[Congressional Record Volume 143, Number 92 (Thursday, June 26, 1997)]
[Senate]
[Pages S6557-S6667]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    THE BALANCED BUDGET ACT OF 1997

  The text of H.R. 2015, as amended by S. 947, is as follows:
       Resolved, That the bill from the House of Representatives 
     (H.R. 2015) entitled ``An Act to provide for reconciliation 
     pursuant to section 104(a) of the concurrent resolution on

[[Page S6558]]

     the budget for fiscal year 1998.'', do pass with the 
     following amendment:
Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE.

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

     SEC. 2. TABLE OF TITLES.

       The table of titles for this Act is as follows:

Title I. Committee on Agriculture, Nutrition, and Forestry.
Title II. Committee on Banking, Housing, and Urban Affairs.
Title III. Committee on Commerce, Science, and Transportation.
Title IV. Committee on Energy and Natural Resources.
Title V. Committee on Finance.
Title VI. Committee on Governmental Affairs.
Title VII. Committee on Labor and Human Resources.
Title VIII. Committee on Veterans' Affairs.
       TITLE I--COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

     SEC. 1001. HARDSHIP EXEMPTION.

       Section 6(o) of the Food Stamp Act of 1977 (7 U.S.C. 
     2015(o)) is amended--
       (1) in paragraph (2)(D), by striking ``or (5)'' and 
     inserting ``(5), or (6)'';
       (2) by redesignating paragraph (6) as paragraph (7); and
       (3) by inserting after paragraph (5) the following:
       ``(6) 15-percent hardship exemption.--
       ``(A) Definitions.--In this paragraph:
       ``(i) Caseload.--The term `caseload' means the average 
     monthly number of individuals receiving food stamps during 
     the 12-month period ending the preceding June 30.
       ``(ii) Covered individual.--The term `covered individual' 
     means a food stamp recipient, or an individual denied 
     eligibility for food stamp benefits solely due to paragraph 
     (2), who--

       ``(I) is not eligible for an exception under paragraph (3);
       ``(II) does not reside in an area covered by a waiver 
     granted under paragraph (4);
       ``(III) is not complying with subparagraph (A), (B), or (C) 
     of paragraph (2);
       ``(IV) is not receiving food stamp benefits during the 3 
     months of eligibility provided under paragraph (2); and
       ``(V) is not receiving food stamp benefits under paragraph 
     (5).

       ``(B) General rule.--Subject to subparagraphs (C) through 
     (F), a State agency may provide a hardship exemption from the 
     requirements of paragraph (2) for covered individuals.
       ``(C) Fiscal year 1998.--Subject to subparagraph (E), for 
     fiscal year 1998, a State agency may provide a number of 
     hardship exemptions such that the average monthly number of 
     the exemptions in effect during the fiscal year does not 
     exceed 15 percent of the number of covered individuals in the 
     State in fiscal year 1998, as estimated by the Secretary, 
     based on the survey conducted to carry out section 16(c) for 
     fiscal year 1996 and such other factors as the Secretary 
     considers appropriate due to the timing and limitations of 
     the survey.
       ``(D) Subsequent fiscal years.--Subject to subparagraphs 
     (E) and (F), for fiscal year 1999 and each subsequent fiscal 
     year, a State agency may provide a number of hardship 
     exemptions such that the average monthly number of the 
     exemptions in effect during the fiscal year does not exceed 
     15 percent of the number of covered individuals in the State, 
     as estimated by the Secretary under subparagraph (C), 
     adjusted by the Secretary to reflect changes in the State's 
     caseload and the Secretary's estimate of changes in the 
     proportion of food stamp recipients covered by waivers 
     granted under paragraph (4).
       ``(E) Caseload adjustments.--The Secretary shall adjust the 
     number of individuals estimated for a State under 
     subparagraph (C) or (D) during a fiscal year if the number of 
     food stamp recipients in the State varies from the caseload 
     by more than 10 percent, as determined by the Secretary.
       ``(F) Exemption adjustments.--For fiscal year 1999 and each 
     subsequent fiscal year, the Secretary shall increase or 
     decrease the number of individuals who may be granted a 
     hardship exemption by a State agency to the extent that the 
     average monthly number of hardship exemptions in effect in 
     the State for the preceding fiscal year is greater or less 
     than the average monthly number of hardship exemptions 
     estimated for the State agency for such preceding fiscal 
     year.
       ``(G) Reporting requirement.--A State agency shall submit 
     such reports to the Secretary as the Secretary determines are 
     necessary to ensure compliance with this paragraph.''.

     SEC. 1002. ADDITIONAL FUNDING FOR EMPLOYMENT AND TRAINING.

       Section 16(h) of the Food Stamp Act of 1977 (7 U.S.C. 
     2025(h)) is amended by striking paragraphs (1) and (2) and 
     inserting the following:
       ``(1) In general.--
       ``(A) Amounts.--To carry out employment and training 
     programs, the Secretary shall reserve for allocation to State 
     agencies, to remain available until expended, from funds made 
     available for each fiscal year under section 18(a)(1) the 
     amount of--
       ``(i) for fiscal year 1996, $75,000,000;
       ``(ii) for fiscal year 1997, $79,000,000;
       ``(iii) for fiscal year 1998, $221,000,000;
       ``(iv) for fiscal year 1999, $224,000,000;
       ``(v) for fiscal year 2000, $226,000,000;
       ``(vi) for fiscal year 2001, $228,000,000; and
       ``(vii) for fiscal year 2002, $170,000,000.
       ``(B) Allocation.--The Secretary shall allocate the amounts 
     reserved under subparagraph (A) among the State agencies 
     using a reasonable formula (as determined by the Secretary) 
     that reflects the proportion of food stamp recipients who are 
     not eligible for an exception under section 6(o)(3) that 
     reside in each State, as estimated by the Secretary based on 
     the survey conducted to carry out subsection (c) for fiscal 
     year 1996 and such other factors as the Secretary considers 
     appropriate due to the timing and limitations of the survey 
     (as adjusted by the Secretary each fiscal year to reflect 
     changes in each State's caseload (as defined in section 
     6(o)(5)(A))).
       ``(C) Reallocation.--If a State agency will not expend all 
     of the funds allocated to the State agency for a fiscal year 
     under subparagraph (B), the Secretary shall reallocate the 
     unexpended funds to other States (during the fiscal year or 
     the subsequent fiscal year) as the Secretary considers 
     appropriate and equitable.
       ``(D) Minimum allocation.--Notwithstanding subparagraph 
     (B), the Secretary shall ensure that each State agency 
     operating an employment and training program shall receive 
     not less than $50,000 for each fiscal year.
       ``(E) Placements.--Of the amount of funds reserved for a 
     State agency for a fiscal year under subparagraphs (A) 
     through (D), the State agency shall be eligible to receive 
     for the fiscal year not more than an amount equal to the sum 
     of--
       ``(i) the product obtained by multiplying--

       ``(I) the average monthly number of food stamp recipients 
     who during the fiscal year--

       ``(aa) are not eligible for an exception under section 
     6(o)(3); and
       ``(bb) are placed in and comply with a program described in 
     subparagraph (B) or (C) of section 6(o)(2), other than a 
     program described in subparagraph (A) or (B) of section 
     6(o)(1); by

       ``(II) an amount determined by the Secretary to reflect the 
     reasonable cost of efficiently and economically providing 
     services that meet the requirements of subparagraph (B) or 
     (C) of section 6(o)(2) to food stamp recipients described in 
     subclause (I) for the fiscal year, as periodically adjusted 
     by the Secretary; and

       ``(ii) the product obtained by multiplying--

       ``(I) the average monthly number of food stamp recipients 
     in activities not described in clause (i)(I)(bb) who during 
     the fiscal year are placed in and comply with an employment 
     and training program; by
       ``(II) an amount determined by the Secretary to reflect the 
     reasonable cost of efficiently and economically providing 
     employment and training services to food stamp recipients 
     described in subclause (I) for the fiscal year that is less 
     than the amount determined under clause (i)(II), as 
     periodically adjusted by the Secretary.

       ``(F) Use of funds.--Of the amount of funds a State agency 
     receives under subparagraphs (A) through (E) for a fiscal 
     year, not less than 75 percent shall be used by the State 
     agency in the fiscal year to serve food stamp recipients 
     described in subparagraph (E)(i)(I)(aa) who are placed in and 
     comply with a program described in subparagraph 
     (E)(i)(I)(bb).
       ``(G) Maintenance of effort.--To receive an amount reserved 
     under subparagraph (A), a State agency shall maintain the 
     expenditures of the State agency for employment and training 
     programs and workfare programs for any fiscal year under 
     paragraph (2), and administrative expenses under section 
     20(g)(1), at a level that is not less than 75 percent of the 
     level of the expenditures by the State agency to carry out 
     the programs for fiscal year 1996.
       ``(2) Additional payments to states.--If a State agency--
       ``(A) incurs costs to place individuals in employment and 
     training programs, including the costs for case management 
     and casework to facilitate the transition from economic 
     dependency to self-sufficiency through work; and
       ``(B) does not use the funds provided under paragraph 
     (1)(A) to defray the costs incurred;
     the Secretary shall pay the State agency an amount equal to 
     50 percent of the costs incurred, subject to paragraph 
     (3).''.

     SEC. 1003. DENIAL OF FOOD STAMPS FOR PRISONERS.

       (a) State Plans.--
       (1) In General.--Section 11(e) of the Food Stamp Act of 
     1977 (7 U.S.C. 2020(e)) is amended by striking paragraph (20) 
     and inserting the following:
       ``(20) that the State agency shall establish a system and 
     take action on a periodic basis--
       ``(A) to verify and otherwise ensure that an individual 
     does not receive coupons in more than 1 jurisdiction within 
     the State; and
       ``(B) to verify and otherwise ensure that an individual who 
     is placed under detention in a Federal, State, or local 
     penal, correctional, or other detention facility for more 
     than 30 days shall not be eligible to participate in the food 
     stamp program as a member of any household, except that--
       ``(i) the Secretary may determine that extraordinary 
     circumstances make it impracticable for the State agency to 
     obtain information necessary to discontinue inclusion of the 
     individual; and
       ``(ii) a State agency that obtains information collected 
     under section 1611(e)(1)(I)(i)(I) of the Social Security Act 
     (42 U.S.C. 1382(e)(1)(I)(i)(I)) through an agreement under 
     section 1611(e)(1)(I)(ii)(II) of that Act (42 U.S.C. 
     1382(e)(1)(I)(ii)(II)), or under another program determined 
     by the Secretary to be comparable to the program carried out 
     under that section, shall be considered in compliance with 
     this subparagraph.''.
       (2) Limits on disclosure and use of information.--Section 
     11(e)(8)(E) of the Food Stamp Act of 1977 (7 U.S.C. 
     2020(e)(8)(E)) is amended by striking ``paragraph (16)'' and 
     inserting ``paragraph (16) or (20)(B)''.
       (3) Effective Date.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall take effect on 
     the date that is 1 year after the date of enactment of this 
     Act.

[[Page S6559]]

       (B) Extension.--The Secretary of Agriculture may grant a 
     State an extension of time to comply with the amendments made 
     by this subsection, not to exceed beyond the date that is 2 
     years after the date of enactment of this Act, if the chief 
     executive officer of the State submits a request for the 
     extension to the Secretary--
       (i) stating the reasons why the State is not able to comply 
     with the amendments made by this subsection by the date that 
     is 1 year after the date of enactment of this Act;
       (ii) providing evidence that the State is making a good 
     faith effort to comply with the amendments made by this 
     subsection as soon as practicable; and
       (iii) detailing a plan to bring the State into compliance 
     with the amendments made by this subsection as soon as 
     practicable and not later than the date of the requested 
     extension.
       (b) Information Sharing.--Section 11 of the Food Stamp Act 
     of 1977 (7 U.S.C. 2020) is amended by adding at the end the 
     following:
       ``(q) Denial of Food Stamps for Prisoners.--The Secretary 
     shall assist States, to the maximum extent practicable, in 
     implementing a system to conduct computer matches or other 
     systems to prevent prisoners described in section 
     11(e)(20)(B) from receiving food stamp benefits.''.

     SEC. 1004. NUTRITION EDUCATION.

       Section 11(f) of the Food Stamp Act of 1977 (7 U.S.C. 
     2020(f)) is amended--
       (1) by striking ``(f) To encourage'' and inserting the 
     following:
       ``(f) Nutrition Education.--
       ``(1) In general.--To encourage''; and
       (2) by adding at the end the following:
       ``(2) Grants.--
       ``(A) In general.--The Secretary shall make available not 
     more than $600,000 for each of fiscal years 1998 through 2001 
     to pay the Federal share of grants made to eligible private 
     nonprofit organizations and State agencies to carry out 
     subparagraph (B).
       ``(B) Eligibility.--A private nonprofit organization or 
     State agency shall be eligible to receive a grant under 
     subparagraph (A) if the organization or agency agrees--
       ``(i) to use the funds to direct a collaborative effort to 
     coordinate and integrate nutrition education into health, 
     nutrition, social service, and food distribution programs for 
     food stamp participants and other low-income households; and
       ``(ii) to design the collaborative effort to reach large 
     numbers of food stamp participants and other low-income 
     households through a network of organizations, including 
     schools, child care centers, farmers' markets, health 
     clinics, and outpatient education services.
       ``(C) Preference.--In deciding between 2 or more private 
     nonprofit organizations or State agencies that are eligible 
     to receive a grant under subparagraph (B), the Secretary 
     shall give a preference to an organization or agency that 
     conducted a collaborative effort described in subparagraph 
     (B) and received funding for the collaborative effort from 
     the Secretary before the date of enactment of this paragraph.
       ``(D) Federal share.--
       ``(i) In general.--Subject to subparagraph (E), the Federal 
     share of a grant under this paragraph shall be 50 percent.
       ``(ii) No in-kind contributions.--The non-Federal share of 
     a grant under this paragraph shall be in cash.
       ``(iii) Private funds.--The non-Federal share of a grant 
     under this paragraph may include amounts from private 
     nongovernmental sources.
       ``(E) Limit on individual grant.--A grant under 
     subparagraph (A) may not exceed $200,000 for a fiscal 
     year.''.
       TITLE II--COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
     Subtitle A--Mortgage Assignment and Annual Adjustment Factors

     SEC. 2001. TABLE OF CONTENTS.

       The table of contents for this title is as follows:

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

     Subtitle A--Mortgage Assignment and Annual Adjustment Factors

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

                 Subtitle B--Multifamily Housing Reform

Sec. 2100. Short title.

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

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

                    Part 2--Miscellaneous Provisions

Sec. 2201. Rehabilitation grants for certain insured projects.
Sec. 2202. Minimum rent.
Sec. 2203. Repeal of Federal preferences.

                     Part 3--Enforcement Provisions

Sec. 2301. Implementation.


           SUBPART A--FHA SINGLE FAMILY AND MULTIFAMILY HOUSING

Sec. 2311. Authorization to immediately suspend mortgagees.
Sec. 2312. Extension of equity skimming to other single family and 
              multifamily housing programs.
Sec. 2313. Civil money penalties against mortgagees, lenders, and other 
              participants in FHA programs.


                  SUBPART B--FHA MULTIFAMILY PROVISIONS

Sec. 2320. Civil money penalties against general partners, officers, 
              directors, and certain managing agents of multifamily 
              projects.
Sec. 2321. Civil money penalties for noncompliance with section 8 HAP 
              contracts.
Sec. 2322. Extension of double damages remedy.
Sec. 2323. Obstruction of Federal audits.

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

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

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

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

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

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

     SEC. 2100. SHORT TITLE.

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

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

     SEC. 2101. FINDINGS AND PURPOSES.

       (a) Findings.--Congress finds that--
       (1) there exists throughout the Nation a need for decent, 
     safe, and affordable housing;
       (2) as of the date of enactment of this Act, it is 
     estimated that--
       (A) the insured multifamily housing portfolio of the 
     Federal Housing Administration consists of 14,000 rental 
     properties, with an aggregate unpaid principal mortgage 
     balance of $38,000,000,000; and
       (B) approximately 10,000 of these properties contain 
     housing units that are assisted with project-based rental 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (3) FHA-insured multifamily rental properties are a major 
     Federal investment, providing affordable rental housing to an 
     estimated 2,000,000 low- and very low-income families;
       (4) approximately 1,600,000 of these families live in 
     dwelling units that are assisted with project-based rental 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (5) a substantial number of housing units receiving 
     project-based assistance have rents that are higher than the 
     rents of comparable, unassisted rental units in the same 
     housing rental market;
       (6) many of the contracts for project-based assistance will 
     expire during the several years following the date of 
     enactment of this Act;
       (7) it is estimated that--
       (A) if no changes in the terms and conditions of the 
     contracts for project-based assistance are made before fiscal 
     year 2000, the cost of renewing all expiring rental 
     assistance contracts under section 8 of the United States 
     Housing Act of 1937 for both project-based and tenant-based 
     rental assistance will increase from approximately 
     $3,600,000,000 in fiscal year 1997 to over $14,300,000,000 by 
     fiscal year 2000 and some $22,400,000,000 in fiscal year 
     2006;
       (B) of those renewal amounts, the cost of renewing project-
     based assistance will increase from $1,200,000,000 in fiscal 
     year 1997 to almost $7,400,000,000 by fiscal year 2006; and
       (C) without changes in the manner in which project-based 
     rental assistance is provided, renewals of expiring contracts 
     for project-based rental assistance will require an 
     increasingly larger portion of the discretionary budget 
     authority of the Department of Housing and Urban Development 
     in each subsequent fiscal year for the foreseeable future;
       (8) absent new budget authority for the renewal of expiring 
     rental contracts for project-based assistance, many of the 
     FHA-insured multifamily housing projects that are assisted 
     with

[[Page S6560]]

     project-based assistance will likely default on their FHA-
     insured mortgage payments, resulting in substantial claims to 
     the FHA General Insurance Fund and Special Risk Insurance 
     Funds;
       (9) more than 15 percent of federally assisted multifamily 
     housing projects are physically or financially distressed, 
     including a number which suffer from mismanagement;
       (10) due to Federal budget constraints, the downsizing of 
     the Department of Housing and Urban Development, and 
     diminished administrative capacity, the Department lacks the 
     ability to ensure the continued economic and physical well-
     being of the stock of federally insured and assisted 
     multifamily housing projects; and
       (11) the economic, physical, and management problems facing 
     the stock of federally insured and assisted multifamily 
     housing projects will be best served by reforms that--
       (A) reduce the cost of Federal rental assistance, including 
     project-based assistance, to these projects by reducing the 
     debt service and operating costs of these projects while 
     retaining the low-income affordability and availability of 
     this housing;
       (B) address physical and economic distress of this housing 
     and the failure of some project managers and owners of 
     projects to comply with management and ownership rules and 
     requirements; and
       (C) transfer and share many of the loan and contract 
     administration functions and responsibilities of the 
     Secretary with capable State, local, and other entities.
       (b) Purposes.--The purposes of this part are--
       (1) to preserve low-income rental housing affordability and 
     availability while reducing the long-term costs of project-
     based assistance;
       (2) to reform the design and operation of Federal rental 
     housing assistance programs, administered by the Secretary, 
     to promote greater multifamily housing project operating and 
     cost efficiencies;
       (3) to encourage owners of eligible multifamily housing 
     projects to restructure their FHA-insured mortgages and 
     project-based assistance contracts in a manner that is 
     consistent with this part before the year in which the 
     contract expires;
       (4) to streamline and improve federally insured and 
     assisted multifamily housing project oversight and 
     administration;
       (5) to resolve the problems affecting financially and 
     physically troubled federally insured and assisted 
     multifamily housing projects through cooperation with 
     residents, owners, State and local governments, and other 
     interested entities and individuals; and
       (6) to grant additional enforcement tools to use against 
     those who violate agreements and program requirements, in 
     order to ensure that the public interest is safeguarded and 
     that Federal multifamily housing programs serve their 
     intended purposes.

     SEC. 2102. DEFINITIONS.

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

     SEC. 2103. AUTHORITY OF PARTICIPATING ADMINISTRATIVE 
                   ENTITIES.

       (a) Participating Administrative Entities.--
       (1) In general.--The Secretary shall enter into portfolio 
     restructuring agreements with participating administrative 
     entities for the implementation of mortgage restructuring and 
     rental assistance sufficiency plans to restructure FHA-
     insured multifamily housing mortgages, in order to--
       (A) reduce the costs of current and expiring contracts for 
     assistance under section 8 of the United States Housing Act 
     of 1937;
       (B) address financially and physically troubled projects; 
     and
       (C) correct management and ownership deficiencies.
       (2) Portfolio restructuring agreements.--Each portfolio 
     restructuring agreement entered into under this subsection 
     shall--
       (A) be a cooperative agreement to establish the obligations 
     and requirements between the Secretary and the participating 
     administrative entity;
       (B) identify the eligible multifamily housing projects or 
     groups of projects for which the participating administrative 
     entity is responsible for assisting in developing and 
     implementing approved mortgage restructuring and rental 
     assistance sufficiency plans under section 2104;
       (C) require the participating administrative entity to 
     review and certify to the accuracy and completeness of a 
     comprehensive needs assessment submitted by the owner of an 
     eligible multifamily housing project, in accordance with the 
     information and data requirements of section 403 of the 
     Housing and Community Development Act of 1992, including such 
     other data, information, and requirements as the Secretary 
     may require to be included as part of the comprehensive needs 
     assessment;
       (D) identify the responsibilities of both the participating 
     administrative entity and the Secretary in implementing a 
     mortgage restructuring and rental assistance sufficiency 
     plan, including any actions proposed to be taken under 
     section 2106 or 2107;
       (E) require each mortgage restructuring and rental 
     assistance sufficiency plan to be prepared in accordance with 
     the requirements of section 2104 for each eligible 
     multifamily housing project;
       (F) indemnify the participating administrative entity 
     against lawsuits and penalties for actions taken pursuant to 
     the agreement, excluding actions involving gross negligence 
     or willful misconduct; and
       (G) include compensation for all reasonable expenses 
     incurred by the participating administrative entity necessary 
     to perform its duties under this part, including such 
     incentives as may be authorized under section 2108.
       (b) Selection of Participating Administrative Entity.--
       (1) Selection criteria.--The Secretary shall select a 
     participating administrative entity based on the following 
     criteria--
       (A) is located in the State or local jurisdiction in which 
     the eligible multifamily housing project or projects are 
     located;
       (B) has demonstrated expertise in the development or 
     management of low-income affordable rental housing;
       (C) has a history of stable, financially sound, and 
     responsible administrative performance;
       (D) has demonstrated financial strength in terms of asset 
     quality, capital adequacy, and liquidity; and
       (E) is otherwise qualified, as determined by the Secretary, 
     to carry out the requirements of this part.

[[Page S6561]]

       (2) Selection of mortgage risk-sharing entities and fiscal 
     year 1997 multifamily demonstration authority.--Any State 
     housing finance agency or local housing agency that is 
     designated as a qualified participating entity under section 
     542 of the Housing and Community Development Act of 1992 or 
     under section 212 of Public Law 104-204, shall automatically 
     qualify as a participating administrative entity under this 
     section.
       (3) Alternative administrators.--With respect to any 
     eligible multifamily housing project that is located in a 
     State or local jurisdiction in which the Secretary determines 
     that a participating administrative entity is not located, is 
     unavailable, or does not qualify, the Secretary shall 
     either--
       (A) carry out the requirements of this part with respect to 
     that eligible multifamily housing project; or
       (B) contract with other qualified entities that meet the 
     requirements of subsection (b), with the exception of 
     subsection (b)(1)(A), the authority to carry out all or a 
     portion of the requirements of this part with respect to that 
     eligible multifamily housing project.
       (4) Preference for public housing finance agencies as 
     participating administrative entities.--In selecting 
     participating administrative entities under this subsection, 
     the Secretary shall give preference to State housing finance 
     agencies and local housing agencies.
       (5) State and local portfolio requirements.--
       (A) In general.--If the housing finance agency of a State 
     is selected as the participating administrative entity, that 
     agency shall be responsible for all eligible multifamily 
     housing projects in that State, except that a local housing 
     agency selected as a participating administrative entity 
     shall be responsible for all eligible multifamily housing 
     projects in the jurisdiction of the agency.
       (B) Right of first refusal.--A participating State housing 
     finance agency or local housing agency shall have the right 
     of first refusal to assume responsibility for any properties 
     it has financed.
       (C) Delegation.--A participating administrative entity may 
     delegate or transfer responsibilities and functions under 
     this part to one or more interested and qualified public 
     entities.
       (D) Waiver.--A State housing finance agency or local 
     housing agency may request a waiver from the Secretary from 
     the requirements of subparagraph (A) for good cause.

