
       (A) Standard a.--The Secretary shall determine a Standard A 
     for each geographic region by creating an array of indexed 
     nursing facility administrative and general per diem costs 
     from lowest to highest. The Secretary shall then identify a 
     fixed proportion by dividing the indexed administrative and 
     general per diem costs of the nursing facility that contains 
     the medianth resident day of the array (except as provided in 
     subsection (a)(4)) into the indexed administrative and 
     general per diem costs of the nursing facility that contains 
     the 75th percentile resident day in that array. Standard A 
     for each base year shall constitute the product of this fixed 
     proportion and the administrative and general indexed per 
     diem costs of the nursing facility that contains the medianth 
     resident day in the array of such costs during the base year.
       (B) Standard b.--The Secretary shall determine a Standard B 
     for each geographic region by using the same calculation as 
     in subparagraph (A) except that the fixed proportion shall 
     use the indexed administrative and general costs of the 
     nursing facility containing the 85th percentile, rather than 
     the 75th percentile, resident day in the array of such costs.
       (3) Geographic regions.--The Secretary shall use the 
     geographic regions identified in section 205(c) of this title 
     for purposes of determining Standards A and B.
       (4) Exclusion.--The Secretary shall exclude low volume and 
     new nursing facilities (as defined in section 214 of this 
     title) for purposes of determining Standard A and Standard B.
       (5) Per diem rate.--To determine a nursing facility's per 
     diem rate for the administrative and general cost center, 
     Standards A and B shall be applied to a nursing facility's 
     administrative and general per diem costs, indexed forward 
     using the DRI McGraw-Hill HCFA Nursing Home Without Capital 
     Market Basket, as follows:
       (A) Each nursing facility having indexed costs which are 
     below the median shall be assigned a rate equal to their 
     individual indexed costs plus an ``efficiency incentive'' 
     equal to \1/2\ of the difference between the median and 
     Standard A.
       (B) Each nursing facility having indexed costs which are 
     below Standard A but are equal to or exceed the median shall 
     be assigned a per diem rate equal to their individual indexed 
     costs plus an ``efficiency incentive'' equal to \1/2\ of the 
     difference between the nursing facility's indexed costs and 
     Standard A.
       (C) Each nursing facility having indexed costs which are 
     between Standard A and Standard B shall be assigned a rate 
     equal to Standard A plus \1/2\ of the difference between the 
     nursing facility's indexed costs and Standard A.
       (D) Each nursing facility having indexed costs which exceed 
     Standard B shall be assigned a rate as if their costs equaled 
     Standard B. These nursing facilities shall be assigned a per 
     diem rate equal to Standard A plus \1/2\ of the difference 
     between Standard A and Standard B.
       (E) For purposes of subparagraphs (A) through (D), the 
     median represents the indexed administrative and general per 
     diem costs of a nursing facility that contains the medianth 
     resident day in the array of such costs during the base year 
     in the geographic region.
       (b) Rebasing.--Not less than annually, the Secretary shall 
     rebase the payment rates for administrative and general 
     costs.

     SEC. 210. PAYMENT FOR FEE-FOR-SERVICE ANCILLARY SERVICES.

       (a) In General.--The Secretary shall make payments for the 
     ancillary services described in section 206(a)(3) on a 
     prospective fee-for-service basis.
       (b) Payment Methodology.--The Secretary shall identify the 
     fee for each of the fee-for-service ancillary services for a 
     particular nursing facility by dividing the nursing 
     facility's reasonable costs, including overhead allocated 
     through the cost finding process, of providing each 
     particular service, indexed forward using the DRI McGraw-Hill 
     HCFA Nursing Home Without Capital Market Basket, by the units 
     of the particular service provided by the nursing facility 
     during the cost year.
       (c) Computation Period.--The fee for each of the fee-for-
     service ancillary services shall be calculated by the 
     Secretary under this title at least once a year for each 
     facility and ancillary service.

     SEC. 211. REIMBURSEMENT OF SELECTED ANCILLARY SERVICES AND 
                   OTHER COSTS.

       (a) In General.--Reimbursement of selected ancillary 
     services and other costs identified in section 206(a)(4) of 
     this title shall be reimbursed by the Secretary on a 
     retrospective basis as pass-through costs, including overhead 
     allocated through the cost-finding process.
       (b) Charge-Based Interim Rates.--The Secretary shall set 
     charge-based interim rates for selected ancillary services 
     and other costs for each nursing facility providing such 
     services. Any overpayments or underpayments resulting from 
     the difference between the interim and final settlement rates 
     shall be either refunded by the nursing facility or paid to 
     the nursing facility following submission of a timely filed 
     medicare cost report.