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

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

[[Page S6562]]

     the rent limitation required to be established through a 
     mortgage restructuring and rental assistance sufficiency plan 
     under paragraph (1); and
       (ii) follows the procedures under paragraph (3).
       (B) Exception rents.--In any fiscal year, a participating 
     administrative entity may approve exception rents on not more 
     than 20 percent of all units in the geographic jurisdiction 
     of the entity with expiring contracts in that fiscal year, 
     except that the Secretary may waive this ceiling upon a 
     finding of special need in the geographic area served by the 
     participating administrative entity.
       (3) Rent levels for exception projects.--For purposes of 
     this section, a project eligible for an exception rent shall 
     receive a rent calculation on the actual and projected costs 
     of operating the project, at a level that provides income 
     sufficient to support a budget-based rent that consists of--
       (A) the debt service of the project;
       (B) the operating expenses of the project, as determined by 
     the participating administrative entity, including--
       (i) contributions to adequate reserves;
       (ii) the costs of maintenance and necessary rehabilitation; 
     and
       (iii) other eligible costs permitted under section 8 of the 
     United States Housing Act of 1937;
       (C) an adequate allowance for potential operating losses 
     due to vacancies and failure to collect rents, as determined 
     by the participating administrative entity;
       (D) an allowance for a reasonable rate of return to the 
     owner or purchaser of the project, as determined by the 
     participating administrative entity, which may be established 
     to provide incentives for owners or purchasers to meet 
     benchmarks of quality for management and housing quality; and
       (E) other expenses determined by the participating 
     administrative entity to be necessary for the operation of 
     the project.
       (h) Exemptions From Restructuring.--Subject to section 
     2106, the Secretary shall renew project-based assistance 
     contracts at existing rents, or at a level that provides 
     income sufficient to support a budget-based rent (including a 
     budget-based rent adjustment if justified by reasonable and 
     expected operating expenses), if--
       (1) the project was financed through obligations such that 
     the implementation of a mortgage restructuring and rental 
     assistance sufficiency plan under this section is 
     inconsistent with applicable law or agreements governing such 
     financing;
       (2) in the determination of the Secretary or the 
     participating administrative entity, the restructuring would 
     not result in significant section 8 savings to the Secretary; 
     or
       (3) the project has an expiring contract under section 8 of 
     the United States Housing Act of 1937 but does not qualify as 
     an eligible multifamily housing project pursuant to section 
     2102(2) of this part.

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

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

     SEC. 2106. PROHIBITION ON RESTRUCTURING.

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

     SEC. 2107. RESTRUCTURING TOOLS.

       (a) Restructuring Tools.--In this part, and to the extent 
     these actions are consistent with this section, an approved 
     mortgage restructuring and rental assistance sufficiency plan 
     may include one or more of the following:
       (1) Full or partial payment of claim.--Making a full 
     payment of claim or partial payment of claim under section 
     541(b) of the National Housing Act. Any payment under this 
     paragraph shall not require the approval of a mortgagee.
       (2) Refinancing of debt.--Refinancing of all or part of the 
     debt on a project, if the refinancing would result in 
     significant subsidy savings under section 8 of the United 
     States Housing Act of 1937.
       (3) Mortgage insurance.--Providing FHA multifamily mortgage 
     insurance, reinsurance or other credit enhancement 
     alternatives, including multifamily risk-sharing mortgage 
     programs, as provided under section 542 of the Housing and 
     Community Development Act of 1992. Any limitations on the 
     number of units available for mortgage insurance under 
     section 542 shall not apply to eligible multifamily housing 
     projects. Any credit subsidy costs of providing mortgage 
     insurance shall be paid from the General Insurance Fund and 
     the Special Risk Insurance Fund.
       (4) Credit enhancement.--Any additional State or local 
     mortgage credit enhancements and risk-sharing arrangements 
     may be established with State or local housing finance 
     agencies, the Federal Housing Finance Board, the Federal 
     National Mortgage Association, and the Federal Home Loan 
     Mortgage Corporation, to a modified first mortgage.
       (5) Compensation of third parties.--Entering into 
     agreements, incurring costs, or making payments, as may be 
     reasonably necessary, to compensate the participation of 
     participating administrative entities and other parties in 
     undertaking actions authorized by this part. Upon request, 
     participating administrative entities shall be considered to 
     be contract administrators under section 8 of the United 
     States Housing Act of 1937 for purposes of any contracts 
     entered into as part of an approved mortgage restructuring 
     and rental assistance sufficiency plan. Subject to the 
     availability of amounts provided in advance in appropriations 
     Acts for administrative fees under section 8 of the United 
     States Housing Act of 1937, such fees shall be used to 
     compensate participating administrative entities

[[Page S6563]]

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

     SEC. 2108. SHARED SAVINGS INCENTIVE.

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

     SEC. 2109. MANAGEMENT STANDARDS.

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

     SEC. 2110. MONITORING OF COMPLIANCE.

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

     SEC. 2111. REVIEW.

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

     SEC. 2112. GAO AUDIT AND REVIEW.

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

     SEC. 2113. REGULATIONS.

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

     SEC. 2114. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Calculation of Limit on Project-Based Assistance.--
     Section 8(d) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(d)) is amended by adding at the end the 
     following:
       ``(5) Calculation of limit.--Any contract entered into 
     under section 2104 of the Multifamily Assisted Housing Reform 
     and Affordability

[[Page S6564]]

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

     SEC. 2115. TERMINATION OF AUTHORITY.

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

                    Part 2--Miscellaneous Provisions

     SEC. 2201. REHABILITATION GRANTS FOR CERTAIN INSURED 
                   PROJECTS.

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

     SEC. 2202. MINIMUM RENT.

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

     SEC. 2203. REPEAL OF FEDERAL PREFERENCES.

       (a) Section 8 Existing and Moderate Rehabilitation.--
     Section 8(d)(1)(A) of the United States Housing Act of 1937 
     (42 U.S.C. 1437f(d)(1)(A)) is amended to read as follows:
       ``(A) the selection of tenants shall be the function of the 
     owner, subject to the annual contributions contract between 
     the Secretary and the agency, except that with respect to the 
     certificate and moderate rehabilitation programs only, for 
     the purpose of selecting families to be assisted, the public 
     housing agency may establish, after public notice and an 
     opportunity for public comment, a written system of 
     preferences for selection that are not inconsistent with the 
     comprehensive housing affordability strategy for the 
     jurisdiction in which the project is located, in accordance 
     with title I of the Cranston-Gonzalez National Affordable 
     Housing Act;''.
       (b) Section 8 New Construction and Substantial 
     Rehabilitation.--
       (1) Repeal.--Section 545(c) of the Cranston-Gonzalez 
     National Affordable Housing Act (42 U.S.C. 1437f note) is 
     amended to read as follows:
       ``(c) [Reserved.]''.
       (2) Prohibition.--The provisions of section 8(e)(2) of the 
     United States Housing Act of 1937, as in existence on the day 
     before October 1, 1983, that require tenant selection 
     preferences shall not apply with respect to--
       (A) housing constructed or substantially rehabilitated 
     pursuant to assistance provided under section 8(b)(2) of the 
     United States Housing Act of 1937, as in existence on the day 
     before October 1, 1983; or
       (B) projects financed under section 202 of the Housing Act 
     of 1959, as in existence on the day before the date of 
     enactment of the Cranston-Gonzalez National Affordable 
     Housing Act.
       (c) Rent Supplements.--Section 101(k) of the Housing and 
     Urban Development Act of 1965 (12 U.S.C. 1701s(k)) is amended 
     to read as follows:
       ``(k) [Reserved.]''.
       (d) Conforming Amendments.--
       (1) United states housing act of 1937.--The United States 
     Housing Act of 1937 (42 U.S.C. 1437 et seq.) is amended--

[[Page S6565]]

       (A) in section 6(o), by striking ``preference rules 
     specified in'' and inserting ``written selection criteria 
     established pursuant to'';
       (B) in section 8(d)(2)(A), by striking the last sentence; 
     and
       (C) in section 8(d)(2)(H), by striking ``Notwithstanding 
     subsection (d)(1)(A)(i), an'' and inserting ``An''.
       (2) Cranston-gonzalez national affordable housing act.--The 
     Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
     12704 et seq.) is amended--
       (A) in section 455(a)(2)(D)(iii), by striking ``would 
     qualify for a preference under'' and inserting ``meet the 
     written selection criteria established pursuant to''; and
       (B) in section 522(f)(6)(B), by striking ``any preferences 
     for such assistance under section 8(d)(1)(A)(i)'' and 
     inserting ``the written selection criteria established 
     pursuant to section 8(d)(1)(A)''.
       (3) Low-income housing preservation and resident 
     homeownership act of 1990.--The second sentence of section 
     226(b)(6)(B) of the Low-Income Housing Preservation and 
     Resident Homeownership Act of 1990 (12 U.S.C. 4116(b)(6)(B)) 
     is amended by striking ``requirement for giving preferences 
     to certain categories of eligible families under'' and 
     inserting ``written selection criteria established pursuant 
     to''.
       (4) Housing and community development act of 1992.--Section 
     655 of the Housing and Community Development Act of 1992 (42 
     U.S.C. 13615) is amended by striking ``preferences for 
     occupancy'' and all that follows before the period at the end 
     and inserting ``selection criteria established by the owner 
     to elderly families according to such written selection 
     criteria, and to near-elderly families according to such 
     written selection criteria, respectively''.
       (5) References in other law.--Any reference in any Federal 
     law other than any provision of any law amended by paragraphs 
     (1) through (5) of this subsection or to the preferences for 
     assistance under section 8(d)(1)(A)(i) of the United States 
     Housing Act of 1937, as that section existed on the day 
     before the effective date of this part, shall be considered 
     to refer to the written selection criteria established 
     pursuant to section 8(d)(1)(A) of the United States Housing 
     Act of 1937, as amended by this subsection.

                     Part 3--Enforcement Provisions

     SEC. 2301. IMPLEMENTATION.

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

          Subpart A--FHA Single Family and Multifamily Housing

     SEC. 2311. AUTHORIZATION TO IMMEDIATELY SUSPEND MORTGAGEES.

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

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

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

     ``SEC. 254. EQUITY SKIMMING PENALTY.

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

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

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

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

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

                 Subpart B--FHA Multifamily Provisions

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

       (a) Civil Money Penalties Against Multifamily Mortgagors.--
     Section 537 of the National Housing Act (12 U.S.C. 1735f-15) 
     is amended--
       (1) in subsection (b)(1), by striking ``on that mortgagor'' 
     and inserting the following: ``on that mortgagor, on a 
     general partner of a partnership mortgagor, or on any officer 
     or director of a corporate mortgagor'';
       (2) in subsection (c)--
       (A) by striking the subsection heading and inserting the 
     following:
       ``(c) Other Violations.--''; and
       (B) in paragraph (1)--
       (i) by striking ``Violations.--The Secretary may'' and all 
     that follows through the colon and inserting the following:
       ``(A) Liable parties.--The Secretary may also impose a 
     civil money penalty under this section on--
       ``(i) any mortgagor of a property that includes five or 
     more living units and that has a mortgage insured, coinsured, 
     or held pursuant to this Act;
       ``(ii) any general partner of a partnership mortgagor of 
     such property;
       ``(iii) any officer or director of a corporate mortgagor;
       ``(iv) any agent employed to manage the property that has 
     an identity of interest with the mortgagor, with the general 
     partner of a partnership mortgagor, or with any officer or 
     director of a corporate mortgagor of such property; or
       ``(v) any member of a limited liability company that is the 
     mortgagor of such property or is the general partner of a 
     limited partnership mortgagor or is a partner of a general 
     partnership mortgagor.
       ``(B) Violations.--A penalty may be imposed under this 
     section upon any liable party under

[[Page S6566]]

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

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

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

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

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

[[Page S6567]]

       (1) violations that occur on or after the effective date of 
     final regulations implementing the amendments made by this 
     section; and
       (2) in the case of a continuing violation (as determined by 
     the Secretary of Housing and Urban Development), any portion 
     of a violation that occurs on or after such date.
       (c) Implementation.--
       (1) Regulations.--
       (A) In general.--The Secretary shall implement the 
     amendments made by this section by regulation issued after 
     notice and opportunity for public comment.
       (B) Comments sought.--The notice under subparagraph (A) 
     shall seek comments as to the definitions of the terms 
     ``ownership interest in'' and ``effective control'', as such 
     terms are used in the definition of the term ``agent employed 
     to manage such property that has an identity of interest''.
       (2) Timing.--A proposed rule implementing the amendments 
     made by this section shall be published not later than 1 year 
     after the date of enactment of this Act.

     SEC. 2322. EXTENSION OF DOUBLE DAMAGES REMEDY.

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

     SEC. 2323. OBSTRUCTION OF FEDERAL AUDITS.

       Section 1516(a) of title 18, United States Code, is amended 
     by inserting after ``under a contract or subcontract,'' the 
     following: ``or relating to any property that is security for 
     a mortgage note that is insured, guaranteed, acquired, or 
     held by the Secretary of Housing and Urban Development 
     pursuant to any Act administered by the Secretary,''.
      TITLE III--COMMITTEE ON COMMERCE SCIENCE AND TRANSPORTATION
             Subtitle A--Spectrum Auctions and License Fees

     SEC. 3001. SPECTRUM AUCTIONS.

       (a) Extension and Expansion of Auction Authority.--
       (1) In general.--Section 309(j) of the Communications Act 
     of 1934 (47 U.S.C. 309(j)) is amended--
       (A) by striking paragraphs (1) and (2) and inserting in 
     lieu thereof the following:
       ``(1) General authority.--If mutually exclusive 
     applications are accepted for any initial license or 
     construction permit that will involve an exclusive use of the 
     electromagnetic spectrum, then, except as provided in 
     paragraph (2), the Commission shall grant the license or 
     permit to a qualified applicant through a system of 
     competitive bidding that meets the requirements of this 
     subsection. The Commission, subject to paragraphs (2) and (7) 
     of this subsection, also may use auctions as a means to 
     assign spectrum when it determines that such an auction is 
     consistent with the public interest, convenience, and 
     necessity, and the purposes of this Act.
       ``(2) Exceptions.--The competitive bidding authority 
     granted by this subsection shall not apply to a license or 
     construction permit the Commission issues--
       ``(A) for public safety services, including private 
     internal radio services used by State and local governments 
     and non-government entities, including emergency auto service 
     by nonprofit organizations, that--
       ``(i) are used to protect the safety of life, health, or 
     property; and
       ``(ii) are not made commercially available to the public;
       ``(B) for public telecommunications services, as defined in 
     section 397(14) of this Act, when the license application is 
     for channels reserved for noncommercial use;
       ``(C) for spectrum and associated orbits used in the 
     provision of any communications within a global satellite 
     system;
       ``(D) for initial licenses or construction permits for new 
     digital television service given to existing terrestrial 
     broadcast licensees to replace their current television 
     licenses;
       ``(E) for terrestrial radio and television broadcasting 
     when the Commission determines that an alternative method of 
     resolving mutually exclusive applications serves the public 
     interest substantially better than competitive bidding; or
       ``(F) for spectrum allocated for unlicensed use pursuant to 
     part 15 of the Commission's regulations (47 C.F.R. part 15), 
     if the competitive bidding for licenses would interfere with 
     operation of end-user products permitted under such 
     regulations.'';
       (B) by striking ``1998'' in paragraph (11) and inserting 
     ``2007''; and
       (C) by inserting after paragraph (13) the following:
       ``(14) Out-of-band effects.--The Commission and the 
     National Telecommunications and Information Administration 
     shall seek to create incentives to minimize the effects of 
     out-of-band emissions to promote more efficient use of the 
     electromagnetic spectrum. The Commission and the National 
     Telecommunications and Information Administration also shall 
     encourage licensees to minimize the effects of 
     interference.''.
       (2) Conforming amendment.--Subsection (i) of section 309 of 
     the Communications Act of 1934 is repealed.
       (b) Auction of 45 Megahertz Located at 1,710-1,755 
     Megahertz.--
       (1) In general.--The Commission shall assign by competitive 
     bidding 45 megahertz located at 1,710-1,755 megahertz no 
     later than December 31, 2001, for commercial use.
       (2) Federal government users.--Any Federal Government 
     station that, on the date of enactment of this Act, is 
     assigned to use electromagnetic spectrum located in the 
     1,710-1,755 megahertz band shall retain that use until 
     December 31, 2003, unless exempted from relocation.
       (c) Commission to Make Additional Spectrum Available by 
     Auction.--
       (1) In general.--The Federal Communications Commission 
     shall complete all actions necessary to permit the 
     assignment, by September 30, 2002, by competitive bidding 
     pursuant to section 309(j) of the Communications Act of 1934 
     (47 U.S.C. 309(j)), of licenses for the use of bands of 
     frequencies currently allocated by the Commission that--
       (A) in the aggregate span not less than 55 megahertz;
       (B) are located below 3 gigahertz; and
       (C) as of the date of enactment of this Act, have not 
     been--
       (i) designated by Commission regulation for assignment 
     pursuant to section 309(j);
       (ii) identified by the Secretary of Commerce pursuant to 
     section 113 of the National Telecommunications and 
     Information Administration Organization Act (47 U.S.C. 923); 
     or
       (iii) allocated for Federal Government use pursuant to 
     section 305 of the Communications Act of 1934 (47 U.S.C. 
     305).
       (2) Criteria for Reassignment.--In making available bands 
     of frequencies for competitive bidding pursuant to paragraph 
     (1), the Commission shall--
       (A) seek to promote the most efficient use of the 
     electromagnetic spectrum;
       (B) consider the cost to incumbent licensees of relocating 
     existing uses to other bands of frequencies or other means of 
     communication;
       (C) consider the needs of public safety radio services;
       (D) comply with the requirements of international 
     agreements concerning spectrum allocations; and
       (E) coordinate with the Secretary of Commerce when there is 
     any impact on Federal Government spectrum use.
       (3) Notification to the Secretary of Commerce.--The 
     Commission shall attempt to accommodate incumbent licensees 
     displaced under this section by relocating them to other 
     frequencies available to the Commission. The Commission shall 
     notify the Secretary of Commerce whenever the Commission is 
     not able to provide for the effective relocation of an 
     incumbent licensee to a band of frequencies available to the 
     Commission for assignment. The notification shall include--
       (A) specific information on the incumbent licensee;
       (B) the bands the Commission considered for relocation of 
     the licensee; and
       (C) the reasons the incumbent cannot be accommodated in 
     these bands.
       (4) Report to the Secretary of Commerce.--
       (A) Technical report.--The Commission, in consultation with 
     the National Telecommunications and Information 
     Administration, shall submit a detailed technical report to 
     the Secretary of Commerce setting forth--
       (i) the reasons the incumbent licensees described in 
     paragraph (3) could not be accommodated in existing non-
     government spectrum; and
       (ii) the Commission's recommendations for relocating those 
     incumbents.
       (B) NTIA use of report.--The National Telecommunications 
     and Information Administration shall review this report when 
     assessing whether a commercial licensee can be accommodated 
     by being reassigned to a frequency allocated for Government 
     use.
       (d) Identification and Reallocation of Frequencies.--
       (1) In general.--Section 113 of the National 
     Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 901 et seq.) is amended by adding 
     at the end thereof the following:
       ``(f) Additional Reallocation Report.--If the Secretary 
     receives a report from the Commission pursuant to section 
     3001(c)(6) of the Balanced Budget Act of 1997, the Secretary 
     shall

[[Page S6568]]

     submit to the President, the Congress, and the Commission a 
     report with the Secretary's recommendations.
       ``(g) Reimbursement of Federal Spectrum Users for 
     Relocation Costs.--
       ``(1) In general.--
       ``(A) Acceptance of compensation authorized.--In order to 
     expedite the efficient use of the electromagnetic spectrum, 
     and notwithstanding section 3302(b) of title 31, United 
     States Code, any Federal entity that operates a Federal 
     Government station that has been identified by NTIA for 
     relocation may accept payment, including in-kind compensation 
     and shall be reimbursed if required to relocate by the 
     service applicant, provider, licensee, or representative 
     entering the band as a result of a license assignment by the 
     Commission or otherwise authorized by Commission rules.
       ``(B) Duty to compensate ousted Federal entity.--Any such 
     service applicant, provider, licensee, or representative 
     shall compensate the Federal entity in advance for relocating 
     through monetary or in-kind payment for the cost of 
     relocating the Federal entity's operations from one or more 
     electromagnetic spectrum frequencies to any other frequency 
     or frequencies, or to any other telecommunications 
     transmission media.
       ``(C) Compensable costs.--Compensation shall include, but 
     not be limited to, the costs of any modification, 
     replacement, or reissuance of equipment, facilities, 
     operating manuals, regulations, or other relocation expenses 
     incurred by that entity.
       ``(D) Disposition of payments.--Payments, other than in-
     kind compensation, pursuant to this section shall be 
     deposited by electronic funds transfer in a separate agency 
     account or accounts which shall be used to pay directly the 
     costs of relocation, to repay or make advances to 
     appropriations or funds which do or will initially bear all 
     or part of such costs, or to refund excess sums when 
     necessary, and shall remain available until expended.
       ``(E) Application to certain other relocations.--The 
     provisions of this paragraph also apply to any Federal entity 
     that operates a Federal Government station assigned to use 
     electromagnetic spectrum identified for reallocation under 
     subsection (a), if before the date of enactment of the 
     Balanced Budget Act of 1997 the Commission has not identified 
     that spectrum for service or assigned licenses or otherwise 
     authorized service for that spectrum.
       ``(2) Petitions for relocation.--Any person seeking to 
     relocate a Federal Government station that has been assigned 
     a frequency within a band allocated for mixed Federal and 
     non-Federal use under this Act shall submit a petition for 
     relocation to NTIA. The NTIA shall limit or terminate the 
     Federal Government station's operating license within 6 
     months after receiving the petition if the following 
     requirements are met:
       ``(A) The proposed relocation is consistent with 
     obligations undertaken by the United States in international 
     agreements and with United States national security and 
     public safety interests.
       ``(B) The person seeking relocation of the Federal 
     Government station has guaranteed to defray entirely, through 
     payment in advance, advance in-kind payment of costs, or a 
     combination of payment in advance and advance in-kind 
     payment, all relocation costs incurred by the Federal entity, 
     including, but not limited to, all engineering, equipment, 
     site acquisition and construction, and regulatory fee costs.
       ``(C) The person seeking relocation completes all 
     activities necessary for implementing the relocation, 
     including construction of replacement facilities (if 
     necessary and appropriate) and identifying and obtaining on 
     the Federal entity's behalf new frequencies for use by the 
     relocated Federal Government station (if the station is not 
     relocating to spectrum reserved exclusively for Federal use).
       ``(D) Any necessary replacement facilities, equipment 
     modifications, or other changes have been implemented and 
     tested by the Federal entity to ensure that the Federal 
     Government station is able to accomplish successfully its 
     purposes including maintaining communication system 
     performance.
       ``(E) The Secretary has determined that the proposed use of 
     any spectrum frequency band to which a Federal entity 
     relocates its operations is suitable for the technical 
     characteristics of the band and consistent with other uses of 
     the band. In exercising authority under this subparagraph, 
     the Secretary shall consult with the Secretary of Defense, 
     the Secretary of State, and other appropriate Federal 
     officials.
       ``(3) Right to reclaim.--If within one year after the 
     relocation of a Federal Government station, the Federal 
     entity affected demonstrates to the Secretary and the 
     Commission that the new facilities or spectrum are not 
     comparable to the facilities or spectrum from which the 
     Federal Government station was relocated, the person who 
     sought the relocation shall take reasonable steps to remedy 
     any defects or pay the Federal entity for the costs of 
     returning the Federal Government station to the 
     electromagnetic spectrum from which the station was 
     relocated.
       ``(h) Federal Action to Expedite Spectrum Transfer.--Any 
     Federal Government station which operates on electromagnetic 
     spectrum that has been identified for reallocation under this 
     Act for mixed Federal and non-Federal use in any reallocation 
     report under subsection (a), to the maximum extent 
     practicable through the use of subsection (g) and any other 
     applicable law, shall take prompt action to make 
     electromagnetic spectrum available for use in a manner that 
     maximizes efficient use of the electromagnetic spectrum.
       ``(i) Federal Spectrum Assignment Responsibility.--This 
     section does not modify NTIA's authority under section 
     103(b)(2)(A) of this Act.
       ``(j) Definitions.--As used in this section--
       ``(1) the term `Federal entity' means any department, 
     agency, or instrumentality of the Federal Government that 
     utilizes a Government station license obtained under section 
     305 of the 1934 Act (47 U.S.C. 305);
       ``(2) the term `digital television services' means 
     television services provided using digital technology to 
     enhance audio quality and video resolution, as further 
     defined in the Memorandum Opinion, Report, and Order of the 
     Commission entitled `Advanced Television Systems and Their 
     Impact Upon the Existing Television Service', MM Docket No. 
     87-268 and any subsequent FCC proceedings dealing with 
     digital television; and
       ``(3) the term `analog television licenses' means licenses 
     issued pursuant to 47 CFR 73.682 et seq.''.
       (2) Section 114(a) of that Act (47 U.S.C. 924(a)) is 
     amended by striking ``(a) or (d)(1)'' and inserting ``(a), 
     (d)(1), or (f)''.
       (e) Identification and Reallocation of Auctionable 
     Frequencies.--
       (1) Second report required.--Section 113(a) of the National 
     Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 923(a)) is amended by inserting 
     ``and within 6 months after the date of enactment of the 
     Balanced Budget Act of 1997'' after ``Act of 1993''.
       (2) In general.--Section 113(b) of the National 
     Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 923(b)) is amended--
       (A) by striking the caption of paragraph (1) and inserting 
     ``Initial reallocation report.--'';
       (B) by inserting ``in the initial report required by 
     subsection (a)'' after ``recommend for reallocation'' in 
     paragraph (1);
       (C) by inserting ``or (3)'' after ``paragraph (1)'' each 
     place it appears in paragraph (2); and
       (D) by adding at the end thereof the following:
       ``(3) Second reallocation report.--The Secretary shall make 
     available for reallocation a total of 20 megahertz in the 
     second report required by subsection (a), for use other than 
     by Federal Government stations under section 305 of the 1934 
     Act (47 U.S.C. 305), that is located below 3 gigahertz and 
     that meets the criteria specified in paragraphs (1) through 
     (5) of subsection (a).''.
       (3) Allocation and assignment.--Section 115 of that Act (47 
     U.S.C. 925) is amended--
       (A) by striking ``the report required by section 113(a)'' 
     in subsection (b) and inserting ``the initial reallocation 
     report required by section 113(a)''; and
       (B) by adding at the end thereof the following:
       ``(c) Allocation and Assignment of Frequencies Identified 
     in the Second Allocation Report.--
       ``(1) Plan.--Within 12 months after it receives a report 
     from the Secretary under section 113(f) of this Act, the 
     Commission shall--
       ``(A) submit a plan, prepared in coordination with the 
     Secretary of Commerce, to the President and to the Senate 
     Committee on Commerce, Science, and Transportation and the 
     House of Representatives Committee on Commerce, for the 
     allocation and assignment under the 1934 Act of frequencies 
     identified in the report; and
       ``(B) implement the plan.
       ``(2) Contents.--The plan prepared by the Commission under 
     paragraph (1) shall consist of a schedule of reallocation and 
     assignment of those frequencies in accordance with section 
     309(j) of the 1934 Act in time for the assignment of those 
     licenses or permits by September 30, 2002.''.

     SEC. 3002. DIGITAL TELEVISION SERVICES.

       Section 309(j) of the Communications Act of 1934 (47 U.S.C. 
     309(j)) is amended by adding at the end thereof the 
     following:
       ``(15) Auction of recaptured broadcast television spectrum 
     and potential digital television license fees.--
       ``(A) Limitations on terms of terrestrial television 
     broadcast licenses.--
       ``(i) A television license that authorizes analog 
     television services may not be renewed to authorize such 
     services for a period that extends beyond December 31, 2006. 
     The Commission shall extend or waive this date for any 
     station in any television market unless 95 percent of the 
     television households have access to digital local television 
     signals, either by direct off-air reception or by other 
     means.
       ``(ii) A commercial digital television license that is 
     issued shall expire on September 30, 2003. A commercial 
     digital television license shall be re-issued only subject to 
     fulfillment of the licensee's obligations under subparagraph 
     (C).
       ``(iii) No later than December 31, 2001, and every 2 years 
     thereafter, the Commission shall report to Congress on the 
     status of digital television conversion in each television 
     market. In preparing this report, the Commission shall 
     consult with other departments and agencies of the Federal 
     Government. The report shall contain the following 
     information:

       ``(I) Actual consumer purchases of analog and digital 
     television receivers, including the price, availability, and 
     use of conversion equipment to allow analog sets to receive a 
     digital signal.
       ``(II) The percentage of television households in each 
     market that has access to digital local television signals as 
     defined in paragraph (a)(1), whether such access is attained 
     by direct off-air reception or by some other means.
       ``(III) The cost to consumers of purchasing digital 
     television receivers (or conversion equipment to prevent 
     obsolescence of existing analog equipment) and other related 
     changes in the marketplace, such as increases in the cost of 
     cable converter boxes.

       ``(B) Spectrum reversion and resale.--
       ``(i) The Commission shall--

       ``(I) ensure that, as analog television licenses expire 
     pursuant to subparagraph (A)(i), each broadcaster shall 
     return electromagnetic spectrum according to the Commission's 
     direction; and

[[Page S6569]]

       ``(II) reclaim and organize the electromagnetic spectrum in 
     a manner to maximize the deployment of new and existing 
     services.

       ``(ii) Licensees for new services occupying electromagnetic 
     spectrum previously used for the broadcast of analog 
     television shall be selected by competitive bidding. The 
     Commission shall start the competitive bidding process by 
     July 1, 2001, with payment pursuant to the competitive 
     bidding rules established by the Commission. The Commission 
     shall report the total revenues from the competitive bidding 
     by January 1, 2002.
       ``(C) Definitions.--As used in this paragraph--
       ``(i) the term `digital television services' means 
     television services provided using digital technology to 
     enhance audio quality and video resolution, as further 
     defined in the Memorandum Opinion, Report, and Order of the 
     Commission entitled `Advanced Television Systems and Their 
     Impact Upon the Existing Television Service', MM Docket No. 
     87-268 and any subsequent Commission proceedings dealing with 
     digital television; and
       ``(ii) the term `analog television licenses' means licenses 
     issued pursuant to 47 CFR 73.682 et seq.''.

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

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

     SEC. 3004. FLEXIBLE USE OF ELECTROMAGNETIC SPECTRUM.

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

     SEC. 3005. RESERVE PRICE.

       In any auction conducted or supervised by the Federal 
     Communications Commission (hereinafter the Commission) for 
     any license, permit or right which has value, a reasonable 
     reserve price shall be set by the Commission for each unit in 
     the auction unless the Commission determines it not to be in 
     the public interest. The reserve price shall establish a 
     minimum bid for the unit to be auctioned. If no bid is 
     received above the reserve price for a unit, the unit shall 
     be retained. The Commission shall re-assess the reserve price 
     for that unit and place the unit in the next scheduled or 
     next appropriate auction.
                 SUBTITLE B--MERCHANT MARINE PROVISIONS

     SEC. 3501. EXTENSION OF VESSEL TONNAGE DUTIES.

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

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

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


                   ``USE OF UNDERUTILIZED FACILITIES

       ``Sec. 168. Notwithstanding section 649(b) of the 
     Department of Energy Organization Act (42 U.S.C. 7259(b)), 
     the Secretary is authorized to store in underutilized 
     Strategic Petroleum Reserve facilities, by lease or 
     otherwise, petroleum product owned by a foreign government or 
     its representative: Provided, That funds resulting from the 
     leasing or other use of a Reserve facility on or after 
     October 1, 2007, shall be available to the Secretary, without 
     further appropriation, for the purchase of petroleum products 
     for the Reserve: Provided further, That petroleum product 
     stored under this section is not part of the Strategic 
     Petroleum Reserve, is not subject to part C of this title, 
     and notwithstanding any provision of this Act, may be 
     exported from the United States.''.
                     TITLE V--COMMITTEE ON FINANCE

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

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

[[Page S6570]]

     (Public Law 101-239), the Omnibus Budget Reconciliation Act 
     of 1990 (Public Law 101-508), and the Omnibus Budget 
     Reconciliation Act of 1993 (Public Law 103-66), respectively.
       (c) Table of Contents.--The table of contents of this title 
     is as follows:

                     TITLE V--COMMITTEE ON FINANCE

Sec. 5000. Amendments to Social Security Act and references to OBRA; 
              table of contents of title.
Sec. 5000A. Extension of moratorium.

                          DIVISION 1--MEDICARE

                  Subtitle A--Medicare Choice Program

                   Chapter 1--Medicare Choice Program


                  SUBCHAPTER A--MEDICARE CHOICE PROGRAM

Sec. 5001. Establishment of Medicare Choice program.

                   ``Part C--Medicare Choice Program

``Sec. 1851. Eligibility, election, and enrollment.
``Sec. 1852. Benefits and beneficiary protections.
``Sec. 1853. Payments to Medicare Choice organizations.
``Sec. 1854. Premiums.
``Sec. 1855. Organizational and financial requirements for Medicare 
              Choice organizations; provider-sponsored organizations.
``Sec. 1856. Establishment of standards.
``Sec. 1857. Contracts with Medicare Choice organizations.
``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 5002. Transitional rules for current medicare HMO program.
Sec. 5003. Conforming changes in Medigap program.


     SUBCHAPTER B--SPECIAL RULES FOR MEDICARE CHOICE MEDICAL SAVINGS 
                                ACCOUNTS

Sec. 5006. Medicare Choice MSA.

             Chapter 2--Integrated Long-term Care Programs


   SUBCHAPTER A--PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)

Sec. 5011. Coverage of PACE under the medicare program.
Sec. 5012. Effective date; transition.
Sec. 5013. Study and reports.


          SUBCHAPTER B--SOCIAL HEALTH MAINTENANCE ORGANIZATIONS

Sec. 5015. Social health maintenance organizations (SHMOs).


                       SUBCHAPTER C--OTHER PROGRAMS

Sec. 5018. Extension of certain medicare community nursing organization 
              demonstration projects.

                         Chapter 3--Commissions

Sec. 5021. National Bipartisan Commission on the Future of Medicare.
Sec. 5022. Medicare Payment Advisory Commission.

                     Chapter 4--Medigap Protections

Sec. 5031. Medigap protections.
Sec. 5032. Addition of high deductible Medigap policy.

                       Chapter 5--Demonstrations


     SUBCHAPTER A--MEDICARE CHOICE COMPETITIVE PRICING DEMONSTRATION 
                                PROJECT

                           Part I--In General

Sec. 5041. Medicare Choice competitive pricing demonstration project.
Sec. 5042. Determination of annual Medicare Choice capitation rates.
Sec. 5043. Benefits and beneficiary premiums.

               Part II--Information and Quality Standards


                          subpart a--information

Sec. 5044. Information requirements.


                subpart b--quality in demonstration plans

Sec. 5044A. Definitions.
Sec. 5044B. Quality Advisory Institute.
Sec. 5044C. Duties of Director.
Sec. 5044D. Compliance.
Sec. 5044E. Payments for value.
Sec. 5044F. Certification requirement.
Sec. 5044G. Licensing of certification entities.
Sec. 5044H. Certification criteria.
Sec. 5044I. Grievance and appeals.


                       SUBCHAPTER B--OTHER PROJECTS

Sec. 5045. Medicare enrollment demonstration project.
Sec. 5046. Medicare coordinated care demonstration project.
Sec. 5047. Establishment of medicare reimbursement demonstration 
              projects.

    Chapter 6--Tax Treatment of Hospitals Participating in Provider-
                        sponsored Organizations

Sec. 5049. Tax treatment of hospitals which participate in provider-
              sponsored organizations.

                   Subtitle B--Prevention Initiatives

Sec. 5101. Annual screening mammography for women over age 39.
Sec. 5102. Coverage of colorectal screening.
Sec. 5103. Diabetes screening tests.
Sec. 5104. Coverage of bone mass measurements.
Sec. 5105. Study on medical nutrition therapy services.

                     Subtitle C--Rural Initiatives

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

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

         Chapter 1--Revisions to Sanctions for Fraud and Abuse

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

        Chapter 2--Improvements in Protecting Program Integrity

Sec. 5211. Disclosure of information, surety bonds, and accreditation.
Sec. 5212. Provision of certain identification numbers.
Sec. 5213. Application of certain provisions of the bankruptcy code.
Sec. 5214. Replacement of reasonable charge methodology by fee 
              schedules.
Sec. 5215. Application of inherent reasonableness to all part B 
              services other than physicians' services.
Sec. 5216. Requirement to furnish diagnostic information.
Sec. 5217. Report by GAO on operation of fraud and abuse control 
              program.
Sec. 5218. Competitive bidding.
Sec. 5219. Improving information to medicare beneficiaries.
Sec. 5220. Prohibiting unnecessary and wasteful medicare payments for 
              certain items.
Sec. 5221. Reducing excessive billings and utilization for certain 
              items.
Sec. 5222. Improving information to medicare beneficiaries.
Sec. 5223. Prohibiting unnecessary and wasteful medicare payments for 
              certain items.
Sec. 5224. Reducing excessive billings and utilization for certain 
              items.
Sec. 5225. Improved carrier authority to reduce excessive medicare 
              payments.
Sec. 5226. Itemization of surgical dressing bills submitted by home 
              health agencies.

            Chapter 3--Clarifications and Technical Changes

Sec. 5231. Other fraud and abuse related provisions.

                Subtitle E--Prospective Payment Systems

                Chapter 1--Provisions Relating to Part A

Sec. 5301. Prospective payment for inpatient rehabilitation hospital 
              services.
Sec. 5302. Study and report on payments for long-term care hospitals.

                Chapter 2--Provisions Relating to Part B


    SUBCHAPTER A--PAYMENT FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES

Sec. 5311. Elimination of formula-driven overpayments (FDO) for certain 
              outpatient hospital services.
Sec. 5312. Extension of reductions in payments for costs of hospital 
              outpatient services.
Sec. 5313. Prospective payment system for hospital outpatient 
              department services.


                     SUBCHAPTER B--AMBULANCE SERVICES

Sec. 5321. Payments for ambulance services.

            Chapter 3--Provisions Relating to Parts A and B


           SUBCHAPTER A--PAYMENTS TO SKILLED NURSING FACILITIES

Sec. 5331. Extension of cost limits.
Sec. 5332. Prospective payment for skilled nursing facility services.


             SUBCHAPTER B--HOME HEALTH SERVICES AND BENEFITS

               Part I--Payments for Home Health Services

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

                     Part II--Home Health Benefits

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

               Subtitle F--Provisions Relating to Part A

                  Chapter 1--Payment of PPS Hospitals

Sec. 5401. PPS hospital payment update.
Sec. 5402. Capital payments for PPS hospitals.

               Chapter 2--Payment of PPS Exempt Hospitals

Sec. 5421. Payment update.
Sec. 5422. Reductions to capital payments for certain PPS-exempt 
              hospitals and units.
Sec. 5423. Cap on TEFRA limits.
Sec. 5424. Change in bonus and relief payments.
Sec. 5425. Target amounts for rehabilitation hospitals, long-term care 
              hospitals, and psychiatric hospitals.
Sec. 5426. Treatment of certain long-term care hospitals located within 
              other hospitals.
Sec. 5426A. Rebasing.
Sec. 5427. Elimination of exemptions; report on exceptions and 
              adjustments.

[[Page S6571]]

Sec. 5428. Technical correction relating to subsection (d) hospitals.
Sec. 5429. Certain cancer hospitals.

             Chapter 3--Graduate Medical Education Payments


                  SUBCHAPTER A--DIRECT MEDICAL EDUCATION

Sec. 5441. Limitation on number of residents and rolling average FTE 
              count.
Sec. 5442. Permitting payment to nonhospital providers.
Sec. 5443. Medicare special reimbursement rule for primary care 
              combined residency programs.


                 SUBCHAPTER B--INDIRECT MEDICAL EDUCATION

Sec. 5446. Indirect graduate medical education payments.


   SUBCHAPTER C--GRADUATE MEDICAL EDUCATION PAYMENTS FOR MANAGED CARE 
                               ENROLLEES

Sec. 5451. Direct and indirect medical education payments to hospitals 
              for managed care enrollees.
Sec. 5452. Demonstration project on use of consortia.

                   Chapter 4--Other Hospital Payments

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

                Chapter 5--Payments for Hospice Services

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

             Subtitle G--Provisions Relating to Part B Only

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

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

                  Chapter 2--Other Payment Provisions

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

            Chapter 3--Part B Premium and Related Provisions

Sec. 5541. Part B premium.
Sec. 5542. Income-related reduction in medicare subsidy.
Sec. 5543. Demonstration project on income-related part B deductible.
Sec. 5544. Low-income medicare beneficiary block grant program.

            Subtitle H--Provisions Relating to Parts A and B

                 Chapter 1--Secondary Payor Provisions

Sec. 5601. Extension and expansion of existing requirements.
Sec. 5602. Improvements in recovery of payments.

                      Chapter 2--Other Provisions

Sec. 5611. Conforming age for eligibility under medicare to retirement 
              age for social security benefits.
Sec. 5612. Increased certification period for certain organ procurement 
              organizations.
Sec. 5613. Facilitating the use of private contracts under the medicare 
              program.

                  Subtitle I--Miscellaneous Provisions

Sec. 5651. Inclusion of Stanly County, N.C. in a large urban area under 
              medicare program.
Sec. 5652. Medicare anti-duplication provision.

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

                          Subtitle I--Medicaid

                      Chapter 1--Medicaid Savings


                    SUBCHAPTER A--MANAGED CARE REFORMS

Sec. 5701. State option for mandatory managed care.

             ``Part B--Provisions Relating to Managed Care

``Sec. 1941. Beneficiary choice; enrollment.
``Sec. 1942. Beneficiary access to services generally.
``Sec. 1943. Requirements for access to emergency care.
``Sec. 1944. Other beneficiary protections.
``Sec. 1945. Assuring quality care.
``Sec. 1946. Protections for providers.
``Sec. 1947. Assuring adequacy of payments to medicaid managed care 
              organizations and entities.
``Sec. 1948. Fraud and abuse.
``Sec. 1949. Sanctions for noncompliance by managed care entities.
``Sec. 1950. Definitions; miscellaneous provisions.''.
Sec. 5702. Primary care case management services as State option 
              without need for waiver.
Sec. 5703. Additional reforms to expand and simplify managed care.


               SUBCHAPTER B--MANAGEMENT FLEXIBILITY REFORMS

Sec. 5711. Elimination of Boren amendment requirements for provider 
              payment rates.
Sec. 5712. Medicaid payment rates for qualified medicare beneficiaries.


    SUBCHAPTER C--REDUCTION OF DISPROPORTIONATE SHARE HOSPITAL (DSH) 
                                PAYMENTS

Sec. 5721. Disproportionate share hospital (DSH) payments.

              Chapter 2--Expansion of Medicaid Eligibility

Sec. 5731. State option to permit workers with disabilities to buy into 
              medicaid.
Sec. 5732. 12-month continuous eligibility for children.

    Chapter 3--Programs of All-Inclusive Care for the Elderly (PACE)

Sec. 5741. Establishment of PACE program as medicaid State option.
Sec. 5742. Effective date; transition.
Sec. 5743. Study and reports.

           Chapter 4--Medicaid Management and Program Reforms

Sec. 5751. Elimination of requirement to pay for private insurance.
Sec. 5752. Elimination of obstetrical and pediatric payment rate 
              requirements.
Sec. 5753. Physician qualification requirements.
Sec. 5754. Expanded cost-sharing requirements.
Sec. 5755. Penalty for fraudulent eligibility.
Sec. 5756. Elimination of waste, fraud, and abuse.
Sec. 5757. Study on EPSDT benefits.
Sec. 5758. Study and guidelines regarding managed care organizations 
              and individuals with special health care needs.

                        Chapter 5--Miscellaneous

Sec. 5761. Increased FMAPs.
Sec. 5762. Increase in payment caps for territories.
Sec. 5763. Community-based mental health services.
Sec. 5764. Optional medicaid coverage of certain CDC-screened breast 
              cancer patients.
Sec. 5765. Treatment of State taxes imposed on certain hospitals that 
              provide free care.
Sec. 5766. Treatment of veterans pensions under medicaid.
Sec. 5767. Removal of name from nurse aide registry.
Sec. 5768. Waiver of certain provider tax provisions.
Sec. 5769. Continuation of State-wide section 1115 medicaid waivers.
Sec. 5770. Effective date.

          Subtitle J--Children's Health Insurance Initiatives

Sec. 5801. Establishment of children's health insurance initiatives.

            ``TITLE XXI--CHILD HEALTH INSURANCE INITIATIVES

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

            DIVISION 3--INCOME SECURITY AND OTHER PROVISIONS

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

                       Chapter 1--Income Security

Sec. 5811. SSI eligibility for aliens receiving SSI on August 22, 1996.
Sec. 5812. Extension of eligibility period for refugees and certain 
              other qualified aliens from 5 to 7 years for SSI and 
              medicaid.
Sec. 5813. Exceptions for certain Indians from limitation on 
              eligibility for supplemental security income and medicaid 
              benefits.

[[Page S6572]]

Sec. 5814. SSI eligibility for disabled legal aliens in the United 
              States on August 22, 1996.
Sec. 5815. Exemption from restriction on supplemental security income 
              program participation by certain recipients eligible on 
              the basis of very old applications.
Sec. 5816. Reinstatement of eligibility for benefits.
Sec. 5817. Exemption for children who are legal aliens from 5-year ban 
              on medicaid eligibility.
Sec. 5818. Treatment of certain Amerasian immigrants as refugees.
Sec. 5819. SSI eligibility for severely disabled aliens.
Sec. 5820. Effective date.

                Chapter 2--Welfare-to-Work Grant Program

Sec. 5821. Welfare-to-work grants.
Sec. 5822. Clarification of a State's ability to sanction an individual 
              receiving assistance under TANF for noncompliance.

                  Chapter 3--Unemployment Compensation

Sec. 5831. Increase in Federal unemployment account ceiling.
Sec. 5832. Special distribution to States from unemployment trust fund.
Sec. 5833. Treatment of certain services performed by inmates.

         DIVISION 4--EARNED INCOME CREDIT AND OTHER PROVISIONS

         Subtitle L--Earned Income Credit and Other Provisions

                    Chapter 1--Earned Income Credit

Sec. 5851. Restrictions on availability of earned income credit for 
              taxpayers who improperly claimed credit in prior year.

                Chapter 2--Increase in Public Debt Limit

Sec. 5861. Increase in public debt limit.

                        Chapter 3--Miscellaneous

Sec. 5871. Sense of the Senate regarding the correction of cost-of-
              living adjustments.

            Subtitle M--Welfare Reform Technical Corrections

Sec. 5900. Short title of subtitle.

   Chapter 1--Block Grants for Temporary Assistance to Needy Families

Sec. 5901. Amendment of the Social Security Act.
Sec. 5902. Eligible States; State plan.
Sec. 5903. Grants to States.
Sec. 5904. Use of grants.
Sec. 5905. Mandatory work requirements.
Sec. 5906. Prohibitions; requirements.
Sec. 5907. Penalties.
Sec. 5908. Data collection and reporting.
Sec. 5909. Direct funding and administration by Indian tribes.
Sec. 5910. Research, evaluations, and national studies.
Sec. 5911. Report on data processing.
Sec. 5912. Study on alternative outcomes measures.
Sec. 5913. Limitation on payments to the territories.
Sec. 5914. Conforming amendments to the Social Security Act.
Sec. 5915. Other conforming amendments.
Sec. 5916. Modifications to the job opportunities for certain low-
              income individuals program.
Sec. 5917. Denial of assistance and benefits for drug-related 
              convictions.
Sec. 5918. Transition rule.
Sec. 5919. Protecting victims of family violence.
Sec. 5920. Effective dates.

                Chapter 2--Supplemental Security Income

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

                        Chapter 3--Child Support

Sec. 5935. State obligation to provide child support enforcement 
              services.
Sec. 5936. Distribution of collected support.
Sec. 5937. Civil penalties relating to State directory of new hires.
Sec. 5938. Federal Parent Locator Service.
Sec. 5939. Access to registry data for research purposes.
Sec. 5940. Collection and use of social security numbers for use in 
              child support enforcement.
Sec. 5941. Adoption of uniform State laws.
Sec. 5942. State laws providing expedited procedures.
Sec. 5943. Voluntary paternity acknowledgement.
Sec. 5944. Calculation of paternity establishment percentage.
Sec. 5945. Means available for provision of technical assistance and 
              operation of Federal Parent Locator Service.
Sec. 5946. Authority to collect support from Federal employees.
Sec. 5947. Definition of support order.
Sec. 5948. State law authorizing suspension of licenses.
Sec. 5949. International support enforcement.
Sec. 5950. Child support enforcement for Indian tribes.
Sec. 5951. Continuation of rules for distribution of support in the 
              case of a title IV-E child.
Sec. 5952. Good cause in foster care and food stamp cases.
Sec. 5953. Date of collection of support.
Sec. 5954. Administrative enforcement in interstate cases.
Sec. 5955. Work orders for arrearages.
Sec. 5956. Additional technical State plan amendments.
Sec. 5957. Federal case registry of child support orders.
Sec. 5958. Full faith and credit for child support orders.
Sec. 5959. Development costs of automated systems.
Sec. 5960. Additional technical amendments.
Sec. 5961. Effective date.

     Chapter 4--Restricting Welfare and Public Benefits for Aliens


              SUBCHAPTER A--ELIGIBILITY FOR FEDERAL BENEFITS

Sec. 5965. Alien eligibility for Federal benefits: Limited application 
              to medicare and benefits under the Railroad Retirement 
              Act.
Sec. 5966. Exceptions to benefit limitations: Corrections to reference 
              concerning aliens whose deportation is withheld.
Sec. 5967. Veterans exception: Application of minimum active duty 
              service requirement; extension to unremarried surviving 
              spouse; expanded definition of veteran.
Sec. 5968. Correction of reference concerning Cuban and Haitian 
              entrants.
Sec. 5969. Notification concerning aliens not lawfully present: 
              Correction of terminology.
Sec. 5970. Freely associated States: Contracts and licenses.
Sec. 5971. Congressional statement regarding benefits for Hmong and 
              other Highland Lao veterans.


                     SUBCHAPTER B--GENERAL PROVISIONS

Sec. 5972. Determination of treatment of battered aliens as qualified 
              aliens; inclusion of alien child of battered parent as 
              qualified alien.
Sec. 5973. Verification of eligibility for benefits.
Sec. 5974. Qualifying quarters: Disclosure of quarters of coverage 
              information; correction to assure that crediting applies 
              to all quarters earned by parents before child is 18.
Sec. 5975. Statutory construction: Benefit eligibility limitations 
              applicable only with respect to aliens present in the 
              United States.