     SEC. 212. PER DIEM PAYMENT FOR PROPERTY COSTS.

       (a) In General.--The Secretary shall make a per diem 
     payment for property costs based on a gross rental system. 
     The amount of the payment shall be determined as follows:
       (1) Building and fixed equipment value.--In the case of a 
     new facility in any geographic region, the cost for building 
     and fixed equipment used in determining the gross rental 
     shall be equivalent to the median cost of home construction 
     in the region (as measured by RS Means). Such cost shall then 
     be multiplied by the factor 1.2 to account for land and the 
     value of movable equipment. The resulting value shall be 
     indexed each year using the RS Means Construction Cost Index.
       (2) Age.--
       (A) In general.--The gross rental system establishes a 
     facility's value based on its age. The older the facility, 
     the less its value. Additions, replacements, and renovations 
     shall be recognized by lowering the age of the facility and, 
     thus, increasing the facility's value. Existing facilities, 1 
     year or older, shall be valued at the new bed value less 2 
     percent per year according to the ``age'' of the facility. 
     Facilities shall not be depreciated to an amount less than 50 
     percent of the new construction bed value.
       (B) Addition of beds.--The addition of beds shall require a 
     computation by the Secretary of the weighted average age of 
     the facility based on the construction dates of the original 
     facility and the additions.
       (C) Replacement of beds.--The replacement of existing beds 
     shall result in an adjustment to the age of the facility. A 
     weighted average age shall be calculated by the Secretary 
     according to the year of initial construction and the year of 
     bed replacement. If a facility has a series of additions or 
     replacements, the Secretary shall assume that the oldest beds 
     are the ones being replaced when computing the average 
     facility age.
       (D) Renovations or major improvements.--Renovations or 
     major improvements shall be calculated by the Secretary as a 
     bed replacement, except that the value of the bed prior to 
     renovation shall be taken into consideration. To qualify as a 
     bed replacement, the bed being renovated must be at least 10 
     years old and the renovation or improvements cost must be 
     equal to or greater than the difference between the existing 
     bed value and the value of a new bed. To determine the new 
     adjusted facility age, the number of renovated beds assigned 
     a ``new'' age is determined by dividing the total cost of 
     renovation by the difference between the existing bed value 
     and the value of the new bed.
       (E) Startup of gross rental system.--To start up the fair 
     rental system, each facility's bed values shall be determined 
     by the Secretary based on the age of the facility. The 
     determination shall include setting a value for the original 
     beds with adjustments for any additions, bed replacements, 
     and major renovations. For determination of bed values for 
     use in determining the initial rate, the procedures described 
     above for determining the values of original beds, additions, 
     and replacements shall be used.
       (3) Total current value.--The Secretary shall multiply the 
     per bed value by the number of beds in the facility to 
     estimate the facility's total current value.
       (4) Rental factor.--The Secretary shall apply a rental 
     factor to the facility's total current value to estimate its 
     annual gross rental value. The Secretary shall determine the 
     rental factor by using the Treasury Bond Composite Yield 
     (greater than 10 years) as published in the Federal Reserve 
     Bulletin plus a risk premium. A risk premium in the amount of 
     3 percentage points shall be added to the Treasury Yield. The 
     rental factor is multiplied by the facility's total value, as 
     determined in paragraph (3), to determine the annual gross 
     rental value.
       (5) Per diem property payment.--The annual gross rental 
     value shall be divided by the Secretary by 90 percent of the 
     facility's annual licensed bed days during the cost report 
     period to arrive at the per diem property payment.

[[Page S5524]]

       (6) Per resident day rental rate.--The per resident day 
     rental rate for a newly constructed facility during its first 
     year of operation shall be based on the total annual rental 
     divided by the greater of 50 percent of available resident 
     days or actual annualized resident days up to 90 percent of 
     annual licensed bed days during the first year of operation.
       (b) Facilities in operation prior to the effective date of 
     this Act shall receive the per resident day rental or actual 
     costs, as determined in accordance with HCFA-Pub. 15, 
     whichever is greater, except that a nursing facility shall be 
     reimbursed the per resident day rental on and after the 
     earliest of the following dates:
       (1) the date upon which the nursing facility changes 
     ownership;
       (2) the date the nursing facility accepts the per resident 
     day rental; or
       (3) the date of the renegotiation of the lease for the land 
     or buildings, not including the exercise of optional 
     extensions specifically included in the original lease 
     agreement or valid extensions thereof.