     SUBCHAPTER C--MISCELLANEOUS CLERICAL AND TECHNICAL AMENDMENTS; 
                             EFFECTIVE DATE

Sec. 5976. Correcting miscellaneous clerical and technical errors.
Sec. 5977. Effective date.

                      Chapter 5--Child Protection

Sec. 5981. Conforming and technical amendments relating to child 
              protection.
Sec. 5982. Additional technical amendments relating to child 
              protection.
Sec. 5983. Effective date.

                         Chapter 6--Child Care

Sec. 5985. Conforming and technical amendments relating to child care.
Sec. 5986. Additional conforming and technical amendments.
Sec. 5987. Effective dates.

  Chapter 7--ERISA Amendments Relating to Medical Child Support Orders

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

     SEC. 5000A. EXTENSION OF MORATORIUM.

       Section 6408(a)(3) of the Omnibus Budget Reconciliation Act 
     of 1989, as amended by section 13642 of the Omnibus Budget 
     Reconciliation Act of 1993 is amended by striking ``December 
     31, 1995'' and inserting ``December 31, 2002''.
                          DIVISION 1--MEDICARE
                  Subtitle A--Medicare Choice Program

                   CHAPTER 1--MEDICARE CHOICE PROGRAM

                 Subchapter A--Medicare Choice Program

     SEC. 5001. ESTABLISHMENT OF MEDICARE CHOICE PROGRAM.

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

                   ``Part C--Medicare Choice Program


                ``eligibility, election, and enrollment

       ``Sec. 1851. (a) Choice of Medicare Benefits Through 
     Medicare Choice Plans.--
       ``(1) In general.--Subject to the provisions of this 
     section, each Medicare Choice eligible individual (as defined 
     in paragraph (3)) is entitled to elect to receive benefits 
     under this title--
       ``(A) through the traditional medicare fee-for-service 
     program under parts A and B, or
       ``(B) through enrollment in a Medicare Choice plan under 
     this part.
       ``(2) Types of medicare choice plans that may be 
     available.--A Medicare Choice plan may be any of the 
     following types of plans of health insurance:
       ``(A) Fee-for-service plans.--A plan that reimburses 
     hospitals, physicians, and other providers on the basis of a 
     privately determined fee schedule or other basis.
       ``(B) Plans offered by preferred provider organizations.--A 
     Medicare Choice plan offered by a preferred provider 
     organization.
       ``(C) Point of service plans.--A point of service plan.
       ``(D) Plans offered by provider-sponsored organization.--A 
     Medicare Choice plan offered by a provider-sponsored 
     organization, as defined in section 1855(e).

[[Page S6573]]

       ``(E) Plans offered by health maintenance organizations.--A 
     Medicare Choice plan offered by a health maintenance 
     organization.
       ``(F) Combination of msa plan and contributions to medicare 
     choice msa.--An MSA plan, as defined in section 1859(b)(3), 
     and a contribution into a Medicare Choice medical savings 
     account (MSA).
       ``(G) Other health care plans.--Any other private plan for 
     the delivery of health care items and services that is not 
     described in a preceding subparagraph.
       ``(3) Medicare choice eligible individual.--
       ``(A) In general.--In this title, subject to subparagraph 
     (B), the term `Medicare Choice eligible individual' means an 
     individual who is entitled to benefits under part A and 
     enrolled under part B.
       ``(B) Special rule for end-stage renal disease.--Such term 
     shall not include an individual medically determined to have 
     end-stage renal disease, except that an individual who 
     develops end-stage renal disease while enrolled in a Medicare 
     Choice plan may continue to be enrolled in that plan.
       ``(b) Special Rules.--
       ``(1) Residence requirement.--
       ``(A) In general.--Except as the Secretary may otherwise 
     provide, an individual is eligible to elect a Medicare Choice 
     plan offered by a Medicare Choice organization only if the 
     plan serves the geographic area in which the individual 
     resides.
       ``(B) Continuation of enrollment permitted.--Pursuant to 
     rules specified by the Secretary, the Secretary shall provide 
     that an individual may continue enrollment in a plan, 
     notwithstanding that the individual no longer resides in the 
     service area of the plan, so long as the plan provides 
     benefits for enrollees located in the area in which the 
     individual resides.
       ``(2) Special rule for certain individuals covered under 
     fehbp or eligible for veterans or military health benefits, 
     veterans.--
       ``(A) FEHBP.--An individual who is enrolled in a health 
     benefit plan under chapter 89 of title 5, United States Code, 
     is not eligible to enroll in an MSA plan until such time as 
     the Director of the Office of Management and Budget certifies 
     to the Secretary that the Office of Personnel Management has 
     adopted policies which will ensure that the enrollment of 
     such individuals in such plans will not result in increased 
     expenditures for the Federal Government for health benefit 
     plans under such chapter.
       ``(B) VA and dod.--The Secretary may apply rules similar to 
     the rules described in subparagraph (A) in the case of 
     individuals who are eligible for health care benefits under 
     chapter 55 of title 10, United States Code, or under chapter 
     17 of title 38 of such Code.
       ``(3) Limitation on eligibility of qualified medicare 
     beneficiaries and other medicaid beneficiaries to enroll in 
     an msa plan.--An individual who is a qualified medicare 
     beneficiary (as defined in section 1905(p)(1)), a qualified 
     disabled and working individual (described in section 
     1905(s)), an individual described in section 
     1902(a)(10)(E)(iii), or otherwise entitled to medicare cost-
     sharing under a State plan under title XIX is not eligible to 
     enroll in an MSA plan.
       ``(4) Coverage under msa plans on a demonstration basis.--
       ``(A) In general.--An individual is not eligible to enroll 
     in an MSA plan under this part--
       ``(i) on or after January 1, 2003, unless the enrollment is 
     the continuation of such an enrollment in effect as of such 
     date; or
       ``(ii) as of any date if the number of such individuals so 
     enrolled as of such date has reached 100,000.
     Under rules established by the Secretary, an individual is 
     not eligible to enroll (or continue enrollment) in an MSA 
     plan for a year unless the individual provides assurances 
     satisfactory to the Secretary that the individual will reside 
     in the United States for at least 183 days during the year.
       ``(B) Evaluation.--The Secretary shall regularly evaluate 
     the impact of permitting enrollment in MSA plans under this 
     part on selection (including adverse selection), use of 
     preventive care, access to care, and the financial status of 
     the Trust Funds under this title.
       ``(C) Reports.--The Secretary shall submit to Congress 
     periodic reports on the numbers of individuals enrolled in 
     such plans and on the evaluation being conducted under 
     subparagraph (B). The Secretary shall submit such a report, 
     by not later than March 1, 2002, on whether the time 
     limitation under subparagraph (A)(i) should be extended or 
     removed and whether to change the numerical limitation under 
     subparagraph (A)(ii).
       ``(c) Process for Exercising Choice.--
       ``(1) In general.--The Secretary shall establish a process 
     through which elections described in subsection (a) are made 
     and changed, including the form and manner in which such 
     elections are made and changed. Such elections shall be made 
     or changed as provided in subsection (e) and shall become 
     effective as provided in subsection (f).
       ``(2) Coordination through medicare choice organizations.--
       ``(A) Enrollment.--Such process shall permit an individual 
     who wishes to elect a Medicare Choice plan offered by a 
     Medicare Choice organization to make such election through 
     the filing of an appropriate election form with the 
     organization.
       ``(B) Disenrollment.--Such process shall permit an 
     individual, who has elected a Medicare Choice plan offered by 
     a Medicare Choice organization and who wishes to terminate 
     such election, to terminate such election through the filing 
     of an appropriate election form with the organization.
       ``(3) Default.--
       ``(A) Initial election.--
       ``(i) In general.--Subject to clause (ii), an individual 
     who fails to make an election during an initial election 
     period under subsection (e)(1) is deemed to have chosen the 
     traditional medicare fee-for-service program option.
       ``(ii) Seamless continuation of coverage.--The Secretary 
     may establish procedures under which an individual who is 
     enrolled in a health plan (other than Medicare Choice plan) 
     offered by a Medicare Choice organization at the time of the 
     initial election period and who fails to elect to receive 
     coverage other than through the organization is deemed to 
     have elected the Medicare Choice plan offered by the 
     organization (or, if the organization offers more than one 
     such plan, such plan or plans as the Secretary identifies 
     under such procedures).
       ``(B) Continuing periods.--An individual who has made (or 
     is deemed to have made) an election under this section is 
     considered to have continued to make such election until such 
     time as--
       ``(i) the individual changes the election under this 
     section, or
       ``(ii) the Medicare Choice plan with respect to which such 
     election is in effect is discontinued.
       ``(d) Providing Information To Promote Informed Choice.--
       ``(1) In general.--The Secretary shall provide for 
     activities under this subsection to broadly disseminate 
     information to medicare beneficiaries (and prospective 
     medicare beneficiaries) on the coverage options provided 
     under this section in order to promote an active, informed 
     selection among such options.
       ``(2) Provision of notice.--
       ``(A) Open season notification.--At least 15 days before 
     the beginning of each annual, coordinated election period (as 
     defined in subsection (e)(3)(B)), the Secretary shall mail to 
     each Medicare Choice eligible individual residing in an area 
     the following:
       ``(i) General information.--The general information 
     described in paragraph (3).
       ``(ii) List of plans and comparison of plan options.--A 
     list identifying the Medicare Choice plans that are (or will 
     be) available to residents of the area and information 
     described in paragraph (4) concerning such plans. Such 
     information shall be presented in a comparative, chart-like 
     form.
       ``(iii) Additional information.--Any other information that 
     the Secretary determines will assist the individual in making 
     the election under this section.
     The mailing of such information shall be coordinated with the 
     mailing of any annual notice under section 1804.
       ``(B) Notification to newly medicare choice eligible 
     individuals.--To the extent practicable, the Secretary shall, 
     not later than 30 days before the beginning of the initial 
     Medicare Choice enrollment period for an individual described 
     in subsection (e)(1)(A), mail to the individual the 
     information described in subparagraph (A).
       ``(C) Form.--The information disseminated under this 
     paragraph shall be written and formatted using language that 
     is easily understandable by medicare beneficiaries.
       ``(D) Periodic updating.--The information described in 
     subparagraph (A) shall be updated on at least an annual basis 
     to reflect changes in the availability of Medicare Choice 
     plans and the benefits and net monthly premiums for such 
     plans.
       ``(3) General information.--General information under this 
     paragraph, with respect to coverage under this part during a 
     year, shall include the following:
       ``(A) Benefits under traditional medicare fee-for-service 
     program option.--A general description of the benefits 
     covered under the traditional medicare fee-for-service 
     program under parts A and B, including--
       ``(i) covered items and services,
       ``(ii) beneficiary cost sharing, such as deductibles, 
     coinsurance, and copayment amounts, and
       ``(iii) any beneficiary liability for balance billing.
       ``(B) Part b premium.--The part B premium rates that will 
     be charged for part B coverage.
       ``(C) Election procedures.--Information and instructions on 
     how to exercise election options under this section.
       ``(D) Rights.--A general description of procedural rights 
     (including grievance and appeals procedures) of beneficiaries 
     under the traditional medicare fee-for-service program and 
     the Medicare Choice program and the right to be protected 
     against discrimination based on health status-related factors 
     under section 1852(b).
       ``(E) Information on medigap and medicare select.--A 
     general description of the benefits, enrollment rights, and 
     other requirements applicable to medicare supplemental 
     policies under section 1882 and provisions relating to 
     medicare select policies described in section 1882(t).
       ``(F) Potential for contract termination.--The fact that a 
     Medicare Choice organization may terminate or refuse to renew 
     its contract under this part and the effect the termination 
     or nonrenewal of its contract may have on individuals 
     enrolled with the Medicare Choice plan under this part.
       ``(4) Information comparing plan options.--Information 
     under this paragraph, with respect to a Medicare Choice plan 
     for a year, shall include the following:
       ``(A) Benefits.--The benefits covered under the plan, 
     including--
       ``(i) covered items and services beyond those provided 
     under the traditional medicare fee-for-service program,
       ``(ii) any beneficiary cost sharing,
       ``(iii) any maximum limitations on out-of-pocket expenses, 
     and
       ``(iv) in the case of an MSA plan, differences in cost 
     sharing and balance billing under such a plan compared to 
     under other Medicare Choice plans.
       ``(B) Premiums.--The net monthly premium, if any, for the 
     plan.

[[Page S6574]]

       ``(C) Service area.--The service area of the plan.
       ``(D) Quality and performance.--To the extent available, 
     plan quality and performance indicators for the benefits 
     under the plan (and how they compare to such indicators under 
     the traditional medicare fee-for-service program under parts 
     A and B in the area involved), including--
       ``(i) disenrollment rates for medicare enrollees electing 
     to receive benefits through the plan for the previous 2 years 
     (excluding disenrollment due to death or moving outside the 
     plan's service area),
       ``(ii) information on medicare enrollee satisfaction,
       ``(iii) information on health outcomes,
       ``(iv) the extent to which a medicare enrollee may select 
     the health care provider of their choice, including health 
     care providers within the plan's network and out-of-network 
     health care providers (if the plan covers out-of-network 
     items and services), and
       ``(v) an indication of medicare enrollee exposure to 
     balance billing and the restrictions on coverage of items and 
     services provided to such enrollee by an out-of-network 
     health care provider.
       ``(E) Supplemental benefits options.--Whether the 
     organization offering the plan offers optional supplemental 
     benefits and the terms and conditions (including premiums) 
     for such coverage.
       ``(F) Physician compensation.--An overall summary 
     description as to the method of compensation of participating 
     physicians.
       ``(5) Maintaining a toll-free number and internet site.--
     The Secretary shall maintain a toll-free number for inquiries 
     regarding Medicare Choice options and the operation of this 
     part in all areas in which Medicare Choice plans are offered 
     and an Internet site through which individuals may 
     electronically obtain information on such options and 
     Medicare Choice plans.
       ``(6) Use of non-federal entities.--The Secretary may enter 
     into contracts with non-Federal entities to carry out 
     activities under this subsection.
       ``(7) Provision of information.--A Medicare Choice 
     organization shall provide the Secretary with such 
     information on the organization and each Medicare Choice plan 
     it offers as may be required for the preparation of the 
     information referred to in paragraph (2)(A).
       ``(8) Coordination with states.--The Secretary shall 
     coordinate with States to the maximum extent feasible in 
     developing and distributing information provided to 
     beneficiaries.
       ``(e) Coverage Election Periods.--
       ``(1) Initial choice upon eligibility to make election if 
     medicare choice plans available to individual.--If, at the 
     time an individual first becomes entitled to benefits under 
     part A and enrolled under part B, there is one or more 
     Medicare Choice plans offered in the area in which the 
     individual resides, the individual shall make the election 
     under this section during a period specified by the Secretary 
     such that if the individual elects a Medicare Choice plan 
     during the period, coverage under the plan becomes effective 
     as of the first date on which the individual may receive such 
     coverage.
       ``(2) Open enrollment and disenrollment opportunities.--
     Subject to paragraph (5), a Medicare Choice eligible 
     individual may change the election under subsection (a)(1) at 
     any time, except that such individual may only enroll in a 
     Medicare Choice plan which has an open enrollment period in 
     effect at that time.
       ``(3) Annual, coordinated election period.--
       ``(A) In general.--Subject to paragraph (5), a Medicare 
     Choice eligible individual may change an election under 
     subsection (a)(1) during an annual, coordinated election 
     period.
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means, with respect to a calendar year (beginning with 1998), 
     the month of November before such year.
       ``(C) Medicare choice health information fairs.--In the 
     month of November of each year (beginning with 1997), the 
     Secretary shall provide for a nationally coordinated 
     educational and publicity campaign to inform Medicare Choice 
     eligible individuals about Medicare Choice plans and the 
     election process provided under this section.
       ``(4) Special election periods.--A Medicare Choice 
     individual may make a new election under this section if--
       ``(A) the organization's or plan's certification under this 
     part has been terminated or the organization has terminated 
     or otherwise discontinued providing the plan;
       ``(B) the individual is no longer eligible to elect the 
     plan because of a change in the individual's place of 
     residence or other change in circumstances (specified by the 
     Secretary, but not including termination of the individual's 
     enrollment on the basis described in clause (i) or (ii) 
     subsection (g)(3)(B));
       ``(C) the individual demonstrates (in accordance with 
     guidelines established by the Secretary) that--
       ``(i) the organization offering the plan substantially 
     violated a material provision of the organization's contract 
     under this part in relation to the individual (including the 
     failure to provide an enrollee on a timely basis medically 
     necessary care for which benefits are available under the 
     plan or the failure to provide such covered care in 
     accordance with applicable quality standards); or
       ``(ii) the organization (or an agent or other entity acting 
     on the organization's behalf) materially misrepresented the 
     plan's provisions in marketing the plan to the individual; or
       ``(D) the individual meets such other exceptional 
     conditions as the Secretary may provide.
       ``(5) Special rules for msa plans.--Notwithstanding the 
     preceding provisions of this subsection, an individual--
       ``(A) may elect an MSA plan only during--
       ``(i) an initial open enrollment period described in 
     paragraph (1), or
       ``(ii) an annual, coordinated election period described in 
     paragraph (3)(B), and
       ``(B) may not discontinue an election of an MSA plan except 
     during the periods described in subparagraph (A) and under 
     paragraph (4).
       ``(6) Open enrollment periods.--A Medicare Choice 
     organization--
       ``(A) shall accept elections or changes to elections 
     described in paragraphs (1), (3), and (4) during the periods 
     prescribed in such paragraphs, and
       ``(B) may accept other changes to elections at such other 
     times as the organization provides.
       ``(f) Effectiveness of Elections and Changes of 
     Elections.--
       ``(1) During initial coverage election period.--An election 
     of coverage made during the initial coverage election period 
     under subsection (e)(1)(A) shall take effect upon the date 
     the individual becomes entitled to benefits under part A and 
     enrolled under part B, except as the Secretary may provide 
     (consistent with section 1838) in order to prevent 
     retroactive coverage.
       ``(2) During continuous open enrollment periods.--An 
     election or change of coverage made under subsection (e)(2) 
     shall take effect with the first day of the first calendar 
     month following the date on which the election is made.
       ``(3) Annual, coordinated election period.--An election or 
     change of coverage made during an annual, coordinated 
     election period (as defined in subsection (e)(3)(B)) in a 
     year shall take effect as of the first day of the following 
     year unless the individual elects to have it take effect on 
     December 1 of the election year.
       ``(4) Other periods.--An election or change of coverage 
     made during any other period under subsection (e)(4) shall 
     take effect in such manner as the Secretary provides in a 
     manner consistent (to the extent practicable) with protecting 
     continuity of health benefit coverage.
       ``(g) Guaranteed Issue and Renewal.--
       ``(1) In general.--Except as provided in this subsection, a 
     Medicare Choice organization shall provide that at any time 
     during which elections are accepted under this section with 
     respect to a Medicare Choice plan offered by the 
     organization, the organization will accept without 
     restrictions individuals who are eligible to make such 
     election.
       ``(2) Priority.--If the Secretary determines that a 
     Medicare Choice organization, in relation to a Medicare 
     Choice plan it offers, has a capacity limit and the number of 
     Medicare Choice eligible individuals who elect the plan under 
     this section exceeds the capacity limit, the organization may 
     limit the election of individuals of the plan under this 
     section but only if priority in election is provided--
       ``(A) first to such individuals as have elected the plan at 
     the time of the determination, and
       ``(B) then to other such individuals in such a manner that 
     does not discriminate, on a basis described in section 
     1852(b), among the individuals (who seek to elect the plan).
     The preceding sentence shall not apply if it would result in 
     the enrollment of enrollees substantially nonrepresentative, 
     as determined in accordance with regulations of the 
     Secretary, of the medicare population in the service area of 
     the plan.
       ``(3) Limitation on termination of election.--
       ``(A) In general.--Subject to subparagraph (B), a Medicare 
     Choice organization may not for any reason terminate the 
     election of any individual under this section for a Medicare 
     Choice plan it offers.
       ``(B) Basis for termination of election.--A Medicare Choice 
     organization may terminate an individual's election under 
     this section with respect to a Medicare Choice plan it offers 
     if--
       ``(i) any net monthly premiums required with respect to 
     such plan are not paid on a timely basis (consistent with 
     standards under section 1856 that provide for a grace period 
     for late payment of net monthly premiums),
       ``(ii) the individual has engaged in disruptive behavior 
     (as specified in such standards), or
       ``(iii) the plan is terminated with respect to all 
     individuals under this part in the area in which the 
     individual resides.
       ``(C) Consequence of termination.--
       ``(i) Terminations for cause.--Any individual whose 
     election is terminated under clause (i) or (ii) of 
     subparagraph (B) is deemed to have elected the traditional 
     medicare fee-for-service program option described in 
     subsection (a)(1)(A).
       ``(ii) Termination based on plan termination or service 
     area reduction.--Any individual whose election is terminated 
     under subparagraph (B)(iii) shall have a special election 
     period under subsection (e)(4)(A) in which to change coverage 
     to coverage under another Medicare Choice plan. Such an 
     individual who fails to make an election during such period 
     is deemed to have chosen to change coverage to the 
     traditional medicare fee-for-service program option described 
     in subsection (a)(1)(A).
       ``(D) Organization obligation with respect to election 
     forms.--Pursuant to a contract under section 1857, each 
     Medicare Choice organization receiving an election form under 
     subsection (c)(3) shall transmit to the Secretary (at such 
     time and in such manner as the Secretary may specify) a copy 
     of such form or such other information respecting the 
     election as the Secretary may specify.
       ``(h) Approval of Marketing Material and Application 
     Forms.--
       ``(1) Submission.--No marketing material or application 
     form may be distributed by a Medicare Choice organization to 
     (or for the use of) Medicare Choice eligible individuals 
     unless--
       ``(A) at least 45 days before the date of distribution the 
     organization has submitted the material or form to the 
     Secretary for review, and

[[Page S6575]]

       ``(B) the Secretary has not disapproved the distribution of 
     such material or form.
       ``(2) Review.--The standards established under section 1856 
     shall include guidelines for the review of any material or 
     form submitted and under such guidelines the Secretary shall 
     disapprove (or later require the correction of) such material 
     or form if the material or form is materially inaccurate or 
     misleading or otherwise makes a material misrepresentation.
       ``(3) Deemed approval (1-stop shopping).--In the case of 
     material or form that is submitted under paragraph (1)(A) to 
     the Secretary or a regional office of the Department of 
     Health and Human Services and the Secretary or the office has 
     not disapproved the distribution of marketing material or 
     form under paragraph (1)(B) with respect to a Medicare Choice 
     plan in an area, the Secretary is deemed not to have 
     disapproved such distribution in all other areas covered by 
     the plan and organization except to the extent that such 
     material or form is specific only to an area involved.
       ``(4) Prohibition of certain marketing practices.--Each 
     Medicare Choice organization shall conform to fair marketing 
     standards, in relation to Medicare Choice plans offered under 
     this part, included in the standards established under 
     section 1856.
       ``(i) Effect of Election of Medicare Choice Plan Option.--
     Subject to sections 1852(a)(5) and 1857(f)(2)--
       ``(1) payments under a contract with a Medicare Choice 
     organization under section 1853(a) with respect to an 
     individual electing a Medicare Choice plan offered by the 
     organization shall be instead of the amounts which (in the 
     absence of the contract) would otherwise be payable under 
     parts A and B for items and services furnished to the 
     individual, and
       ``(2) subject to subsections (e) and (g) of section 1853, 
     only the Medicare Choice organization shall be entitled to 
     receive payments from the Secretary under this title for 
     services furnished to the individual.