     SEC. 213. MID-YEAR RATE ADJUSTMENTS.

       (a) Mid-Year Adjustments.--The Secretary shall establish by 
     regulation a procedure for granting mid-year rate adjustments 
     for the nursing service, administrative and general, and fee-
     for-service ancillary services cost centers.
       (b) Industry-Wide Basis.--The mid-year rate adjustment 
     procedure shall require the Secretary to grant adjustments on 
     an industry-wide basis, without the need for nursing 
     facilities to apply for such adjustments, based on the 
     following circumstances:
       (1) Statutory or regulatory changes affecting nursing 
     facilities.
       (2) Changes to the Federal minimum wage.
       (3) General labor shortages with high regional wage 
     impacts.
       (c) Application for Adjustment.--The mid-year rate 
     adjustment procedure shall permit specific facilities or 
     groups of facilities to apply to the Secretary for an 
     adjustment based on the following factors:
       (1) Local labor shortages.
       (2) Regulatory changes that apply to only a subset of the 
     nursing facility industry.
       (3) Economic conditions created by natural disasters or 
     other events outside of the control of the provider.
       (4) Other cost producing factors, except case-mix 
     variation, to be specified by the Secretary in regulations.
       (d) Requirements for Application for Adjustment.--
       (1) In general.--A nursing facility which applies for a 
     mid-year rate adjustment pursuant to this section shall be 
     required to show that the adjustment will result in a greater 
     than 2 percent deviation in the per diem rate for any 
     individual cost service center or a deviation of greater than 
     $5,000 in the total projected and indexed costs for the rate 
     year, whichever is less.
       (2) Cost experience data.--A nursing facility application 
     for a mid-year rate adjustment must be accompanied by recent 
     cost experience data and budget projections.

     SEC. 214. EXCEPTION TO PAYMENT METHODS FOR NEW AND LOW VOLUME 
                   NURSING FACILITIES.

       (a) Definition of Low Volume Nursing Facility.--In this 
     title, the term ``low volume nursing facility'' means a 
     nursing facility having fewer than 2,500 medicare part A 
     resident days per year.
       (b) Definition of New Nursing Facility.--In this title, the 
     term ``new nursing facility'' means a newly constructed, 
     licensed, and certified nursing facility or a nursing 
     facility that is in its first 3 years of operation as a 
     provider of services under part A of the medicare program 
     under title XVIII of the Social Security Act (42 U.S.C. 1395 
     et seq.). A nursing facility that has operated for more than 
     3 years but has a change of ownership shall not constitute a 
     new facility.
       (c) Option for Low Volume Nursing Facilities.--A Low volume 
     nursing facility shall have the option of submitting a cost 
     report to the Secretary to receive retrospective payment for 
     all of the cost centers, other than the property cost center, 
     or accepting a per diem rate which shall be based on the sum 
     of--
       (1) the median indexed resident day facility unit value for 
     the appropriate geographic region for the nursing service 
     cost center during the base year as identified in section 
     208(b)(2) of this title;
       (2) the median indexed resident day administrative and 
     general per diem costs of all nursing facilities in the 
     appropriate geographic region as identified in section 
     209(a)(5)(E) of this title;
       (3) the median indexed resident day costs per unit of 
     service for fee-for-service ancillary services obtained using 
     the cost information from the nursing facilities in the 
     appropriate geographic region during the base year, excluding 
     low volume and new nursing facilities, and based on an array 
     of such costs from lowest to highest; and
       (4) the median indexed resident day per diem costs for 
     selected ancillary services and other costs obtained using 
     information from the nursing facilities in the appropriate 
     geographic region during the base year, excluding low volume 
     and new nursing facilities, and based on an array of such 
     costs from lowest to highest.
       (d) Option for New Nursing Facilities.--New nursing 
     facilities shall have the option of being paid by the 
     Secretary on a retrospective cost pass-through basis for all 
     costs centers, or in accordance with subsection (c).

     SEC. 215. APPEAL PROCEDURES.