                 ``benefits and beneficiary protections

       ``Sec. 1852. (a) Basic Benefits.--
       ``(1) In general.--Except as provided in section 1859(b)(3) 
     for MSA plans, each Medicare Choice plan shall provide to 
     members enrolled under this part, through providers and other 
     persons that meet the applicable requirements of this title 
     and part A of title XI--
       ``(A) those items and services for which benefits are 
     available under parts A and B to individuals residing in the 
     area served by the plan, and
       ``(B) additional benefits required under section 
     1854(f)(1)(A).
       ``(2) Supplemental benefits.--
       ``(A) Benefits included subject to secretary's approval.--
     Each Medicare Choice organization may provide to individuals 
     enrolled under this part (without affording those individuals 
     an option to decline the coverage) supplemental health care 
     benefits that the Secretary may approve. The Secretary shall 
     approve any such supplemental benefits unless the Secretary 
     determines that including such supplemental benefits would 
     substantially discourage enrollment by Medicare Choice 
     eligible individuals with the organization.
       ``(B) At enrollees' option.--A Medicare Choice organization 
     may provide to individuals enrolled under this part (other 
     than under an MSA plan) supplemental health care benefits 
     that the individuals may elect, at their option, to have 
     covered.
       ``(3) Organization as secondary payer.--Notwithstanding any 
     other provision of law, a Medicare Choice organization may 
     (in the case of the provision of items and services to an 
     individual under a Medicare Choice plan under circumstances 
     in which payment under this title is made secondary pursuant 
     to section 1862(b)(2)) charge or authorize the provider of 
     such services to charge, in accordance with the charges 
     allowed under a law, plan, or policy described in such 
     section--
       ``(A) the insurance carrier, employer, or other entity 
     which under such law, plan, or policy is to pay for the 
     provision of such services, or
       ``(B) such individual to the extent that the individual has 
     been paid under such law, plan, or policy for such services.
       ``(4) National coverage determinations.--If there is a 
     national coverage determination made in the period beginning 
     on the date of an announcement under section 1853(b) and 
     ending on the date of the next announcement under such 
     section and the Secretary projects that the determination 
     will result in a significant change in the costs to a 
     Medicare Choice organization of providing the benefits that 
     are the subject of such national coverage determination and 
     that such change in costs was not incorporated in the 
     determination of the annual Medicare Choice capitation rate 
     under section 1853 included in the announcement made at the 
     beginning of such period, then, unless otherwise required by 
     law--
       ``(A) such determination shall not apply to contracts under 
     this part until the first contract year that begins after the 
     end of such period, and
       ``(B) if such coverage determination provides for coverage 
     of additional benefits or coverage under additional 
     circumstances, section 1851(i) shall not apply to payment for 
     such additional benefits or benefits provided under such 
     additional circumstances until the first contract year that 
     begins after the end of such period.
       ``(5) Satisfaction of requirement.--
       ``(A) In general.--A MedicarePlus plan offered by a 
     MedicarePlus organization satisfies paragraph (1)(A), with 
     respect to benefits for items and services furnished other 
     than through a provider that has a contract with the 
     organization offering the plan, if the plan provides (in 
     addition to any cost sharing provided for under the plan) for 
     at least the total dollar amount of payment for such items 
     and services as would otherwise be authorized under parts A 
     and B (including any balance billing permitted under such 
     parts).
       ``(B) Exception for msa plans and unrestricted fee-for-
     service plans.--Subparagraph (A) shall not apply to an MSA 
     plan or an unrestricted fee-for-service plan.
       ``(b) Antidiscrimination.--
       ``(1) Beneficiaries.--
       ``(A) In general.--A Medicare Choice organization may not 
     deny, limit, or condition the coverage or provision of 
     benefits under this part, for individuals permitted to be 
     enrolled with the organization under this part, based on any 
     health status-related factor described in section 2702(a)(1) 
     of the Public Health Service Act.
       ``(B) Construction.--Subparagraph (A) shall not be 
     construed as requiring a Medicare Choice organization to 
     enroll individuals who are determined to have end-stage renal 
     disease, except as provided under section 1851(a)(3)(B).
       ``(2) Providers.--A Medicare Choice organization shall not 
     discriminate with respect to participation, reimbursement, or 
     indemnification as to any provider who is acting within the 
     scope of the provider's license or certification under 
     applicable State law, solely on the basis of such license or 
     certification. This paragraph shall not be construed to 
     prohibit a plan from including providers only to the extent 
     necessary to meet the needs of the plan's enrollees or from 
     establishing any measure designed to maintain quality and 
     control costs consistent with the responsibilities of the 
     plan.
       ``(c) Disclosure Requirements.--
       ``(1) Detailed description of plan provisions.--A Medicare 
     Choice organization shall disclose, in clear, accurate, and 
     standardized form to each enrollee with a Medicare Choice 
     plan offered by the organization under this part at the time 
     of enrollment and at least annually thereafter, the following 
     information regarding such plan:
       ``(A) Service area.--The plan's service area.
       ``(B) Benefits.--Benefits offered under the plan, including 
     information described in section 1851(d)(3)(A) and exclusions 
     from coverage and, if it is an MSA plan, a comparison of 
     benefits under such a plan with benefits under other Medicare 
     Choice plans.
       ``(C) Access.--The number, mix, and distribution of plan 
     providers.
       ``(D) Out-of-area coverage.--Out-of-area coverage provided 
     by the plan.
       ``(E) Emergency coverage.--Coverage of emergency services 
     and urgently needed care, including--
       ``(i) the appropriate use of emergency services, including 
     use of the 911 telephone system or its local equivalent in 
     emergency situations and an explanation of what constitutes 
     an emergency situation;
       ``(ii) the process and procedures of the plan for obtaining 
     emergency services; and
       ``(iii) the locations of (I) emergency departments, and 
     (II) other settings, in which plan physicians and hospitals 
     provide emergency services and post-stabilization care.
       ``(F) Supplemental benefits.--Supplemental benefits 
     available from the organization offering the plan, 
     including--
       ``(i) whether the supplemental benefits are optional,
       ``(ii) the supplemental benefits covered, and
       ``(iii) the premium price for the supplemental benefits.
       ``(G) Prior authorization rules.--Rules regarding prior 
     authorization or other review requirements that could result 
     in nonpayment.
       ``(H) Plan grievance and appeals procedures.--All plan 
     appeal or grievance rights and procedures.
       ``(I) Quality assurance program.--A description of the 
     organization's quality assurance program under subsection 
     (e).
       ``(J) Out-of-network coverage.--The out-of-network coverage 
     (if any) provided by the plan.
       ``(2) Disclosure upon request.--Upon request of a Medicare 
     Choice eligible individual, a Medicare Choice organization 
     must provide the following information to such individual:
       ``(A) The information described in paragraphs (3) and (4) 
     of section 1851(d).
       ``(B) Information on utilization review procedures.
       ``(d) Access to Services.--
       ``(1) In general.--A Medicare Choice organization offering 
     a Medicare Choice plan, other than an unrestricted fee-for-
     service plan, may select the providers from whom the benefits 
     under the plan are provided so long as--
       ``(A) the organization makes such benefits available and 
     accessible to each individual electing the plan within the 
     plan service area with reasonable promptness and in a manner 
     which assures continuity in the provision of benefits;
       ``(B) when medically necessary the organization makes such 
     benefits available and accessible 24 hours a day and 7 days a 
     week;
       ``(C) the plan provides for reimbursement with respect to 
     services which are covered under subparagraphs (A) and (B) 
     and which are provided to such an individual other than 
     through the organization, if--
       ``(i) the services were medically necessary and immediately 
     required because of an unforeseen illness, injury, or 
     condition, and it was not reasonable given the circumstances 
     to obtain the services through the organization, or
       ``(ii) the services were renal dialysis services and were 
     provided other than through the organization because the 
     individual was temporarily out of the plan's service area;
       ``(D) the organization provides access to appropriate 
     providers, including credentialed specialists, for medically 
     necessary treatment and services;
       ``(E) coverage is provided for emergency services (as 
     defined in paragraph (3)) without regard to prior 
     authorization or the emergency

[[Page S6576]]

     care provider's contractual relationship with the 
     organization; and
       ``(F) except as provided by the Secretary on a case-by-case 
     basis, the organization provides primary care services within 
     30 minutes or 30 miles from an enrollee's place of residence 
     if the enrollee resides in a rural area.
       ``(2) Guidelines respecting coordination of post-
     stabilization care.--
       ``(A) In general.--A Medicare Choice plan shall comply with 
     such guidelines as the Secretary shall prescribe relating to 
     promoting efficient and timely coordination of appropriate 
     maintenance and post-stabilization care of an enrollee after 
     the enrollee has been determined to be stable under section 
     1867.
       ``(B) Content of guidelines.--The guidelines prescribed 
     under subparagraph (A) shall provide that--
       ``(i) a provider of emergency services shall make a 
     documented good faith effort to contact the plan in a timely 
     fashion from the point at which the individual is stabilized 
     to request approval for medically necessary post-
     stabilization care,
       ``(ii) the plan shall respond in a timely fashion to the 
     initial contact with the plan with a decision as to whether 
     the services for which approval is requested will be 
     authorized, and
       ``(iii) if a denial of a request is communicated, the plan 
     shall, upon request from the treating physician, arrange for 
     a physician who is authorized by the plan to review the 
     denial to communicate directly with the treating physician in 
     a timely fashion.
       ``(3) Definition of emergency services.--In this 
     subsection--
       ``(A) In general.--The term `emergency services' means, 
     with respect to an individual enrolled with an organization, 
     covered inpatient and outpatient services that--
       ``(i) are furnished by a provider that is qualified to 
     furnish such services under this title, and
       ``(ii) are needed to evaluate or stabilize an emergency 
     medical condition (as defined in subparagraph (B)).
       ``(B) Emergency medical condition based on prudent 
     layperson.--The term `emergency medical condition' means a 
     medical condition manifesting itself by acute symptoms of 
     sufficient severity (including severe pain) such that a 
     prudent layperson, who possesses an average knowledge of 
     health and medicine, could reasonably expect the absence of 
     immediate medical attention to result in--
       ``(i) placing the health of the individual (or, with 
     respect to a pregnant woman, the health of the woman or her 
     unborn child) in serious jeopardy,
       ``(ii) serious impairment to bodily functions, or
       ``(iii) serious dysfunction of any bodily organ or part.
       ``(e) Quality Assurance Program.--
       ``(1) In general.--Each Medicare Choice organization must 
     have arrangements, consistent with any regulation, for an 
     ongoing quality assurance program for health care services it 
     provides to individuals enrolled with Medicare Choice plans 
     of the organization.
       ``(2) Elements of program.--The quality assurance program 
     shall--
       ``(A) stress health outcomes and provide for the 
     collection, analysis, and reporting of data (in accordance 
     with a quality measurement system that the Secretary 
     recognizes) that will permit measurement of outcomes and 
     other indices of the quality of Medicare Choice plans and 
     organizations;
       ``(B) provide for the establishment of written protocols 
     for utilization review, based on current standards of medical 
     practice;
       ``(C) provide review by physicians and other health care 
     professionals of the process followed in the provision of 
     such health care services;
       ``(D) monitor and evaluate high volume and high risk 
     services and the care of acute and chronic conditions;
       ``(E) evaluate the continuity and coordination of care that 
     enrollees receive;
       ``(F) have mechanisms to detect both underutilization and 
     overutilization of services;
       ``(G) after identifying areas for improvement, establish or 
     alter practice parameters;
       ``(H) take action to improve quality and assesses the 
     effectiveness of such action through systematic followup;
       ``(I) make available information on quality and outcomes 
     measures to facilitate beneficiary comparison and choice of 
     health coverage options (in such form and on such quality and 
     outcomes measures as the Secretary determines to be 
     appropriate);
       ``(J) be evaluated on an ongoing basis as to its 
     effectiveness;
       ``(K) include measures of consumer satisfaction; and
       ``(L) provide the Secretary with such access to information 
     collected as may be appropriate to monitor and ensure the 
     quality of care provided under this part.
       ``(3) External review.--Each Medicare Choice organization 
     shall, for each Medicare Choice plan it operates, have an 
     agreement with an independent quality review and improvement 
     organization approved by the Secretary to perform functions 
     of the type described in sections 1154(a)(4)(B) and 
     1154(a)(14) with respect to services furnished by Medicare 
     Choice plans for which payment is made under this title.
       ``(4) Exception for medicare choice unrestricted fee-for-
     service plans.--Paragraphs (1) through (3) of this subsection 
     and subsection (h)(2) (relating to maintaining medical 
     records) shall not apply in the case of a Medicare Choice 
     organization in relation to a Medicare Choice unrestricted 
     fee-for-service plan.
       ``(5) Treatment of accreditation.--The Secretary shall 
     provide that a Medicare Choice organization is deemed to meet 
     requirements of paragraphs (1) and (2) of this subsection and 
     subsection (h) (relating to confidentiality and accuracy of 
     enrollee records) if the organization is accredited (and 
     periodically reaccredited) by a private organization under a 
     process that the Secretary has determined assures that the 
     organization, as a condition of accreditation, applies and 
     enforces standards with respect to the requirements involved 
     that are no less stringent than the standards established 
     under section 1856 to carry out the respective requirements.
       ``(6) Annual report on non-health expenditures.--Each 
     Medicare Choice organization shall, at the request of the 
     enrollee, annually provide to enrollees a statement 
     disclosing the proportion of the premiums and other revenues 
     received by the organization that are expended for non-health 
     care items and services.
       ``(f) Coverage Determinations.--
       ``(1) Decisions on nonemergency care.--A Medicare Choice 
     organization shall make determinations regarding 
     authorization requests for nonemergency care on a timely 
     basis, depending on the urgency of the situation.
       ``(2) Reconsiderations.--
       ``(A) In general.--Subject to subsection (g)(4), a 
     reconsideration of a determination of an organization denying 
     coverage shall be made within 30 days of the date of receipt 
     of medical information, but not later than 60 days after the 
     date of the determination.
       ``(B) Physician decision on certain reconsiderations.--A 
     reconsideration relating to a determination to deny coverage 
     based on a lack of medical necessity shall be made only by a 
     physician other than a physician involved in the initial 
     determination.
       ``(g) Grievances and Appeals.--
       ``(1) Grievance mechanism.--Each Medicare Choice 
     organization must provide meaningful procedures for hearing 
     and resolving grievances between the organization (including 
     any entity or individual through which the organization 
     provides health care services) and enrollees with Medicare 
     Choice plans of the organization under this part.
       ``(2) Appeals.--An enrollee with a Medicare Choice plan of 
     a Medicare Choice organization under this part who is 
     dissatisfied by reason of the enrollee's failure to receive 
     any health service to which the enrollee believes the 
     enrollee is entitled and at no greater charge than the 
     enrollee believes the enrollee is required to pay is 
     entitled, if the amount in controversy is $100 or more, to a 
     hearing before the Secretary to the same extent as is 
     provided in section 205(b), and in any such hearing the 
     Secretary shall make the organization a party. If the amount 
     in controversy is $1,000 or more, the individual or 
     organization shall, upon notifying the other party, be 
     entitled to judicial review of the Secretary's final decision 
     as provided in section 205(g), and both the individual and 
     the organization shall be entitled to be parties to that 
     judicial review. In applying subsections (b) and (g) of 
     section 205 as provided in this paragraph, and in applying 
     section 205(l) thereto, any reference therein to the 
     Commissioner of Social Security or the Social Security 
     Administration shall be considered a reference to the 
     Secretary or the Department of Health and Human Services, 
     respectively.
       ``(3) Independent review of certain coverage denials.--The 
     Secretary shall contract with an independent, outside entity 
     to review and resolve reconsiderations that affirm denial of 
     coverage.
       ``(4) Expedited determinations and reconsiderations.--
       ``(A) Receipt of requests.--An enrollee in a Medicare 
     Choice plan may request, either in writing or orally, an 
     expedited determination or reconsideration by the Medicare 
     Choice organization regarding a matter described in paragraph 
     (2). The organization shall also permit the acceptance of 
     such requests by physicians.
       ``(B) Organization procedures.--
       ``(i) In general.--The Medicare Choice organization shall 
     maintain procedures for expediting organization 
     determinations and reconsiderations when, upon request of an 
     enrollee, the organization determines that the application of 
     normal time frames for making a determination (or a 
     reconsideration involving a determination) could seriously 
     jeopardize the life or health of the enrollee or the 
     enrollee's ability to regain maximum function.
       ``(ii) Timely response.--In an urgent case described in 
     clause (i), the organization shall notify the enrollee (and 
     the physician involved, as appropriate) of the determination 
     (or determination on the reconsideration) as expeditiously as 
     the enrollee's health condition requires, but not later than 
     72 hours (or 24 hours in the case of a reconsideration) of 
     the time of receipt of the request for the determination or 
     reconsideration (or receipt of the information necessary to 
     make the determination or reconsideration), or such longer 
     period as the Secretary may permit in specified cases.
       ``(h) Confidentiality and Accuracy of Enrollee Records.--
     Each Medicare Choice organization shall establish 
     procedures--
       ``(1) to safeguard the privacy of individually identifiable 
     enrollee information,
       ``(2) to maintain accurate and timely medical records and 
     other health information for enrollees, and
       ``(3) to assure timely access of enrollees to their medical 
     information.
       ``(i) Information on Advance Directives.--Each Medicare 
     Choice organization shall meet the requirement of section 
     1866(f) (relating to maintaining written policies and 
     procedures respecting advance directives).
       ``(j) Rules Regarding Physician Participation.--
       ``(1) Procedures.--Each Medicare Choice organization shall 
     establish reasonable procedures relating to the participation 
     (under an agreement between a physician and the organization) 
     of physicians under Medicare Choice plans offered by the 
     organization under this part. Such procedures shall include--

[[Page S6577]]

       ``(A) providing notice of the rules regarding 
     participation,
       ``(B) providing written notice of participation decisions 
     that are adverse to physicians, and
       ``(C) providing a process within the organization for 
     appealing such adverse decisions, including the presentation 
     of information and views of the physician regarding such 
     decision.
       ``(2) Consultation in medical policies.--A Medicare Choice 
     organization shall consult with physicians who have entered 
     into participation agreements with the organization regarding 
     the organization's medical policy, quality, and medical 
     management procedures.
       ``(3) Limitations on physician incentive plans.--
       ``(A) In general.--No Medicare Choice organization may 
     operate any physician incentive plan (as defined in 
     subparagraph (B)) unless the following requirements are met:
       ``(i) No specific payment is made directly or indirectly 
     under the plan to a physician or physician group as an 
     inducement to reduce or limit medically necessary services 
     provided with respect to a specific individual enrolled with 
     the organization.
       ``(ii) If the plan places a physician or physician group at 
     substantial financial risk (as determined by the Secretary) 
     for services not provided by the physician or physician 
     group, the organization--

       ``(I) provides stop-loss protection for the physician or 
     group that is adequate and appropriate, based on standards 
     developed by the Secretary that take into account the number 
     of physicians placed at such substantial financial risk in 
     the group or under the plan and the number of individuals 
     enrolled with the organization who receive services from the 
     physician or group, and
       ``(II) conducts periodic surveys of both individuals 
     enrolled and individuals previously enrolled with the 
     organization to determine the degree of access of such 
     individuals to services provided by the organization and 
     satisfaction with the quality of such services.

       ``(iii) The organization provides the Secretary with 
     descriptive information regarding the plan, sufficient to 
     permit the Secretary to determine whether the plan is in 
     compliance with the requirements of this subparagraph.
       ``(B) Physician incentive plan defined.--In this paragraph, 
     the term `physician incentive plan' means any compensation 
     arrangement between a Medicare Choice organization and a 
     physician or physician group that may directly or indirectly 
     have the effect of reducing or limiting services provided 
     with respect to individuals enrolled with the organization 
     under this part.
       ``(4) Limitation on provider indemnification.--A Medicare 
     Choice organization may not provide (directly or indirectly) 
     for a provider (or group of providers) to indemnify the 
     organization against any liability resulting from a civil 
     action brought for any damage caused to an enrollee with a 
     Medicare Choice plan of the organization under this part by 
     the organization's denial of medically necessary care.
       ``(k) Treatment of Services Furnished by Certain 
     Providers.--
       ``(1) In general.--A physician or other entity (other than 
     a provider of services) that does not have a contract 
     establishing payment amounts for services furnished to an 
     individual enrolled under this part with a MedicarePlus 
     organization shall accept as payment in full for covered 
     services under this title that are furnished to such an 
     individual the amounts that the physician or other entity 
     could collect if the individual were not so enrolled. Any 
     penalty or other provision of law that applies to such a 
     payment with respect to an individual entitled to benefits 
     under this title (but not enrolled with a MedicarePlus 
     organization under this part) also applies with respect to an 
     individual so enrolled.
       ``(2) Exception for msa plans and unrestricted fee-for-
     service plans.--Paragraph (1) shall not apply to an MSA plan 
     or an unrestricted fee-for-service plan.


              ``payments to medicare choice organizations

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

       ``(I) is enrolled in a Medicare Choice plan, and
       ``(II) has not been enrolled in Medicare Choice plans and 
     plans operated by eligible organizations with risk-sharing 
     contracts under section 1876 for an aggregate number of 
     months greater than 60 (including the month for which the 
     determination is being made).

       ``(ii) Exception for beneficiaries maintaining enrollment 
     in certain plans.--The term `applicable enrollee' shall not 
     include any individual enrolled in a Medicare Choice plan 
     offered by a Medicare Choice organization if such individual 
     was enrolled in a health plan (other than a Medicare Choice 
     plan) offered by such organization at the time of the 
     individual's initial election period under section 1851(e)(1) 
     and has been continuously enrolled in such Medicare Choice 
     plan (or another Medicare Choice plan offered by such 
     organization) since such election period.
       ``(C) Applicable percentage.--For purposes of this 
     paragraph, the applicable percentage shall be determined in 
     accordance with the following table:

                                                             Applicable
``Months enrolled in HMOs:                                  percentage:
  1-12...........................................................5 ....

  13-24..........................................................4 ....

  25-36..........................................................3 ....

  37-48..........................................................2 ....

  49-60..........................................................1.....

       ``(D) Exception for new plans.--This paragraph shall not 
     apply to applicable enrollees in a Medicare Choice plan for 
     any month if--
       ``(i) such month occurs during the first 12 months during 
     which the plan enrolls Medicare Choice eligible individuals 
     in the Medicare Choice payment area, and
       ``(ii) the annual Medicare Choice capitation rate for such 
     area for the calendar year preceding the calendar year in 
     which such 12-month period begins is less than the annual 
     national Medicare Choice capitation rate (as determined under 
     subsection (c)(4)) for such preceding calendar year.
     In the case of 1998, clause (ii) shall be applied by using 
     the adjusted average per capita cost under section 1876 for 
     1997 rather than such capitation rate.
       ``(E) Termination.--This paragraph shall not apply to any 
     month beginning on or after the first day of the first month 
     to which the method for risk adjustment described in 
     paragraph (3) applies.
       ``(b) Annual Announcement of Payment Rates.--
       ``(1) Annual announcement.--The Secretary shall annually 
     determine, and shall announce (in a manner intended to 
     provide notice to interested parties) not later than August 1 
     before the calendar year concerned--
       ``(A) the annual Medicare Choice capitation rate for each 
     Medicare Choice payment area for the year, and
       ``(B) the risk and other factors to be used in adjusting 
     such rates under subsection (a)(1)(A) for payments for months 
     in that year.
       ``(2) Advance notice of methodological changes.--At least 
     45 days before making the announcement under paragraph (1) 
     for a year, the Secretary shall provide for notice to 
     Medicare Choice organizations of proposed changes