       (a) In General.--
       (1) Appeal.--Any person or legal entity aggrieved by a 
     decision of the Secretary under this title, and which results 
     in an amount in controversy of $10,000 or more, shall have 
     the right to appeal such decision directly to the Provider 
     Reimbursement Review Board (in this section referred to as 
     ``the Board'') authorized under section 1878 of the Social 
     Security Act (42 U.S.C. 1395oo).
       (2) Amount in controversy.--The $10,000 amount in 
     controversy referred to in paragraph (1) shall be computed in 
     accordance with 42 C.F.R. 405.1839.
       (b) Hearings.--Any appeals to and any hearings before the 
     Board under this title shall follow the procedures under 
     section 1878 of the Social Security Act (42 U.S.C. 1395oo) 
     and the regulations contained in (42 C.F.R. 405.1841-1889), 
     except to the extent that they conflict with, or are 
     inapplicable on account of, any other provision of this 
     title.

     SEC. 216. TRANSITION PERIOD.

       The Prospective Payment System described in this title 
     shall be phased in over a 3 year period using the following 
     blended rate:
       (1) For the first year that the provisions of this title 
     are in effect, 25 percent of the payment rates will be based 
     on the Prospective Payment System under this title and 75 
     percent will remain based upon reasonable cost reimbursement.
       (2) For the second year that the provisions of this title 
     are in effect, 50 percent of the payment rates will be based 
     on the Prospective Payment System under this title and 50 
     percent based upon reasonable cost reimbursement.
       (3) For the third year that the provisions of this title 
     are in effect, 75 percent of the payment rates will be based 
     on the Prospective Payment System under this title and 25 
     percent based upon reasonable cost reimbursement.
       (4) For the fourth year that the provisions of this title 
     are in effect and for all subsequent years, the payment rates 
     will be based solely on the Prospective Payment System under 
     this title.

     SEC. 217. EFFECTIVE DATE; INCONSISTENT PROVISIONS.

       (a) Effective Date.--The provisions of this title shall 
     take effect on October 1, 1998.
       (b) Inconsistent Provisions.--The provisions contained in 
     this title shall supersede any other provisions of title 
     XVIII or XIX of the Social Security Act (42 U.S.C. 1395 et 
     seq. 1396 et seq.) which are inconsistent with such 
     provisions.
               TITLE III--ADDITIONAL MEDICARE PROVISIONS

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

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

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

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

     SEC. 303. FINANCING AND QUALITY MODERNIZATION AND REFORM.

       (a) Payments to Health Maintenance Organizations and 
     Competitive Medical Plans.--Section 1876(a) of the Social 
     Security Act (42 U.S.C. 1395mm(a)) is amended to read as 
     follows:
       ``(a)(1)(A) The Secretary shall annually determine, and 
     shall announce (in a manner intended to provide notice to 
     interested parties) not later than October 1 before the 
     calendar year concerned--
       ``(i) a per capita rate of payment for individuals who are 
     enrolled under this section with an eligible organization 
     which has entered into a risk-sharing contract and who are 
     entitled to benefits under part A and enrolled under part B, 
     and

[[Page S5525]]

       ``(ii) a per capita rate of payment for individuals who are 
     so enrolled with such an organization and who are enrolled 
     under part B only.

     For purposes of this section, the term `risk-sharing 
     contract' means a contract entered into under subsection (g) 
     and the term `reasonable cost reimbursement contract' means a 
     contract entered into under subsection (h).
       ``(B)(i) The annual per capita rate of payment for each 
     medicare payment area (as defined in paragraph (5)) shall be 
     equal to 95 percent of the adjusted average per capita cost 
     (as defined in paragraph (4)), adjusted by the Secretary 
     for--
       ``(I) individuals who are enrolled under this section with 
     an eligible organization which has entered into a risk-
     sharing contract and who are enrolled under part B only; and
       ``(II) such risk factors as age, disability status, gender, 
     institutional status, and such other factors as the Secretary 
     determines to be appropriate so as to ensure actuarial 
     equivalence.

     The Secretary may add to, modify, or substitute for such 
     factors, if such changes will improve the determination of 
     actuarial equivalence.
       ``(ii) The Secretary shall reduce the annual per capita 
     rate of payment by a uniform percentage (determined by the 
     Secretary for a year, subject to adjustment under 
     subparagraph (G)(v)) so that the total reduction is estimated 
     to equal the amount to be paid under subparagraph (G).
       ``(C) In the case of an eligible organization with a risk-
     sharing contract, the Secretary shall make monthly payments 
     in advance and in accordance with the rate determined under 
     subparagraph (B) and except as provided in subsection (g)(2), 
     to the organization for each individual enrolled with the 
     organization under this section.
       ``(D) The Secretary shall establish a separate rate of 
     payment to an eligible organization with respect to any 
     individual determined to have end-stage renal disease and 
     enrolled with the organization. Such rate of payment shall be 
     actuarially equivalent to rates paid to other enrollees in 
     the payment area (or such other area as specified by the 
     Secretary).
       ``(E)(i) The amount of payment under this paragraph may be 
     retroactively adjusted to take into account any difference 
     between the actual number of individuals enrolled in the plan 
     under this section and the number of such individuals 
     estimated to be so enrolled in determining the amount of the 
     advance payment.
       ``(ii)(I) Subject to subclause (II), the Secretary may make 
     retroactive adjustments under clause (i) to take into account 
     individuals enrolled during the period beginning on the date 
     on that the individual enrolls with an eligible organization 
     (that has a risk-sharing contract under this section) under a 
     health benefit plan operated, sponsored, or contributed to by 
     the individual's employer or former employer (or the employer 
     or former employer of the individual's spouse) and ending on 
     the date on which the individual is enrolled in the plan 
     under this section, except that for purposes of making such 
     retroactive adjustments under this clause, such period may 
     not exceed 90 days.
       ``(II) No adjustment may be made under subclause (I) with 
     respect to any individual who does not certify that the 
     organization provided the individual with the explanation 
     described in subsection (c)(3)(E) at the time the individual 
     enrolled with the organization.
       ``(F)(i) At least 45 days before making the announcement 
     under subparagraph (A) for a year, the Secretary shall 
     provide for notice to eligible organizations of proposed 
     changes to be made in the methodology or benefit coverage 
     assumptions from the methodology and assumptions used in the 
     previous announcement and shall provide such organizations an 
     opportunity to comment on such proposed changes.
       ``(ii) In each announcement made under subparagraph (A), 
     the Secretary shall include an explanation of the assumptions 
     (including any benefit coverage assumptions) and changes in 
     methodology used in the announcement in sufficient detail so 
     that eligible organizations can compute per capita rates of 
     payment for individuals located in each county (or equivalent 
     medicare payment area) which is in whole or in part within 
     the service area of such an organization.
       ``(2) With respect to any eligible organization that has 
     entered into a reasonable cost reimbursement contract, 
     payments shall be made to such plan in accordance with 
     subsection (h)(2) rather than paragraph (1).
       ``(3) Subject to subsection (c) (2)(B)(ii) and (7), 
     payments under a contract to an eligible organization under 
     paragraph (1) or (2) shall be instead of the amounts that (in 
     the absence of the contract) would be otherwise payable, 
     pursuant to sections 1814(b) and 1833(a), for services 
     furnished by or through the organization to individuals 
     enrolled with the organization under this section.
       ``(4)(A) For purposes of this section, the `adjusted 
     average per capita cost' for a medicare payment area (as 
     defined in paragraph (5)) is equal to the greatest of the 
     following:
       ``(i) The sum of--
       ``(I) the area-specific percentage for the year (as 
     specified under subparagraph (B) for the year) of the area-
     specific adjusted average per capita cost for the year for 
     the medicare payment area, as determined under subparagraph 
     (C), and
       ``(II) the national percentage (as specified under 
     subparagraph (B) for the year) of the input-price-adjusted 
     national adjusted average per capita cost for the year, as 
     determined under subparagraph (D),