[[Page S6578]]

     to be made in the methodology from the methodology and 
     assumptions used in the previous announcement and shall 
     provide such organizations an opportunity to comment on such 
     proposed changes.
       ``(3) Explanation of assumptions.--In each announcement 
     made under paragraph (1), the Secretary shall include an 
     explanation of the assumptions and changes in methodology 
     used in the announcement in sufficient detail so that 
     Medicare Choice organizations can compute monthly adjusted 
     Medicare Choice capitation rates for individuals in each 
     Medicare Choice payment area which is in whole or in part 
     within the service area of such an organization.
       ``(c) Calculation of Annual Medicare Choice Capitation 
     Rates.--
       ``(1) In general.--For purposes of this part, each annual 
     Medicare Choice capitation rate, for a Medicare Choice 
     payment area for a contract year consisting of a calendar 
     year, is equal to the largest of the amounts specified in the 
     following subparagraph (A), (B), or (C):
       ``(A) Blended capitation rate.--The sum of--
       ``(i) the area-specific percentage for the year (as 
     specified under paragraph (2) for the year) of the annual 
     area-specific Medicare Choice capitation rate for the year 
     for the Medicare Choice payment area, as determined under 
     paragraph (3), and
       ``(ii) the national percentage (as specified under 
     paragraph (2) for the year) of the annual national Medicare 
     Choice capitation rate for the year, as determined under 
     paragraph (4),
     multiplied by the payment adjustment factors described in 
     subparagraphs (A) and (B) of paragraph (5).
       ``(B) Minimum amount.--Subject to paragraph (8)--
       ``(i) For 1998, $4,200 (but not to exceed, in the case of 
     an area outside the 50 States and the District of Columbia, 
     150 percent of the annual per capita rate of payment for 1997 
     determined under section 1876(a)(1)(C) for the area).
       ``(ii) For each subsequent year, 101 percent of the amount 
     in effect under this subparagraph for the previous year.
       ``(C) Minimum percentage increase.--Subject to paragraph 
     (8)--
       ``(i) For 1998, 101 percent of the annual per capita rate 
     of payment for 1997 determined under section 1876(a)(1)(C) 
     for the Medicare Choice payment area.
       ``(ii) For each subsequent year, 101 percent of the annual 
     Medicare Choice capitation rate under this paragraph for the 
     area for the previous year.
       ``(2) Area-specific and national percentages.--For purposes 
     of paragraph (1)(A)--
       ``(A) for 1998, the `area-specific percentage' is 90 
     percent and the `national percentage' is 10 percent,
       ``(B) for 1999, the `area-specific percentage' is 80 
     percent and the `national percentage' is 20 percent,
       ``(C) for 2000, the `area-specific percentage' is 70 
     percent and the `national percentage' is 30 percent,
       ``(D) for 2001, the `area-specific percentage' is 60 
     percent and the `national percentage' is 40 percent, and
       ``(E) for a year after 2001, the `area-specific percentage' 
     is 50 percent and the `national percentage' is 50 percent.
       ``(3) Annual area-specific medicare choice capitation 
     rate.--
       ``(A) In general.--For purposes of paragraph (1)(A), the 
     annual area-specific Medicare Choice capitation rate for a 
     Medicare Choice payment area--
       ``(i) for 1998 is the modified annual per capita rate of 
     payment for 1997 determined under section 1876(a)(1)(C) for 
     the area, increased by the national average per capita growth 
     percentage for 1998 (as defined in paragraph (6)); or
       ``(ii) for a subsequent year is the annual area-specific 
     Medicare Choice capitation rate for the previous year 
     determined under this paragraph for the area, increased by 
     the national average per capita growth percentage for such 
     subsequent year.
       ``(B) Modified annual per capita rate of payment.--For 
     purposes of subparagraph (A), the modified annual per capita 
     rate of payment for a Medicare Choice payment area for 1997 
     shall be equal to the annual per capita rate of payment for 
     such area for such year which would have been determined 
     under section 1876(a)(1)(C) if 25 percent of any payments 
     attributable to sections 1886(d)(5)(B), 1886(h), and 
     1886(d)(5)(F) (relating to IME, GME, and DSH payments) were 
     not taken into account.
       ``(C) Special rules for 1999, 2000, and 2001.--In applying 
     subparagraph (A)(ii) for 1999, 2000, and 2001, the annual 
     area-specific Medicare Choice capitation rate for the 
     preceding calendar year shall be the amount which would have 
     been determined if subparagraph (B) had been applied by 
     substituting the following percentages for `25 percent':
       ``(i) In 1999, 50 percent.
       ``(ii) In 2000, 75 percent.
       ``(iii) In 2001, 100 percent.
       ``(4) Annual national medicare choice capitation rate.--For 
     purposes of paragraph (1)(A), the annual national Medicare 
     Choice capitation rate for a Medicare Choice payment area for 
     a year is equal to--
       ``(A) the sum (for all Medicare Choice payment areas) of 
     the product of--
       ``(i) the annual area-specific Medicare Choice capitation 
     rate for that year for the area under paragraph (3), and
       ``(ii) the average number of medicare beneficiaries 
     residing in that area in the year; divided by
       ``(B) the sum of the amounts described in subparagraph 
     (A)(ii) for all Medicare Choice payment areas for that year.
       ``(5) Payment adjustment budget neutrality factors.--For 
     purposes of paragraph (1)(A)--
       ``(A) Blended rate payment adjustment factor.--For each 
     year, the Secretary shall compute a blended rate payment 
     adjustment factor such that, not taking into account 
     subparagraphs (B) and (C) of paragraph (1) and the 
     application of the payment adjustment factor described in 
     subparagraph (B) but taking into account paragraph (7), the 
     aggregate of the payments that would be made under this part 
     is equal to the aggregate payments that would have been made 
     under this part (not taking into account such subparagraphs 
     and such other adjustment factor) if the area-specific 
     percentage under paragraph (1) for the year had been 100 
     percent and the national percentage had been 0 percent.
       ``(B) Floor-and-minimum-update payment adjustment factor.--
     For each year, the Secretary shall compute a floor-and-
     minimum-update payment adjustment factor so that, taking into 
     account the application of the blended rate payment 
     adjustment factor under subparagraph (A) and subparagraphs 
     (B) and (C) of paragraph (1) and the application of the 
     adjustment factor under this subparagraph, the aggregate of 
     the payments under this part shall not exceed the aggregate 
     payments that would have been made under this part if 
     subparagraphs (B) and (C) of paragraph (1) did not apply and 
     if the floor-and-minimum-update payment adjustment factor 
     under this subparagraph was 1.
       ``(6) National average per capita growth percentage 
     defined.--In this part, the `national average per capita 
     growth percentage' for any year (beginning with 1998) is 
     equal to the sum of--
       ``(A) the percentage increase in the gross domestic product 
     per capita for the 12-month period ending on June 30 of the 
     preceding year, plus
       ``(B) 0.5 percentage points.
       ``(7) Treatment of areas with highly variable payment 
     rates.--In the case of a Medicare Choice payment area for 
     which the annual per capita rate of payment determined under 
     section 1876(a)(1)(C) for 1997 varies by more than 20 percent 
     from such rate for 1996, for purposes of this subsection the 
     Secretary may substitute for such rate for 1997 a rate that 
     is more representative of the costs of the enrollees in the 
     area.
       ``(8) Adjustments to minimum amounts and minimum percentage 
     increases.--After computing all amounts under this subsection 
     (without regard to this paragraph) for any year, the 
     Secretary shall--
       ``(A) redetermine the amount under paragraph (1)(C) for 
     such year by substituting `100 percent' for `101 percent' 
     each place it appears, and
       ``(B) increase the minimum amount under paragraph (1)(B) to 
     an amount equal to the lesser of--
       ``(i) the amount the Secretary estimates will result in 
     increased payments under such paragraph equal to the decrease 
     in payments by reason of the redetermination under 
     subparagraph (A), or
       ``(ii) an amount equal to 85 percent of the annual national 
     Medicare Choice capitation rate determined under paragraph 
     (4).
       ``(9) Study of local price indicators.--The Secretary and 
     the Medicare Payment Advisory Commission shall each conduct a 
     study with respect to appropriate measures for adjusting the 
     annual Medicare Choice capitation rates determined under this 
     section to reflect local price indicators, including the 
     medicare hospital wage index and the case-mix of a geographic 
     region. The Secretary and the Advisory Commission shall 
     report the results of such study to the appropriate 
     committees of Congress, including recommendations (if any) 
     for legislation.
       ``(d) Medicare Choice Payment Area Defined.--
       ``(1) In general.--In this part, except as provided in 
     paragraph (3), the term `Medicare Choice payment area' means 
     a county, or equivalent area specified by the Secretary.
       ``(2) Rule for esrd beneficiaries.--In the case of 
     individuals who are determined to have end stage renal 
     disease, the Medicare Choice payment area shall be a State or 
     such other payment area as the Secretary specifies.
       ``(3) Geographic adjustment.--
       ``(A) In general.--Upon written request of the chief 
     executive officer of a State for a contract year (beginning 
     after 1998) made at least 7 months before the beginning of 
     the year, the Secretary shall make a geographic adjustment to 
     a Medicare Choice payment area in the State otherwise 
     determined under paragraph (1)--
       ``(i) to a single statewide Medicare Choice payment area,
       ``(ii) to the metropolitan based system described in 
     subparagraph (C), or
       ``(iii) to consolidating into a single Medicare Choice 
     payment area noncontiguous counties (or equivalent areas 
     described in paragraph (1)) within a State.
     Such adjustment shall be effective for payments for months 
     beginning with January of the year following the year in 
     which the request is received.
       ``(B) Budget neutrality adjustment.--In the case of a State 
     requesting an adjustment under this paragraph, the Secretary 
     shall adjust the payment rates otherwise established under 
     this section for Medicare Choice payment areas in the State 
     in a manner so that the aggregate of the payments under this 
     section in the State shall not exceed the aggregate payments 
     that would have been made under this section for Medicare 
     Choice payment areas in the State in the absence of the 
     adjustment under this paragraph.
       ``(C) Metropolitan based system.--The metropolitan based 
     system described in this subparagraph is one in which--
       ``(i) all the portions of each metropolitan statistical 
     area in the State or in the case of a consolidated 
     metropolitan statistical area, all of the

[[Page S6579]]

     portions of each primary metropolitan statistical area within 
     the consolidated area within the State, are treated as a 
     single Medicare Choice payment area, and
       ``(ii) all areas in the State that do not fall within a 
     metropolitan statistical area are treated as a single 
     Medicare Choice payment area.
       ``(D) Areas.--In subparagraph (C), the terms `metropolitan 
     statistical area', `consolidated metropolitan statistical 
     area', and `primary metropolitan statistical area' mean any 
     area designated as such by the Secretary of Commerce.
       ``(e) Special Rules for Individuals Electing MSA Plans.--
       ``(1) In general.--If the amount of the monthly premium for 
     an MSA plan for a Medicare Choice payment area for a year is 
     less than \1/12\ of the annual Medicare Choice capitation 
     rate applied under this section for the area and year 
     involved, the Secretary shall deposit an amount equal to 100 
     percent of such difference in a Medicare Choice MSA 
     established (and, if applicable, designated) by the 
     individual under paragraph (2).
       ``(2) Establishment and designation of medicare choice 
     medical savings account as requirement for payment of 
     contribution.--In the case of an individual who has elected 
     coverage under an MSA plan, no payment shall be made under 
     paragraph (1) on behalf of an individual for a month unless 
     the individual--
       ``(A) has established before the beginning of the month (or 
     by such other deadline as the Secretary may specify) a 
     Medicare Choice MSA (as defined in section 138(b)(2) of the 
     Internal Revenue Code of 1986), and
       ``(B) if the individual has established more than one such 
     Medicare Choice MSA, has designated one of such accounts as 
     the individual's Medicare Choice MSA for purposes of this 
     part.
     Under rules under this section, such an individual may change 
     the designation of such account under subparagraph (B) for 
     purposes of this part.
       ``(3) Lump-sum deposit of medical savings account 
     contribution.--In the case of an individual electing an MSA 
     plan effective beginning with a month in a year, the amount 
     of the contribution to the Medicare Choice MSA on behalf of 
     the individual for that month and all successive months in 
     the year shall be deposited during that first month. In the 
     case of a termination of such an election as of a month 
     before the end of a year, the Secretary shall provide for a 
     procedure for the recovery of deposits attributable to the 
     remaining months in the year.
       ``(4) Special rule for applicable enrollee.--In the case of 
     an enrollee in a MSA plan for any month who is an applicable 
     enrollee for such month under section 1853(a)(4)(B), the 
     amount of the deposit under paragraph (1) for such month 
     shall be reduced by the applicable percentage (as defined in 
     section 1853(a)(4)(C)) of the amount of such deposit 
     (determined without regard to this paragraph).
       ``(f) Payments From Trust Fund.--The payment to a Medicare 
     Choice organization under this section for individuals 
     enrolled under this part with the organization and payments 
     to a Medicare Choice MSA under subsection (e)(1)(B) shall be 
     made from the Federal Hospital Insurance Trust Fund and the 
     Federal Supplementary Medical Insurance Trust Fund in such 
     proportion as the Secretary determines reflects the relative 
     weight that benefits under part A and under part B represents 
     of the actuarial value of the total benefits under this 
     title. Monthly payments otherwise payable under this section 
     for October 2001 shall be paid on the last business day of 
     September 2001. Monthly payments otherwise payable under this 
     section for October 2006 shall be paid on the first business 
     day of October 2006.
       ``(g) Special Rule for Certain Inpatient Hospital Stays.--
     In the case of an individual who is receiving inpatient 
     hospital services from a subsection (d) hospital (as defined 
     in section 1886(d)(1)(B)) as of the effective date of the 
     individual's--
       ``(1) election under this part of a Medicare Choice plan 
     offered by a Medicare Choice organization--
       ``(A) payment for such services until the date of the 
     individual's discharge shall be made under this title through 
     the Medicare Choice plan or the traditional medicare fee-for-
     service program option described in section 1851(a)(1)(A) (as 
     the case may be) elected before the election with such 
     organization,
       ``(B) the elected organization shall not be financially 
     responsible for payment for such services until the date 
     after the date of the individual's discharge, and
       ``(C) the organization shall nonetheless be paid the full 
     amount otherwise payable to the organization under this part; 
     or
       ``(2) termination of election with respect to a Medicare 
     Choice organization under this part--
       ``(A) the organization shall be financially responsible for 
     payment for such services after such date and until the date 
     of the individual's discharge,
       ``(B) payment for such services during the stay shall not 
     be made under section 1886(d) or by any succeeding Medicare 
     Choice organization, and
       ``(C) the terminated organization shall not receive any 
     payment with respect to the individual under this part during 
     the period the individual is not enrolled.


                               ``premiums

       ``Sec. 1854. (a) Submission and Charging of Premiums.--
       ``(1) In general.--Subject to paragraph (3), each Medicare 
     Choice organization shall file with the Secretary each year, 
     in a form and manner and at a time specified by the 
     Secretary--
       ``(A) the amount of the monthly premium for coverage for 
     services under section 1852(a) under each Medicare Choice 
     plan it offers under this part in each Medicare Choice 
     payment area (as defined in section 1853(d)) in which the 
     plan is being offered; and
       ``(B) the enrollment capacity in relation to the plan in 
     each such area.
       ``(2) Terminology.--In this part--
       ``(A) the term `monthly premium' means, with respect to a 
     Medicare Choice plan offered by a Medicare Choice 
     organization, the monthly premium filed under paragraph (1), 
     not taking into account the amount of any payment made toward 
     the premium under section 1853; and
       ``(B) the term `net monthly premium' means, with respect to 
     such a plan and an individual enrolled with the plan, the 
     premium (as defined in subparagraph (A)) for the plan reduced 
     by the amount of payment made toward such premium under 
     section 1853.
       ``(b) Monthly Premium Charged.--The monthly amount of the 
     premium charged by a Medicare Choice organization for a 
     Medicare Choice plan offered in a Medicare Choice payment 
     area to an individual under this part shall be equal to the 
     net monthly premium plus any monthly premium charged in 
     accordance with subsection (e)(2) for supplemental benefits.
       ``(c) Uniform Premium.--The monthly premium and monthly 
     amount charged under subsection (b) of a Medicare Choice 
     organization under this part may not vary among individuals 
     who reside in the same Medicare Choice payment area.
       ``(d) Terms and Conditions of Imposing Premiums.--Each 
     Medicare Choice organization shall permit the payment of net 
     monthly premiums on a monthly basis and may terminate 
     election of individuals for a Medicare Choice plan for 
     failure to make premium payments only in accordance with 
     section 1851(g)(3)(B)(i). A Medicare Choice organization is 
     not authorized to provide for cash or other monetary rebates 
     as an inducement for enrollment or otherwise.
       ``(e) Limitation on Enrollee Cost-Sharing.--
       ``(1) For basic and additional benefits.--Except as 
     provided in paragraph (2), in no event may--
       ``(A) the net monthly premium (multiplied by 12) and the 
     actuarial value of the deductibles, coinsurance, and 
     copayments applicable on average to individuals enrolled 
     under this part with a Medicare Choice plan of an 
     organization with respect to required benefits described in 
     section 1852(a)(1) and additional benefits (if any) required 
     under subsection (f)(1) for a year, exceed
       ``(B) the actuarial value of the deductibles, coinsurance, 
     and copayments that would be applicable on average to 
     individuals entitled to benefits under part A and enrolled 
     under part B if they were not members of a Medicare Choice 
     organization for the year.
       ``(2) For supplemental benefits.--If the Medicare Choice 
     organization provides to its members enrolled under this part 
     supplemental benefits described in section 1852(a)(3), the 
     sum of the monthly premium rate (multiplied by 12) charged 
     for such supplemental benefits and the actuarial value of its 
     deductibles, coinsurance, and copayments charged with respect 
     to such benefits may not exceed the adjusted community rate 
     for such benefits (as defined in subsection (f)(4)).
       ``(3) Exception for msa plans and unrestricted fee-for-
     service plans.--Paragraphs (1) and (2) do not apply to an MSA 
     plan or an unrestricted fee-for-service plan.
       ``(4) Determination on other basis.--If the Secretary 
     determines that adequate data are not available to determine 
     the actuarial value under paragraph (1)(A) or (2), the 
     Secretary may determine such amount with respect to all 
     individuals in the Medicare Choice payment area, the State, 
     or in the United States, eligible to enroll in the Medicare 
     Choice plan involved under this part or on the basis of other 
     appropriate data.
       ``(f) Requirement for Additional Benefits.--
       ``(1) Requirement.--
       ``(A) In general.--Each Medicare Choice organization (in 
     relation to a Medicare Choice plan it offers) shall provide 
     that if there is an excess amount (as defined in subparagraph 
     (B)) for the plan for a contract year, subject to the 
     succeeding provisions of this subsection, the organization 
     shall provide to individuals such additional benefits (as the 
     organization may specify) in a value which is at least equal 
     to the adjusted excess amount (as defined in subparagraph 
     (C)).
       ``(B) Excess amount.--For purposes of this paragraph, the 
     `excess amount', for an organization for a plan, is the 
     amount (if any) by which--
       ``(i) the average of the capitation payments made to the 
     organization under section 1853 for the plan at the beginning 
     of contract year, exceeds
       ``(ii) the actuarial value of the required benefits 
     described in section 1852(a)(1) under the plan for 
     individuals under this part, as determined based upon an 
     adjusted community rate described in paragraph (4) (as 
     reduced for the actuarial value of the coinsurance and 
     deductibles under parts A and B).
       ``(C) Adjusted excess amount.--For purposes of this 
     paragraph, the `adjusted excess amount', for an organization 
     for a plan, is the excess amount reduced to reflect any 
     amount withheld and reserved for the organization for the 
     year under paragraph (3).
       ``(D) No application to msa plans.--Subparagraph (A) shall 
     not apply to an MSA plan.
       ``(E) Uniform application.--This paragraph shall be applied 
     uniformly for all enrollees for a plan in a Medicare Choice 
     payment area.
       ``(F) Construction.--Nothing in this subsection shall be 
     construed as preventing a Medicare Choice organization from 
     providing health care benefits that are in addition to the 
     benefits otherwise required to be provided under this 
     paragraph and from imposing a premium for such additional 
     benefits.
       ``(2) Stabilization fund.--A Medicare Choice organization 
     may provide that a part of the

[[Page S6580]]

     value of an excess amount described in paragraph (1) be 
     withheld and reserved in the Federal Hospital Insurance Trust 
     Fund and in the Federal Supplementary Medical Insurance Trust 
     Fund (in such proportions as the Secretary determines to be 
     appropriate) by the Secretary for subsequent annual contract 
     periods, to the extent required to stabilize and prevent 
     undue fluctuations in the additional benefits offered in 
     those subsequent periods by the organization in accordance 
     with such paragraph. Any of such value of the amount reserved 
     which is not provided as additional benefits described in 
     paragraph (1)(A) to individuals electing the Medicare Choice 
     plan of the organization in accordance with such paragraph 
     prior to the end of such periods, shall revert for the use of 
     such trust funds.
       ``(3) Determination based on insufficient data.--For 
     purposes of this subsection, if the Secretary finds that 
     there is insufficient enrollment experience to determine an 
     average of the capitation payments to be made under this part 
     at the beginning of a contract period, the Secretary may 
     determine such an average based on the enrollment experience 
     of other contracts entered into under this part.
       ``(4) Adjusted community rate.--
       ``(A) In general.--For purposes of this subsection, subject 
     to subparagraph (B), the term `adjusted community rate' for a 
     service or services means, at the election of a Medicare 
     Choice organization, either--
       ``(i) the rate of payment for that service or services 
     which the Secretary annually determines would apply to an 
     individual electing a Medicare Choice plan under this part if 
     the rate of payment were determined under a `community rating 
     system' (as defined in section 1302(8) of the Public Health 
     Service Act, other than subparagraph (C)), or
       ``(ii) such portion of the weighted aggregate premium, 
     which the Secretary annually estimates would apply to such an 
     individual, as the Secretary annually estimates is 
     attributable to that service or services,
     but adjusted for differences between the utilization 
     characteristics of the individuals electing coverage under 
     this part and the utilization characteristics of the other 
     enrollees with the plan (or, if the Secretary finds that 
     adequate data are not available to adjust for those 
     differences, the differences between the utilization 
     characteristics of individuals selecting other Medicare 
     Choice coverage, or Medicare Choice eligible individuals in 
     the area, in the State, or in the United States, eligible to 
     elect Medicare Choice coverage under this part and the 
     utilization characteristics of the rest of the population in 
     the area, in the State, or in the United States, 
     respectively).
       ``(B) Special rule for provider-sponsored organizations.--
     In the case of a Medicare Choice organization that is a 
     provider-sponsored organization, the adjusted community rate 
     under subparagraph (A) for a Medicare Choice plan of the 
     organization may be computed (in a manner specified by the 
     Secretary) using data in the general commercial marketplace 
     or (during a transition period) based on the costs incurred 
     by the organization in providing such a plan.
       ``(g) Periodic Auditing.--The Secretary shall provide for 
     the annual auditing of the financial records (including data 
     relating to medicare utilization, costs, and computation of 
     the adjusted community rate) of at least one-third of the 
     Medicare Choice organizations offering Medicare Choice plans 
     under this part. The Comptroller General shall monitor 
     auditing activities conducted under this subsection.
       ``(h) Prohibition of State Imposition of Premium Taxes.--No 
     State may impose a premium tax or similar tax with respect to 
     payments on Medicare Choice plans or the offering of such 
     plans.


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

       ``Sec. 1855. (a) Organized and Licensed Under State Law.--
       ``(1) In general.--Subject to paragraphs (2) and (3), a 
     Medicare Choice organization shall be organized and licensed 
     under State law as a risk-bearing entity eligible to offer 
     health insurance or health benefits coverage in each State in 
     which it offers a Medicare Choice plan.
       ``(2) Special exception before 2001 for provider-sponsored 
     organizations.--
       ``(A) In general.--In the case of a provider-sponsored 
     organization that seeks to offer a Medicare Choice plan in a 
     State, the Secretary shall waive the requirement of paragraph 
     (1) that the organization be licensed in that State for any 
     year before 2001 if--
       ``(i) the organization files an application for such waiver 
     with the Secretary, and
       ``(ii) the contract with the organization under section 
     1857 requires the organization to meet all requirements of 
     State law which relate to the licensing of the organization 
     (other than solvency requirements or a prohibition on 
     licensure for such organization).
       ``(B) Treatment of waiver.--
       ``(i) In general.--In the case of a waiver granted under 
     this paragraph for a provider-sponsored organization--

       ``(I) the waiver shall be effective for the years specified 
     in the waiver, except it may be renewed based on a subsequent 
     application, and
       ``(II) subject to subparagraph (A)(ii), any provisions of 
     State law which would otherwise prohibit the organization 
     from providing coverage pursuant to a contract under this 
     part shall be superseded.

       ``(ii) Termination.--A waiver granted under this paragraph 
     shall in no event extend beyond the earlier of--

       ``(I) December 31, 2000; or
       ``(II) the date on which the Secretary determines that the 
     State has in effect solvency standards identical to the 
     standards established under section 1856(a).