     multiplied by a budget neutrality adjustment factor 
     determined under subparagraph (E).
       ``(ii) An amount equal to--
       ``(I) in the case of 1998, 85 percent of the average annual 
     per capita cost under parts A and B of this title for 1997;
       ``(II) in the case of 1999, 85 percent of the average 
     annual per capita cost under parts A and B of this title for 
     1998; and
       ``(III) in the case of a succeeding year, the amount 
     specified in this clause for the preceding year increased by 
     the national average per capita growth percentage specified 
     under subparagraph (F) for that succeeding year.
       ``(B) For purposes of subparagraph (A)(i)--
       ``(i) for 1998, the `area-specific percentage' is 75 
     percent and the `national percentage' is 25 percent,
       ``(ii) for 1999, the `area-specific percentage' is 60 
     percent and the `national percentage' is 40 percent,
       ``(iii) for 2000, the `area-specific percentage' is 40 
     percent and the `national percentage' is 60 percent,
       ``(iv) for 2001, the `area-specific percentage' is 25 
     percent and the `national percentage' is 75 percent, and
       ``(v) for 2002 and each subsequent year, the `area-specific 
     percentage' is 10 percent and the `national percentage' is 90 
     percent.
       ``(C) For purposes of subparagraph (A)(i), the area-
     specific adjusted average per capita cost for a medicare 
     payment area--
       ``(i) for 1998, is the annual per capita rate of payment 
     for 1997 for the medicare payment area (determined under this 
     subsection, as in effect the day before the date of enactment 
     of the Long-Term Care Reform and Deficit Reduction Act of 
     1997), increased by the national average per capita growth 
     percentage for 1998 (as defined in subparagraph (F)); or
       ``(ii) for a subsequent year, is the area-specific adjusted 
     average per capita cost for the previous year determined 
     under this subparagraph for the medicare payment area, 
     increased by the national average per capita growth 
     percentage for such subsequent year.
       ``(D)(i) For purposes of subparagraph (A)(i), the input-
     price-adjusted national adjusted average per capita cost for 
     a medicare payment area for a year is equal to the sum, for 
     all the types of medicare services (as classified by the 
     Secretary), of the product (for each such type of service) 
     of--
       ``(I) the national standardized adjusted average per capita 
     cost (determined under clause (ii)) for the year,
       ``(II) the proportion of such rate for the year which is 
     attributable to such type of services, and
       ``(III) an index that reflects (for that year and that type 
     of services) the relative input price of such services in the 
     area compared to the national average input price of such 
     services.

     In applying subclause (III), the Secretary shall, subject to 
     clause (iii), apply those indices under this title that are 
     used in applying (or updating) national payment rates for 
     specific areas and localities.
       ``(ii) In clause (i)(I), the `national standardized 
     adjusted average per capita cost' for a year is equal to--
       ``(I) the sum (for all medicare payment areas) of the 
     product of (aa) the area-specific adjusted average per capita 
     cost for that year for the area under subparagraph (C), and 
     (bb) the average number of medicare beneficiaries residing in 
     that area in the year; divided by
       ``(II) the total average number of medicare beneficiaries 
     residing in all the medicare payment areas for that year.
       ``(iii) In applying this subparagraph for 1998--
       ``(I) medicare services shall be divided into 2 types of 
     services: part A services and part B services;
       ``(II) the proportions described in clause (i)(II) for such 
     types of services shall be--
       ``(aa) for part A services, the ratio (expressed as a 
     percentage) of the average annual per capita rate of payment 
     for the area for part A for 1997 to the total average annual 
     per capita rate of payment for the area for parts A and B for 
     1997, and
       ``(bb) for part B services, 100 percent minus the ratio 
     described in item (aa);
       ``(III) for part A services, 70 percent of payments 
     attributable to such services shall be adjusted by the index 
     used under section 1886(d)(3)(E) to adjust payment rates for 
     relative hospital wage levels for hospitals located in the 
     payment area involved;
       ``(IV) for part B services--
       ``(aa) 66 percent of payments attributable to such services 
     shall be adjusted by the index of the geographic area factors 
     under section 1848(e) used to adjust payment rates for 
     physicians' services furnished in the payment area, and
       ``(bb) of the remaining 34 percent of the amount of such 
     payments, 70 percent shall be adjusted by the index described 
     in subclause (III); and
       ``(V) the index values shall be computed based only on the 
     beneficiary population who are 65 years of age or older and 
     are not determined to have end-stage renal disease.

     The Secretary may continue to apply the rules described in 
     this clause (or similar rules) for 1999.
       ``(E) For each year, the Secretary shall compute a budget 
     neutrality adjustment factor so that the aggregate of the 
     payments

[[Page S5526]]

     under this section shall not exceed the aggregate payments 
     that would have been made under this section if the area-
     specific percentage for the year had been 100 percent and the 
     national percentage had been 0 percent.
       ``(F) In this section, the `national average per capita 
     growth percentage' for a year is equal to the Secretary's 
     estimate (after consultation with the Secretary of the 
     Treasury) of the 3-year average (ending with the year 
     involved) of the annual rate of growth in the national 
     average wage index (as defined in section 209(k)(1)) for each 
     year in the period.
       ``(5)(A) In this section the term `medicare payment area' 
     means a county, or equivalent area specified by the 
     Secretary.
       ``(B) In the case of individuals who are determined to have 
     end-stage renal disease, the medicare payment area shall be 
     each State.
       ``(6) The payment to an eligible organization under this 
     section for individuals enrolled under this section with the 
     organization and entitled to benefits under part A and 
     enrolled under part B shall be made from the Federal Hospital 
     Insurance Trust Fund and the Federal Supplementary Medical 
     Insurance Trust Fund. The portion of that payment to the 
     organization for a month to be paid by each trust fund shall 
     be determined as follows:
       ``(A) In regard to expenditures by eligible organizations 
     having risk-sharing contracts, the allocation shall be 
     determined each year by the Secretary based on the relative 
     weight that benefits from each fund contribute to the 
     adjusted average per capita cost.
       ``(B) In regard to expenditures by eligible organizations 
     operating under a reasonable cost reimbursement contract, the 
     initial allocation shall be based on the plan's most recent 
     budget, such allocation to be adjusted, as needed, after cost 
     settlement to reflect the distribution of actual 
     expenditures.

     The remainder of that payment shall be paid by the former 
     trust fund.
       ``(7) Subject to paragraphs (2)(B)(ii) and (7) of 
     subsection (c), if an individual is enrolled under this 
     section with an eligible organization having a risk-sharing 
     contract, only the eligible organization shall be entitled to 
     receive payments from the Secretary under this title for 
     services furnished to the individual.''.
       (b) Effective Date.--The amendment made by this section 
     takes effect on October 1, 1997.
                                  ____


             Summary of Feingold Long-Term Care Reform Bill

                        Long-Term Care Services

                                Overall

       This proposal would give States incentives to provide home 
     and community-based long-term care services through a 
     voluntary, capped grant for severely disabled persons, 
     regardless of age or income. No entitlement to individuals 
     would be created. States would be given greater flexibility 
     and an enhanced federal match relative to the current 
     Medicaid program.

                              Eligibility

       Those meeting any of the following criteria would be 
     eligible for the program:
       Individuals requiring assistance, supervision or cuing with 
     three or more activities of daily living.
       Individuals with severe mental retardation.
       Individuals with severe cognitive or mental impairment.
       Children under 6, with severe disabilities.
       In addition, States could set aside funds for individuals 
     who may not meet any one of the above criteria, but who have 
     a disability of comparable level of severity.

                                Services

       States participating in the program would be required to 
     provide assessment, plan of care, personal assistance, and 
     case management services. Beyond that, States may also offer 
     any other service that would help keep a disabled individual 
     at home or in the community. (Such services might include 
     homemaker services, home modifications, respite, assistive 
     devices, adult day care, habilitation/rehabilitation, 
     supported employment, home health care, etc.)

                               Financing

       States choosing to participate in the program would receive 
     capped grants, and would match the Federal funding with State 
     funding. The State match rate would be 15% lower than their 
     current Medicaid State match rate.
       States would be allowed to charge copayments and establish 
     deductibles for services based on income, except that no such 
     payments could be charged to individuals with income below 
     150% of poverty.
       Total grant funding of the Federal share of the long-term 
     care grants would be $3.75 billion over 5 years, and $20.5 
     billion over 10 years.
       In addition to the specific grants outlined in the new 
     version, the measure also includes a directive to the 
     Secretary of HHS to submit a proposal to Congress whereby 
     States can retain 75% of the Federal Medicaid long-term care 
     savings they achieve through this program (e.g., reduced 
     institutional utilization).

                           Offsetting Savings

       Extend Medicare Secondary Payer Program--savings of $7.2 
     billion over 5 years, and $18.1 billion over 10 years.
       Eliminate Formula-Driven Overpayments--savings of $9.1 
     billion over 5 years, and $30.1 billion over 10 years.
       Establish Prospective Payment System for Skilled Nursing 
     Facilities--savings of $7.7 billion over 5 years, and $24.5 
     billion over 10 years.
       Reform Medicare HMO Reimbursement Formula--savings of $10.1 
     billion over 5 years, and $93.5 billion over 10 years.
       Total offsets: $34.1 billion over 5 years, and $166.2 
     billion over 10 years.
       Net deficit reduction: $30.4 billion over 5 years, and 
     $145.7 billion over 10 years.
                                 ______