       ``(C) Prompt action on application.--The Secretary shall 
     grant or deny such a waiver application within 60 days after 
     the date the Secretary determines that a substantially 
     complete application has been filed.
       ``(D) Enforcement of state standards.--
       ``(i) In general.--The Secretary shall enter into 
     agreements with States subject to a waiver under this 
     paragraph to ensure the adequate enforcement of standards 
     incorporated into the contract under subparagraph (A)(ii). 
     Such agreements shall provide methods by which States may 
     notify the Secretary of any failure by an organization to 
     comply with such standards.
       ``(ii) Enforcement.--If the Secretary determines that an 
     organization is not in compliance with the standards 
     described in clause (i), the Secretary shall take appropriate 
     actions under subsections (g) and (h) with respect to civil 
     penalties and termination of the contract. The Secretary 
     shall allow an organization 60 days to comply with the 
     standards after notification of failure.
       ``(E) Report.--The Secretary shall, not later than December 
     31, 1998, report to Congress on the waiver procedure in 
     effect under this paragraph. Such report shall include an 
     analysis of State efforts to adopt regulatory standards that 
     take into account health plan sponsors that provide services 
     directly to enrollees through affiliated providers.
       ``(3) Exception if required to offer more than medicare 
     choice plans.--Paragraph (1) shall not apply to a Medicare 
     Choice organization in a State if the State requires the 
     organization, as a condition of licensure, to offer any 
     product or plan other than a Medicare Choice plan.
       ``(4) Licensure does not substitute for or constitute 
     certification.--The fact that an organization is licensed in 
     accordance with paragraph (1) does not deem the organization 
     to meet other requirements imposed under this part.
       ``(b) Prepaid Payment.--A Medicare Choice organization 
     shall be compensated (except for premiums, deductibles, 
     coinsurance, and copayments) for the provision of health care 
     services to enrolled members under the contract under this 
     part by a payment which is paid on a periodic basis without 
     regard to the date the health care services are provided and 
     which is fixed without regard to the frequency, extent, or 
     kind of health care service actually provided to a member.
       ``(c) Assumption of Full Financial Risk.--The Medicare 
     Choice organization shall assume full financial risk on a 
     prospective basis for the provision of the health care 
     services (except, at the election of the organization, 
     hospice care) for which benefits are required to be provided 
     under section 1852(a)(1), except that the organization--
       ``(1) may obtain insurance or make other arrangements for 
     the cost of providing to any enrolled member such services 
     the aggregate value of which for any year exceeds the 
     applicable amount determined under the last sentence of this 
     subsection for the year,
       ``(2) may obtain insurance or make other arrangements for 
     the cost of such services provided to its enrolled members 
     other than through the organization because medical necessity 
     required their provision before they could be secured through 
     the organization,
       ``(3) may obtain insurance or make other arrangements for 
     not more than 90 percent of the amount by which its costs for 
     any of its fiscal years exceed 115 percent of its income for 
     such fiscal year, and
       ``(4) may make arrangements with physicians or other health 
     professionals, health care institutions, or any combination 
     of such individuals or institutions to assume all or part of 
     the financial risk on a prospective basis for the provision 
     of basic health services by the physicians or other health 
     professionals or through the institutions.
     For purposes of paragraph (1), the applicable amount for 1998 
     is the amount established by the Secretary, and for 1999 and 
     any succeeding year is the amount in effect for the previous 
     year increased by the percentage change in the Consumer Price 
     Index for all urban consumers (U.S. city average) for the 12-
     month period ending with June of the previous year.
       ``(d) Certification of Provision Against Risk of Insolvency 
     for PSOs.--
       ``(1) In general.--Each Medicare Choice organization that 
     is a provider-sponsored organization with a waiver in effect 
     under subsection (a)(2) shall meet the standards established 
     under section 1856(a) with respect to the financial solvency 
     and capital adequacy of the organization.
       ``(2) Certification process for solvency standards for 
     psos.--The Secretary shall establish a process for the 
     receipt and approval of applications of a provider-sponsored 
     organization for certification (and periodic recertification) 
     of the organization as meeting such solvency standards. Under 
     such process, the Secretary shall act upon such an 
     application not later than 60 days after the date the 
     application has been received.
       ``(e) Provider-Sponsored Organization Defined.--
       ``(1) In general.--In this part, the term `provider-
     sponsored organization' means a public or private entity--
       ``(A) that is established or organized and operated by a 
     local health care provider, or local group of affiliated 
     health care providers,
       ``(B) that provides a substantial proportion (as defined by 
     the Secretary in accordance with paragraph (2)) of the health 
     care items and services under the contract under this part 
     directly through the provider or affiliated group of 
     providers, and

[[Page S6581]]

       ``(C) with respect to which those affiliated providers that 
     share, directly or indirectly, substantial financial risk 
     with respect to the provision of such items and services have 
     at least a majority financial interest in the entity.
       ``(2) Substantial proportion.--In defining what is a 
     `substantial proportion' for purposes of paragraph (1)(B), 
     the Secretary--
       ``(A) shall take into account the need for such an 
     organization to assume responsibility for providing--
       ``(i) significantly more than the majority of the items and 
     services under the contract under this section through its 
     own affiliated providers; and
       ``(ii) most of the remainder of the items and services 
     under the contract through providers with which the 
     organization has an agreement to provide such items and 
     services,
     in order to assure financial stability and to address the 
     practical considerations involved in integrating the delivery 
     of a wide range of service providers;
       ``(B) shall take into account the need for such an 
     organization to provide a limited proportion of the items and 
     services under the contract through providers that are 
     neither affiliated with nor have an agreement with the 
     organization; and
       ``(C) may allow for variation in the definition of 
     substantial proportion among such organizations based on 
     relevant differences among the organizations, such as their 
     location in an urban or rural area.
       ``(3) Affiliation.--For purposes of this subsection, a 
     provider is `affiliated' with another provider if, through 
     contract, ownership, or otherwise--
       ``(A) one provider, directly or indirectly, controls, is 
     controlled by, or is under common control with the other,
       ``(B) both providers are part of a controlled group of 
     corporations under section 1563 of the Internal Revenue Code 
     of 1986,
       ``(C) each provider is a participant in a lawful 
     combination under which each provider shares substantial 
     financial risk in connection with the organization's 
     operations, or
       ``(D) both providers are part of an affiliated service 
     group under section 414 of such Code.
       ``(4) Control.--For purposes of paragraph (3), control is 
     presumed to exist if one party, directly or indirectly, owns, 
     controls, or holds the power to vote, or proxies for, not 
     less than 51 percent of the voting rights or governance 
     rights of another.
       ``(5) Health care provider defined.--In this subsection, 
     the term `health care provider' means--
       ``(A) any individual who is engaged in the delivery of 
     health care services in a State and who is required by State 
     law or regulation to be licensed or certified by the State to 
     engage in the delivery of such services in the State, and
       ``(B) any entity that is engaged in the delivery of health 
     care services in a State and that, if it is required by State 
     law or regulation to be licensed or certified by the State to 
     engage in the delivery of such services in the State, is so 
     licensed.
       ``(6) Regulations.--The Secretary shall issue regulations 
     to carry out this subsection.


                      ``establishment of standards

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


             ``contracts with medicare choice organizations

       ``Sec. 1857. (a) In General.--The Secretary shall not 
     permit the election under section 1851 of a Medicare Choice 
     plan offered by a Medicare Choice organization under this 
     part, and no payment shall be made under section 1853 to an 
     organization, unless the Secretary has entered into a 
     contract under this section with the organization with 
     respect to the offering of such plan. Such a contract with an 
     organization may cover more than 1 Medicare Choice plan. Such 
     contract shall provide that the organization agrees to comply 
     with the applicable requirements and standards of this part 
     and the terms and conditions of payment as provided for in 
     this part.
       ``(b) Minimum Enrollment Requirements.--
       ``(1) In general.--Subject to paragraph (2), the Secretary 
     may not enter into a contract under this section with a 
     Medicare Choice organization unless the organization has at 
     least 1,500 individuals who are receiving health benefits 
     through the organization (500 such individuals if the 
     organization primarily serves individuals residing outside of 
     urbanized areas).
       ``(2) Allowing transition.--The Secretary may waive the 
     requirement of paragraph (1) during the first 2 contract 
     years with respect to an organization.
       ``(3) Special rule for pso.--In the case of a Medicare 
     Choice organization which is a provider-sponsored 
     organization, paragraph (1) shall be applied by taking into 
     account individuals for whom the organization has assumed 
     substantial financial risk.
       ``(c) Contract Period and Effectiveness.--
       ``(1) Period.--Each contract under this section shall be 
     for a term of at least 1 year, as determined by the 
     Secretary, and may be made

[[Page S6582]]

     automatically renewable from term to term in the absence of 
     notice by either party of intention to terminate at the end 
     of the current term.
       ``(2) Termination authority.--In accordance with procedures 
     established under subsection (h), the Secretary may at any 
     time terminate any such contract, or may impose the 
     intermediate sanctions described in an applicable paragraph 
     of subsection (g)(3) on the Medicare Choice organization, if 
     the Secretary determines that the organization--
       ``(A) has failed substantially to carry out the contract;
       ``(B) is carrying out the contract in a manner inconsistent 
     with the efficient and effective administration of this part; 
     or
       ``(C) no longer substantially meets the applicable 
     conditions of this part.
       ``(3) Effective date of contracts.--The effective date of 
     any contract executed pursuant to this section shall be 
     specified in the contract, except that in no case shall a 
     contract under this section which provides for coverage under 
     an MSA plan be effective before January 1999 with respect to 
     such coverage.
       ``(4) Previous terminations.--The Secretary may not enter 
     into a contract with a Medicare Choice organization if a 
     previous contract with that organization under this section 
     was terminated at the request of the organization within the 
     preceding 5-year period, except in circumstances which 
     warrant special consideration, as determined by the 
     Secretary.
       ``(5) No contracting authority.--The authority vested in 
     the Secretary by this part may be performed without regard to 
     such provisions of law or regulations relating to the making, 
     performance, amendment, or modification of contracts of the 
     United States as the Secretary may determine to be 
     inconsistent with the furtherance of the purpose of this 
     title.
       ``(d) Protections Against Fraud and Beneficiary 
     Protections.--
       ``(1) Inspection and audit.--Each contract under this 
     section shall provide that the Secretary, or any person or 
     organization designated by the Secretary--
       ``(A) shall have the right to inspect or otherwise evaluate 
     (i) the quality, appropriateness, and timeliness of services 
     performed under the contract and (ii) the facilities of the 
     organization when there is reasonable evidence of some need 
     for such inspection, and
       ``(B) shall have the right to audit and inspect any books 
     and records of the Medicare Choice organization that pertain 
     (i) to the ability of the organization to bear the risk of 
     potential financial losses, or (ii) to services performed or 
     determinations of amounts payable under the contract.
       ``(2) Enrollee notice at time of termination.--Each 
     contract under this section shall require the organization to 
     provide (and pay for) written notice in advance of the 
     contract's termination, as well as a description of 
     alternatives for obtaining benefits under this title, to each 
     individual enrolled with the organization under this part.
       ``(3) Disclosure.--
       ``(A) In general.--Each Medicare Choice organization shall, 
     in accordance with regulations of the Secretary, report to 
     the Secretary financial information which shall include the 
     following:
       ``(i) Such information as the Secretary may require 
     demonstrating that the organization has a fiscally sound 
     operation.
       ``(ii) A copy of the report, if any, filed with the Health 
     Care Financing Administration containing the information 
     required to be reported under section 1124 by disclosing 
     entities.
       ``(iii) A description of transactions, as specified by the 
     Secretary, between the organization and a party in interest. 
     Such transactions shall include--

       ``(I) any sale or exchange, or leasing of any property 
     between the organization and a party in interest;
       ``(II) any furnishing for consideration of goods, services 
     (including management services), or facilities between the 
     organization and a party in interest, but not including 
     salaries paid to employees for services provided in the 
     normal course of their employment and health services 
     provided to members by hospitals and other providers and by 
     staff, medical group (or groups), individual practice 
     association (or associations), or any combination thereof; 
     and
       ``(III) any lending of money or other extension of credit 
     between an organization and a party in interest.

     The Secretary may require that information reported 
     respecting an organization which controls, is controlled by, 
     or is under common control with, another entity be in the 
     form of a consolidated financial statement for the 
     organization and such entity.
       ``(B) Party in interest defined.--For the purposes of this 
     paragraph, the term `party in interest' means--
       ``(i) any director, officer, partner, or employee 
     responsible for management or administration of a Medicare 
     Choice organization, any person who is directly or indirectly 
     the beneficial owner of more than 5 percent of the equity of 
     the organization, any person who is the beneficial owner of a 
     mortgage, deed of trust, note, or other interest secured by, 
     and valuing more than 5 percent of the organization, and, in 
     the case of a Medicare Choice organization organized as a 
     nonprofit corporation, an incorporator or member of such 
     corporation under applicable State corporation law;
       ``(ii) any entity in which a person described in clause 
     (i)--

       ``(I) is an officer or director;
       ``(II) is a partner (if such entity is organized as a 
     partnership);
       ``(III) has directly or indirectly a beneficial interest of 
     more than 5 percent of the equity; or
       ``(IV) has a mortgage, deed of trust, note, or other 
     interest valuing more than 5 percent of the assets of such 
     entity;

       ``(iii) any person directly or indirectly controlling, 
     controlled by, or under common control with an organization; 
     and
       ``(iv) any spouse, child, or parent of an individual 
     described in clause (i).
       ``(C) Access to information.--Each Medicare Choice 
     organization shall make the information reported pursuant to 
     subparagraph (A) available to its enrollees upon reasonable 
     request.
       ``(4) Loan information.--The contract shall require the 
     organization to notify the Secretary of loans and other 
     special financial arrangements which are made between the 
     organization and subcontractors, affiliates, and related 
     parties.
       ``(e) Additional Contract Terms.--
       ``(1) In general.--The contract shall contain such other 
     terms and conditions not inconsistent with this part 
     (including requiring the organization to provide the 
     Secretary with such information) as the Secretary may find 
     necessary and appropriate.
       ``(2) Cost-sharing in enrollment-related costs.--The 
     contract with a Medicare Choice organization shall require 
     the payment to the Secretary for the organization's pro rata 
     share (as determined by the Secretary) of the estimated costs 
     to be incurred by the Secretary in carrying out section 1851 
     (relating to enrollment and dissemination of information). 
     Such payments are appropriated to defray the costs described 
     in the preceding sentence, to remain available until 
     expended.
       ``(3) Notice to enrollees in case of decertification.--If a 
     contract with a Medicare Choice organization is terminated 
     under this section, the organization shall notify each 
     enrollee with the organization under this part of such 
     termination.
       ``(f) Prompt Payment by Medicare Choice Organization.--
       ``(1) Requirement.--A contract under this part shall 
     require a Medicare Choice organization to provide prompt 
     payment (consistent with the provisions of sections 
     1816(c)(2) and 1842(c)(2)) of claims submitted for services 
     and supplies furnished to individuals pursuant to the 
     contract, if the services or supplies are not furnished under 
     a contract between the organization and the provider or 
     supplier.
       ``(2) Secretary's option to bypass noncomplying 
     organization.--In the case of a Medicare Choice eligible 
     organization which the Secretary determines, after notice and 
     opportunity for a hearing, has failed to make payments of 
     amounts in compliance with paragraph (1), the Secretary may 
     provide for direct payment of the amounts owed to providers 
     and suppliers for covered services and supplies furnished to 
     individuals enrolled under this part under the contract. If 
     the Secretary provides for the direct payments, the Secretary 
     shall provide for an appropriate reduction in the amount of 
     payments otherwise made to the organization under this part 
     to reflect the amount of the Secretary's payments (and the 
     Secretary's costs in making the payments).
       ``(g) Intermediate Sanctions.--
       ``(1) In general.--If the Secretary determines that a 
     Medicare Choice organization with a contract under this 
     section--
       ``(A) fails substantially to provide medically necessary 
     items and services that are required (under law or under the 
     contract) to be provided to an individual covered under the 
     contract, if the failure has adversely affected (or has 
     substantial likelihood of adversely affecting) the 
     individual;
       ``(B) imposes net monthly premiums on individuals enrolled 
     under this part in excess of the net monthly premiums 
     permitted;
       ``(C) acts to expel or to refuse to re-enroll an individual 
     in violation of the provisions of this part;
       ``(D) engages in any practice that would reasonably be 
     expected to have the effect of denying or discouraging 
     enrollment (except as permitted by this part) by eligible 
     individuals with the organization whose medical condition or 
     history indicates a need for substantial future medical 
     services;
       ``(E) misrepresents or falsifies information that is 
     furnished--
       ``(i) to the Secretary under this part, or
       ``(ii) to an individual or to any other entity under this 
     part;
       ``(F) fails to comply with the requirements of section 
     1852(j)(3); or
       ``(G) employs or contracts with any individual or entity 
     that is excluded from participation under this title under 
     section 1128 or 1128A for the provision of health care, 
     utilization review, medical social work, or administrative 
     services or employs or contracts with any entity for the 
     provision (directly or indirectly) through such an excluded 
     individual or entity of such services;
     the Secretary may provide, in addition to any other remedies 
     authorized by law, for any of the remedies described in 
     paragraph (2).
       ``(2) Remedies.--The remedies described in this paragraph 
     are--
       ``(A) civil money penalties of not more than $25,000 for 
     each determination under paragraph (1) or, with respect to a 
     determination under subparagraph (D) or (E)(i) of such 
     paragraph, of not more than $100,000 for each such 
     determination, plus, with respect to a determination under 
     paragraph (1)(B), double the excess amount charged in 
     violation of such paragraph (and the excess amount charged 
     shall be deducted from the penalty and returned to the 
     individual concerned), and plus, with respect to a 
     determination under paragraph (1)(D), $15,000 for each 
     individual not enrolled as a result of the practice involved,
       ``(B) suspension of enrollment of individuals under this 
     part after the date the Secretary notifies the organization 
     of a determination under paragraph (1) and until the 
     Secretary is satisfied that the basis for such determination 
     has been corrected and is not likely to recur, or

[[Page S6583]]

       ``(C) suspension of payment to the organization under this 
     part for individuals enrolled after the date the Secretary 
     notifies the organization of a determination under paragraph 
     (1) and until the Secretary is satisfied that the basis for 
     such determination has been corrected and is not likely to 
     recur.
       ``(3) Other intermediate sanctions.--In the case of a 
     Medicare Choice organization for which the Secretary makes a 
     determination under subsection (c)(2) the basis of which is 
     not described in paragraph (1), the Secretary may apply the 
     following intermediate sanctions:
       ``(A) Civil money penalties of not more than $25,000 for 
     each determination under subsection (c)(2) if the deficiency 
     that is the basis of the determination has directly adversely 
     affected (or has the substantial likelihood of adversely 
     affecting) an individual covered under the organization's 
     contract.
       ``(B) Civil money penalties of not more than $10,000 for 
     each week beginning after the initiation of procedures by the 
     Secretary under subsection (g) during which the deficiency 
     that is the basis of a determination under subsection (c)(2) 
     exists.
       ``(C) Suspension of enrollment of individuals under this 
     part after the date the Secretary notifies the organization 
     of a determination under subsection (c)(2) and until the 
     Secretary is satisfied that the deficiency that is the basis 
     for the determination has been corrected and is not likely to 
     recur.
       ``(4) Civil money penalties.--The provisions of section 
     1128A (other than subsections (a) and (b)) shall apply to a 
     civil money penalty under subsection (f) or under paragraph 
     (2) or (3) of this subsection in the same manner as they 
     apply to a civil money penalty or proceeding under section 
     1128A(a).
       ``(h) Procedures for Termination.--
       ``(1) In general.--The Secretary may terminate a contract 
     with a Medicare Choice organization under this section in 
     accordance with formal investigation and compliance 
     procedures established by the Secretary under which--
       ``(A) the Secretary provides the organization with the 
     reasonable opportunity to develop and implement a corrective 
     action plan to correct the deficiencies that were the basis 
     of the Secretary's determination under subsection (c)(2);
       ``(B) the Secretary shall impose more severe sanctions on 
     an organization that has a history of deficiencies or that 
     has not taken steps to correct deficiencies the Secretary has 
     brought to the organization's attention;
       ``(C) there are no unreasonable or unnecessary delays 
     between the finding of a deficiency and the imposition of 
     sanctions; and
       ``(D) the Secretary provides the organization with 
     reasonable notice and opportunity for hearing (including the 
     right to appeal an initial decision) before terminating the 
     contract.
       ``(2) Exception for imminent and serious risk to health.--
     Paragraph (1) shall not apply if the Secretary determines 
     that a delay in termination, resulting from compliance with 
     the procedures specified in such paragraph prior to 
     termination, would pose an imminent and serious risk to the 
     health of individuals enrolled under this part with the 
     organization.


                ``definitions; miscellaneous provisions

       ``Sec. 1859. (a) Definitions Relating to Medicare Choice 
     Organizations.--In this part--
       ``(1) Medicare choice organization.--The term `Medicare 
     Choice organization' means a public or private entity that is 
     certified under section 1856 as meeting the requirements and 
     standards of this part for such an organization.
       ``(2) Provider-sponsored organization.--The term `provider-
     sponsored organization' is defined in section 1855(e)(1).
       ``(b) Definitions Relating to Medicare Choice Plans.--
       ``(1) Medicare choice plan.--The term `Medicare Choice 
     plan' means health benefits coverage offered under a policy, 
     contract, or plan by a Medicare Choice organization pursuant 
     to and in accordance with a contract under section 1857.
       ``(2) Medicare Choice unrestricted fee-for-service plan.--
     The term `Medicare Choice unrestricted fee-for-service plan' 
     means a Medicare Choice plan that provides for coverage of 
     benefits without restrictions relating to utilization and 
     without regard to whether the provider has a contract or 
     other arrangement with the organization offering the plan for 
     the provision of such benefits.
       ``(3) MSA plan.--
       ``(A) In general.--The term `MSA plan' means a Medicare 
     Choice plan that--
       ``(i) provides reimbursement for at least the items and 
     services described in section 1852(a)(1) in a year but only 
     after the enrollee incurs countable expenses (as specified 
     under the plan) equal to the amount of an annual deductible 
     (described in subparagraph (B));
       ``(ii) counts as such expenses (for purposes of such 
     deductible) at least all amounts that would have been payable 
     under parts A and B, and that would have been payable by the 
     enrollee as deductibles, coinsurance, or copayments, if the 
     enrollee had elected to receive benefits through the 
     provisions of such parts;
       ``(iii) subject to clause (iv), provides, after such 
     deductible is met for a year and for all subsequent expenses 
     for items and services referred to in clause (i) in the year, 
     for a level of reimbursement that is not less than--

       ``(I) 100 percent of such expenses, or
       ``(II) 100 percent of the amounts that would have been paid 
     (without regard to any deductibles or coinsurance) under 
     parts A and B with respect to such expenses,

     whichever is less; and
       ``(iv) provides that the annual out-of-pocket expenses 
     required to be paid under the plan (other than for premiums) 
     for covered benefits does not exceed the amount in effect 
     under section 220(c)(2)(A)(iii)(I) of the Internal Revenue 
     Code of 1986 for the year.
       ``(B) Deductible.--The amount of annual deductible under an 
     MSA plan shall not be less than or more than the amounts in 
     excess under section 220(c)(2)(A)(i) of the Internal Revenue 
     Code of 1986 for the year.
       ``(c) Other References to Other Terms.--
       ``(1) Medicare choice eligible individual.--The term 
     `Medicare Choice eligible individual' is defined in section 
     1851(a)(3).
       ``(2) Medicare choice payment area.--The term `Medicare 
     Choice payment area' is defined in section 1853(d).
       ``(3) National average per capita growth percentage.--The 
     `national average per capita growth percentage' is defined in 
     section 1853(c)(6).
       ``(4) Monthly premium; net monthly premium.--The terms 
     `monthly premium' and `net monthly premium' are defined in 
     section 1854(a)(2).
       ``(d) Coordinated Acute and Long-Term Care Benefits Under a 
     Medicare Choice Plan.--Nothing in this part shall be 
     construed as preventing a State from coordinating benefits 
     under a medicaid plan under title XIX with those provided 
     under a Medicare Choice plan in a manner that assures 
     continuity of a full-range of acute care and long-term care 
     services to poor elderly or disabled individuals eligible for 
     benefits under this title and under such plan.
       ``(e) Restriction on Enrollment for Certain Medicare Choice 
     Plans.--
       ``(1) In general.--In the case of a Medicare Choice 
     religious fraternal benefit society plan described in 
     paragraph (2), notwithstanding any other provision of this 
     part to the contrary and in accordance with regulations of 
     the Secretary, the society offering the plan may restrict the 
     enrollment of individuals under this part to individuals who 
     are members of the church, convention, or group described in 
     paragraph (3)(B) with which the society is affiliated.
       ``(2) Medicare choice religious fraternal benefit society 
     plan described.--For purposes of this subsection, a Medicare 
     Choice religious fraternal benefit society plan described in 
     this paragraph is a Medicare Choice plan described in section 
     1851(a)(2)(A) that--
       ``(A) is offered by a religious fraternal benefit society 
     described in paragraph (3) only to members of the church, 
     convention, or group described in paragraph (3)(B); and
       ``(B) permits all such members to enroll under the plan 
     without regard to health status-related factors.
     Nothing in this subsection shall be construed as waiving any 
     plan requirements relating to financial solvency. In 
     developing solvency standards under section 1856, the 
     Secretary shall take into account open contract and 
     assessment features characteristic of fraternal insurance 
     certificates.
       ``(3) Religious fraternal benefit society defined.--For 
     purposes of paragraph (2)(A), a `religious fraternal benefit 
     society' described in this section is an organization that--
       ``(A) is exempt from Federal income taxation under section 
     501(c)(8) of the Internal Revenue Code of 1986;
       ``(B) is affiliated with, carries out the tenets of, and 
     shares a religious bond with, a church or convention or 
     association of churches or an affiliated group of churches;
       ``(C) offers, in addition to a Medicare Choice religious 
     fraternal benefit society plan, at least the same level of 
     health coverage to individuals not entitled to benefits under 
     this title who are members of such church, convention, or 
     group; and
       ``(D) does not impose any limitation on membership in the 
     society based on any health status-related factor.
       ``(4) Payment adjustment.--Under regulations of the 
     Secretary, in the case of individuals enrolled under this 
     part under a Medicare Choice religious fraternal benefit 
     society plan described in paragraph (2), the Secretary shall 
     provide for such adjustment to the payment amounts otherwise 
     established under section 1854 as may be appropriate to 
     assure an appropriate payment level, taking into account the 
     actuarial characteristics and experience of such 
     individuals.''.

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

       (a) Authorizing Transitional Waiver of 50:50 Rule.--Section 
     1876(f) (42 U.S.C. 1395mm(f)) is amended--
       (1) in paragraph (1)--
       (A) by striking ``Each'' and inserting ``For contract 
     periods beginning before January 1, 1999, each''; and
       (B) by striking ``or under a State plan approved under 
     title XIX'';
       (2) in paragraph (2), by striking ``The Secretary'' and 
     inserting ``Subject to paragraph (4), the Secretary'', and
       (3) by adding at the end the following:
       ``(4) The Secretary may waive the requirement imposed by 
     paragraph (1) if the Secretary determines that the plan meets 
     all other beneficiary protections and quality standards under 
     this section.''.
       (b) Transition.--Section 1876 (42 U.S.C. 1395mm) is amended 
     by adding at the end the following new subsection:
       ``(k)(1) Except as provided in paragraph (2) or (3), the 
     Secretary shall not enter into, renew, or continue any risk-
     sharing contract under this section with an eligible 
     organization for any contract year beginning on or after--
       ``(A) the date standards for Medicare Choice organizations 
     and plans are first established under section 1856 with 
     respect to Medicare Choice organizations that are insurers or 
     health maintenance organizations, or
       ``(B) in the case of such an organization with such a 
     contract in effect as of the date such standards were first 
     established, 1 year after such date.

[[Page S6584]]

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

     SEC. 5003. CONFORMING CHANGES IN MEDIGAP PROGRAM.

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

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

     SEC. 5006. MEDICARE CHOICE MSA.

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

     ``SEC. 138. MEDICARE CHOICE MSA.

       ``(a) Exclusion.--Gross income shall not include any 
     payment to the Medicare Choice MSA of an individual by the 
     Secretary of Health and Human Services under part C of title 
     XVIII of the Social Security Act.
       ``(b) Medicare Choice MSA.--For purposes of this section, 
     the term `Medicare Choice MSA' means a medical savings 
     account (as defined in section 220(d))--
       ``(1) which is designated as a Medicare Choice MSA,
       ``(2) with respect to which no contribution may be made 
     other than--
       ``(A) a contribution made by the Secretary of Health and 
     Human Services pursuant to part C of title XVIII of the 
     Social Security Act, or
       ``(B) a trustee-to-trustee transfer described in subsection 
     (c)(4),
       ``(3) the governing instrument of which provides that 
     trustee-to-trustee transfers described in subsection (c)(4) 
     may be made to and from such account, and
       ``(4) which is established in connection with an MSA plan 
     described in section 1859(b)(3) of the Social Security Act.
       ``(c) Special Rules for Distributions.--
       ``(1) Distributions for qualified medical expenses.--In 
     applying section 220 to a Medicare Choice MSA--
       ``(A) qualified medical expenses shall not include amounts 
     paid for medical care for any individual other than the 
     account holder, and
       ``(B) section 220(d)(2)(C) shall not apply.
       ``(2) Penalty for distributions from medicare choice msa 
     not used for qualified medical expenses if minimum balance 
     not maintained.--
       ``(A) In general.--The tax imposed by this chapter for any 
     taxable year in which there is a payment or distribution from 
     a Medicare Choice MSA which is not used exclusively to pay 
     the qualified medical expenses of the account holder shall be 
     increased by 50 percent of the excess (if any) of--
       ``(i) the amount of such payment or distribution, over
       ``(ii) the excess (if any) of--

       ``(I) the fair market value of the assets in such MSA as of 
     the close of the calendar year preceding the calendar year in 
     which the taxable year begins, over
       ``(II) an amount equal to 60 percent of the deductible 
     under the Medicare Choice MSA plan covering the account 
     holder as of January 1 of the calendar year in which the 
     taxable year begins.

     Section 220(f)(2) shall not apply to any payment or 
     distribution from a Medicare Choice MSA.
       ``(B) Exceptions.--Subparagraph (A) shall not apply if the 
     payment or distribution is made on or after the date the 
     account holder--
       ``(i) becomes disabled within the meaning of section 
     72(m)(7), or
       ``(ii) dies.
       ``(C) Special rules.--For purposes of subparagraph (A)--
       ``(i) all Medicare Choice MSAs of the account holder shall 
     be treated as 1 account,
       ``(ii) all payments and distributions not used exclusively 
     to pay the qualified medical expenses of the account holder 
     during any taxable year shall be treated as 1 distribution, 
     and
       ``(iii) any distribution of property shall be taken into 
     account at its fair market value on the date of the 
     distribution.
       ``(3) Withdrawal of erroneous contributions.--Section 
     220(f)(2) and paragraph (2) of this subsection shall not 
     apply to any payment or distribution from a Medicare Choice 
     MSA to the Secretary of Health and Human Services of an 
     erroneous contribution to such MSA and of the net income 
     attributable to such contribution.
       ``(4) Trustee-to-trustee transfers.--Section 220(f)(2) and 
     paragraph (2) of this subsection shall not apply to any 
     trustee-to-trustee transfer from a Medicare Choice MSA of an 
     account holder to another Medicare Choice MSA of such account 
     holder.
       ``(d) Special Rules for Treatment of Account After Death of 
     Account Holder.--In applying section 220(f)(8)(A) to an 
     account which was a Medicare Choice MSA of a decedent, the 
     rules of section 220(f) shall apply in lieu of the rules of 
     subsection (c) of this section with respect to the spouse as 
     the account holder of such Medicare Choice MSA.
       ``(e) Reports.--In the case of a Medicare Choice MSA, the 
     report under section 220(h)--

[[Page S6585]]

       ``(1) shall include the fair market value of the assets in 
     such Medicare Choice MSA as of the close of each calendar 
     year, and
       ``(2) shall be furnished to the account holder--
       ``(A) not later than January 31 of the calendar year 
     following the calendar year to which such reports relate, and
       ``(B) in such manner as the Secretary prescribes in such 
     regulations.
       ``(f) Coordination With Limitation on Number of Taxpayers 
     Having Medical Savings Accounts.--Subsection (i) of section 
     220 shall not apply to an individual with respect to a 
     Medicare Choice MSA, and Medicare Choice MSA's shall not be 
     taken into account in determining whether the numerical 
     limitations under section 220(j) are exceeded.''.
       (b) Technical Amendments.--
       (1) The last sentence of section 4973(d) of such Code is 
     amended by inserting ``or section 138(c)(3)'' after ``section 
     220(f)(3)''.
       (2) Subsection (b) of section 220 of such Code is amended 
     by adding at the end the following new paragraph:
       ``(7) Medicare eligible individuals.--The limitation under 
     this subsection for any month with respect to an individual 
     shall be zero for the first month such individual is entitled 
     to benefits under title XVIII of the Social Security Act and 
     for each month thereafter.''.
       (3) The table of sections for part III of subchapter B of 
     chapter 1 of such Code is amended by striking the last item 
     and inserting the following:

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

             CHAPTER 2--INTEGRATED LONG-TERM CARE PROGRAMS

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

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

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


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

       ``Sec. 1894. (a) Receipt of Benefits Through Enrollment in 
     PACE Program; Definitions for PACE Program Related Terms.--
       ``(1) Benefits through enrollment in a pace program.--In 
     accordance with this section, in the case of an individual 
     who is entitled to benefits under part A or enrolled under 
     part B and who is a PACE program eligible individual (as 
     defined in paragraph (5)) with respect to a PACE program 
     offered by a PACE provider under a PACE program agreement--
       ``(A) the individual may enroll in the program under this 
     section; and
       ``(B) so long as the individual is so enrolled and in 
     accordance with regulations--
       ``(i) the individual shall receive benefits under this 
     title solely through such program; and
       ``(ii) the PACE provider is entitled to payment under and 
     in accordance with this section and such agreement for 
     provision of such benefits.
       ``(2) PACE program defined.--For purposes of this section 
     and section 1932, the term `PACE program' means a program of 
     all-inclusive care for the elderly that meets the following 
     requirements:
       ``(A) Operation.--The entity operating the program is a 
     PACE provider (as defined in paragraph (3)).
       ``(B) Comprehensive benefits.--The program provides 
     comprehensive health care services to PACE program eligible 
     individuals in accordance with the PACE program agreement and 
     regulations under this section.
       ``(C) Transition.--In the case of an individual who is 
     enrolled under the program under this section and whose 
     enrollment ceases for any reason (including that the 
     individual no longer qualifies as a PACE program eligible 
     individual, the termination of a PACE program agreement, or 
     otherwise), the program provides assistance to the individual 
     in obtaining necessary transitional care through appropriate 
     referrals and making the individual's medical records 
     available to new providers.
       ``(3) PACE provider defined.--
       ``(A) In general.--For purposes of this section, the term 
     `PACE provider' means an entity that--
       ``(i) subject to subparagraph (B), is (or is a distinct 
     part of) a public entity or a private, nonprofit entity 
     organized for charitable purposes under section 501(c)(3) of 
     the Internal Revenue Code of 1986; and
       ``(ii) has entered into a PACE program agreement with 
     respect to its operation of a PACE program.
       ``(B) Treatment of private, for-profit providers.--Clause 
     (i) of subparagraph (A) shall not apply--
       ``(i) to entities subject to a demonstration project waiver 
     under subsection (h); and
       ``(ii) after the date the report under section 5013(b) of 
     the Balanced Budget Act of 1997 is submitted, unless the 
     Secretary determines that any of the findings described in 
     subparagraph (A), (B), (C), or (D) of paragraph (2) of such 
     section are true.
       ``(4) PACE program agreement defined.--For purposes of this 
     section, the term `PACE program agreement' means, with 
     respect to a PACE provider, an agreement, consistent with 
     this section, section 1932 (if applicable), and regulations 
     promulgated to carry out such sections, between the PACE 
     provider and the Secretary, or an agreement between the PACE 
     provider and a State administering agency for the operation 
     of a PACE program by the provider under such sections.
       ``(5) PACE program eligible individual defined.--For 
     purposes of this section, the term `PACE program eligible 
     individual' means, with respect to a PACE program, an 
     individual who--
       ``(A) is 55 years of age or older;
       ``(B) subject to subsection (c)(4), is determined under 
     subsection (c) to require the level of care required under 
     the State medicaid plan for coverage of nursing facility 
     services;
       ``(C) resides in the service area of the PACE program; and
       ``(D) meets such other eligibility conditions as may be 
     imposed under the PACE program agreement for the program 
     under subsection (e)(2)(A)(ii).
       ``(6) PACE protocol.--For purposes of this section, the 
     term `PACE protocol' means the Protocol for the Program of 
     All-inclusive Care for the Elderly (PACE), as published by On 
     Lok, Inc., as of April 14, 1995, or any successor protocol 
     that may be agreed upon between the Secretary and On Lok, 
     Inc.
       ``(7) PACE demonstration waiver program defined.--For 
     purposes of this section, the term `PACE demonstration waiver 
     program' means a demonstration program under either of the 
     following sections (as in effect before the date of their 
     repeal):
       ``(A) Section 603(c) of the Social Security Amendments of 
     1983 (Public Law 98-21), as extended by section 9220 of the 
     Consolidated Omnibus Budget Reconciliation Act of 1985 
     (Public Law 99-272).
       ``(B) Section 9412(b) of the Omnibus Budget Reconciliation 
     Act of 1986 (Public Law 99-509).
       ``(8) State administering agency defined.--For purposes of 
     this section, the term `State administering agency' means, 
     with respect to the operation of a PACE program in a State, 
     the agency of that State (which may be the single agency 
     responsible for administration of the State plan under title 
     XIX in the State) responsible for administering PACE program 
     agreements under this section and section 1932 in the State.
       ``(9) Trial period defined.--
       ``(A) In general.--For purposes of this section, the term 
     `trial period' means, with respect to a PACE program operated 
     by a PACE provider under a PACE program agreement, the first 
     3 contract years under such agreement with respect to such 
     program.
       ``(B) Treatment of entities previously operating pace 
     demonstration waiver programs.--Each contract year (including 
     a year occurring before the effective date of this section) 
     during which an entity has operated a PACE demonstration 
     waiver program shall be counted under subparagraph (A) as a 
     contract year during which the entity operated a PACE program 
     as a PACE provider under a PACE program agreement.
       ``(10) Regulations.--For purposes of this section, the term 
     `regulations' refers to interim final or final regulations 
     promulgated under subsection (f) to carry out this section 
     and section 1932.
       ``(b) Scope of Benefits; Beneficiary Safeguards.--
       ``(1) In general.--Under a PACE program agreement, a PACE 
     provider shall--
       ``(A) provide to PACE program eligible individuals, 
     regardless of source of payment and directly or under 
     contracts with other entities, at a minimum--
       ``(i) all items and services covered under this title (for 
     individuals enrolled under this section) and all items and 
     services covered under title XIX, but without any limitation 
     or condition as to amount, duration, or scope and without 
     application of deductibles, copayments, coinsurance, or other 
     cost-sharing that would otherwise apply under this title or 
     such title, respectively; and
       ``(ii) all additional items and services specified in 
     regulations, based upon those required under the PACE 
     protocol;
       ``(B) provide such enrollees access to necessary covered 
     items and services 24 hours per day, every day of the year;
       ``(C) provide services to such enrollees through a 
     comprehensive, multidisciplinary health and social services 
     delivery system which integrates acute and long-term care 
     services pursuant to regulations; and
       ``(D) specify the covered items and services that will not 
     be provided directly by the entity, and to arrange for 
     delivery of those items and services through contracts 
     meeting the requirements of regulations.
       ``(2) Quality assurance; patient safeguards.--The PACE 
     program agreement shall require the PACE provider to have in 
     effect at a minimum--
       ``(A) a written plan of quality assurance and improvement, 
     and procedures implementing such plan, in accordance with 
     regulations; and
       ``(B) written safeguards of the rights of enrolled 
     participants (including a patient bill of rights and 
     procedures for grievances and appeals) in accordance with 
     regulations and with other requirements of this title and 
     Federal and State law that are designed for the protection of 
     patients.
       ``(c) Eligibility Determinations.--
       ``(1) In general.--The determination of whether an 
     individual is a PACE program eligible individual--
       ``(A) shall be made under and in accordance with the PACE 
     program agreement; and
       ``(B) who is entitled to medical assistance under title 
     XIX, shall be made (or who is not so entitled, may be made) 
     by the State administering agency.
       ``(2) Condition.--An individual is not a PACE program 
     eligible individual (with respect to payment under this 
     section) unless the individual's health status has been 
     determined by the Secretary or the State administering 
     agency, in accordance with regulations, to be comparable to 
     the health status of individuals who

[[Page S6586]]

     have participated in the PACE demonstration waiver programs. 
     Such determination shall be based upon information on health 
     status and related indicators (such as medical diagnoses and 
     measures of activities of daily living, instrumental 
     activities of daily living, and cognitive impairment) that 
     are part of a uniform minimum data set collected by PACE 
     providers on potential eligible individuals.
       ``(3) Annual eligibility recertifications.--
       ``(A) In general.--Subject to subparagraph (B), the 
     determination described in subsection (a)(5)(B) for an 
     individual shall be reevaluated at least annually.
       ``(B) Exception.--The requirement of annual reevaluation 
     under subparagraph (A) may be waived during a period in 
     accordance with regulations in those cases where the State 
     administering agency determines that there is no reasonable 
     expectation of improvement or significant change in an 
     individual's condition during the period because of the 
     advanced age, severity of the advanced age, severity of 
     chronic condition, or degree of impairment of functional 
     capacity of the individual involved.
       ``(4) Continuation of eligibility.--An individual who is a 
     PACE program eligible individual may be deemed to continue to 
     be such an individual notwithstanding a determination that 
     the individual no longer meets the requirement of subsection 
     (a)(5)(B) if, in accordance with regulations, in the absence 
     of continued coverage under a PACE program the individual 
     reasonably would be expected to meet such requirement within 
     the succeeding 6-month period.
       ``(5) Enrollment; disenrollment.--The enrollment and 
     disenrollment of PACE program eligible individuals in a PACE 
     program shall be pursuant to regulations and the PACE program 
     agreement and shall permit enrollees to voluntarily disenroll 
     without cause at any time. Such regulations and agreement 
     shall provide that the PACE program may not disenroll a PACE 
     program eligible individual on the ground that the individual 
     has engaged in noncompliant behavior if such behavior is 
     related to a mental or physical condition of the individual. 
     For purposes of the preceding sentence, the term 
     `noncompliant behavior' includes repeated noncompliance with 
     medical advice and repeated failure to appear for 
     appointments.
       ``(d) Payments to PACE Providers on a Capitated Basis.--
       ``(1) In general.--In the case of a PACE provider with a 
     PACE program agreement under this section, except as provided 
     in this subsection or by regulations, the Secretary shall 
     make prospective monthly payments of a capitation amount for 
     each PACE program eligible individual enrolled under the 
     agreement under this section in the same manner and from the 
     same sources as payments are made to an eligible organization 
     under a risk-sharing contract under section 1876. Such 
     payments shall be subject to adjustment in the manner 
     described in section 1876(a)(1)(E).
       ``(2) Capitation amount.--The capitation amount to be 
     applied under this subsection for a provider for a contract 
     year shall be an amount specified in the PACE program 
     agreement for the year. Such amount shall be based upon 
     payment rates established under section 1876 for risk-sharing 
     contracts and shall be adjusted to take into account the 
     comparative frailty of PACE enrollees and such other factors 
     as the Secretary determines to be appropriate. Such amount 
     under such an agreement shall be computed in a manner so that 
     the total payment level for all PACE program eligible 
     individuals enrolled under a program is less than the 
     projected payment under this title for a comparable 
     population not enrolled under a PACE program.
       ``(e) PACE Program Agreement.--
       ``(1) Requirement.--
       ``(A) In general.--The Secretary, in close cooperation with 
     the State administering agency, shall establish procedures 
     for entering into, extending, and terminating PACE program 
     agreements for the operation of PACE programs by entities 
     that meet the requirements for a PACE provider under this 
     section, section 1932, and regulations.
       ``(B) Numerical limitation.--
       ``(i) In general.--The Secretary shall not permit the 
     number of PACE providers with which agreements are in effect 
     under this section or under section 9412(b) of the Omnibus 
     Budget Reconciliation Act of 1986 to exceed--

       ``(I) 40 as of the date of the enactment of this section; 
     or
       ``(II) as of each succeeding anniversary of such date, the 
     numerical limitation under this subparagraph for the 
     preceding year plus 20.

     Subclause (II) shall apply without regard to the actual 
     number of agreements in effect as of a previous anniversary 
     date.
       ``(ii) Treatment of certain private, for-profit 
     providers.--The numerical limitation in clause (i) shall not 
     apply to a PACE provider that--

       ``(I) is operating under a demonstration project waiver 
     under subsection (h); or
       ``(II) was operating under such a waiver and subsequently 
     qualifies for PACE provider status pursuant to subsection 
     (a)(3)(B)(ii).

       ``(2) Service area and eligibility.--
       ``(A) In general.--A PACE program agreement for a PACE 
     program--
       ``(i) shall designate the service area of the program;
       ``(ii) may provide additional requirements for individuals 
     to qualify as PACE program eligible individuals with respect 
     to the program;
       ``(iii) shall be effective for a contract year, but may be 
     extended for additional contract years in the absence of a 
     notice by a party to terminate and is subject to termination 
     by the Secretary and the State administering agency at any 
     time for cause (as provided under the agreement);
       ``(iv) shall require a PACE provider to meet all applicable 
     State and local laws and requirements; and
       ``(v) shall have such additional terms and conditions as 
     the parties may agree to, provided that such terms and 
     conditions are consistent with this section and regulations.
       ``(B) Service area overlap.--In designating a service area 
     under a PACE program agreement under subparagraph (A)(i), the 
     Secretary (in consultation with the State administering 
     agency) may exclude from designation an area that is already 
     covered under another PACE program agreement, in order to 
     avoid unnecessary duplication of services and avoid impairing 
     the financial and service viability of an existing program.
       ``(3) Data collection; development of outcome measures.--
       ``(A) Data collection.--
       ``(i) In general.--Under a PACE program agreement, the PACE 
     provider shall--

       ``(I) collect data;
       ``(II) maintain, and afford the Secretary and the State 
     administering agency access to, the records relating to the 
     program, including pertinent financial, medical, and 
     personnel records; and
       ``(III) make to the Secretary and the State administering 
     agency reports that the Secretary finds (in consultation with 
     State administering agencies) necessary to monitor the 
     operation, cost, and effectiveness of the PACE program under 
     this Act.

       ``(ii) Requirements during trial period.--During the first 
     3 years of operation of a PACE program (either under this 
     section or under a PACE demonstration waiver program), the 
     PACE provider shall provide such additional data as the 
     Secretary specifies in regulations in order to perform the 
     oversight required under paragraph (4)(A).
       ``(B) Development of outcome measures.--Under a PACE 
     program agreement, the PACE provider, the Secretary, and the 
     State administering agency shall jointly cooperate in the 
     development and implementation of health status and quality 
     of life outcome measures with respect to PACE program 
     eligible individuals.
       ``(4) Oversight.--
       ``(A) Annual, close oversight during trial period.--During 
     the trial period (as defined in subsection (a)(9)) with 
     respect to a PACE program operated by a PACE provider, the 
     Secretary (in cooperation with the State administering 
     agency) shall conduct a comprehensive annual review of the 
     operation of the PACE program by the provider in order to 
     assure compliance with the requirements of this section and 
     regulations. Such a review shall include--
       ``(i) an on-site visit to the program site;
       ``(ii) comprehensive assessment of a provider's fiscal 
     soundness;
       ``(iii) comprehensive assessment of the provider's capacity 
     to provide all PACE services to all enrolled participants;
       ``(iv) detailed analysis of the entity's substantial 
     compliance with all significant requirements of this section 
     and regulations; and
       ``(v) any other elements the Secretary or State agency 
     considers necessary or appropriate.
       ``(B) Continuing oversight.--After the trial period, the 
     Secretary (in cooperation with the State administering 
     agency) shall continue to conduct such review of the 
     operation of PACE providers and PACE programs as may be 
     appropriate, taking into account the performance level of a 
     provider and compliance of a provider with all significant 
     requirements of this section and regulations.
       ``(C) Disclosure.--The results of reviews under this 
     paragraph shall be reported promptly to the PACE provider, 
     along with any recommendations for changes to the provider's 
     program, and shall be made available to the public upon 
     request.
       ``(5) Termination of pace provider agreements.--
       ``(A) In general.--Under regulations--
       ``(i) the Secretary or a State administering agency may 
     terminate a PACE program agreement for cause; and
       ``(ii) a PACE provider may terminate an agreement after 
     appropriate notice to the Secretary, the State agency, and 
     enrollees.
       ``(B) Causes for termination.--In accordance with 
     regulations establishing procedures for termination of PACE 
     program agreements, the Secretary or a State administering 
     agency may terminate a PACE program agreement with a PACE 
     provider for, among other reasons, the fact that--
       ``(i) the Secretary or State administering agency 
     determines that--

       ``(I) there are significant deficiencies in the quality of 
     care provided to enrolled participants; or
       ``(II) the provider has failed to comply substantially with 
     conditions for a program or provider under this section or 
     section 1932; and

       ``(ii) the entity has failed to develop and successfully 
     initiate, within 30 days of the receipt of written notice of 
     such a determination, a plan to correct the deficiencies, or 
     has failed to continue implementation of such a plan.
       ``(C) Termination and transition procedures.--An entity 
     whose PACE provider agreement is terminated under this 
     paragraph shall implement the transition procedures required 
     under subsection (a)(2)(C).
       ``(6) Secretary's oversight; enforcement authority.--
       ``(A) In general.--Under regulations, if the Secretary 
     determines (after consultation with the State administering 
     agency) that a PACE provider is failing substantially to 
     comply with the requirements of this section and regulations, 
     the Secretary (and the State administering agency) may take 
     any or all of the following actions:
       ``(i) Condition the continuation of the PACE program 
     agreement upon timely execution of a corrective action plan.
       ``(ii) Withhold some or all further payments under the PACE 
     program agreement under this

[[Page S6587]]

     section or section 1932 with respect to PACE program services 
     furnished by such provider until the deficiencies have been 
     corrected.
       ``(iii) Terminate such agreement.
       ``(B) Application of intermediate sanctions.--Under 
     regulations, the Secretary may provide for the application 
     against a PACE provider of remedies described in section 
     1876(i)(6)(B) or 1903(m)(5)(B) in the case of violations by 
     the provider of the type described in section 1876(i)(6)(A) 
     or 1903(m)(5)(A), respectively (in relation to agreements, 
     enrollees, and requirements under this section or section 
     1932, respectively).
       ``(7) Procedures for termination or imposition of 
     sanctions.--Under regulations, the provisions of section 
     1876(i)(9) shall apply to termination and sanctions 
     respecting a PACE program agreement and PACE provider under 
     this subsection in the same manner as they apply to a 
     termination and sanctions with respect to a contract and an 
     eligible organization under section 1876.
       ``(8) Timely consideration of applications for pace program 
     provider status.--In considering an application for PACE 
     provider program status, the application shall be deemed 
     approved unless the Secretary, within 90 days after the date 
     of the submission of the application to the Secretary, either 
     denies such request in writing or informs the applicant in 
     writing with respect to any additional information that is 
     needed in order to make a final determination with respect to 
     the application. After the date the Secretary receives such 
     additional information, the application shall be deemed 
     approved unless the Secretary, within 90 days of such date, 
     denies such request.
       ``(f) Regulations.--
       ``(1) In general.--The Secretary shall issue interim final 
     or final regulations to carry out this section and section 
     1932.
       ``(2) Use of pace protocol.--
       ``(A) In general.--In issuing such regulations, the 
     Secretary shall, to the extent consistent with the provisions 
     of this section, incorporate the requirements applied to PACE 
     demonstration waiver programs under the PACE protocol.
       ``(B) Flexibility.--In order to provide for reasonable 
     flexibility in adapting the PACE service delivery model to 
     the needs of particular organizations (such as those in rural 
     areas or those that may determine it appropriate to use 
     nonstaff physicians according to State licensing law 
     requirements) under this section and section 1932, the 
     Secretary (in close consultation with State administering 
     agencies) may modify or waive provisions of the PACE protocol 
     so long as any such modification or waiver is not 
     inconsistent with and would not impair the essential 
     elements, objectives, and requirements of this section, but 
     may not modify or waive any of the following provisions:
       ``(i) The focus on frail elderly qualifying individuals who 
     require the level of care provided in a nursing facility.
       ``(ii) The delivery of comprehensive, integrated acute and 
     long-term care services.
       ``(iii) The interdisciplinary team approach to care 
     management and service delivery.
       ``(iv) Capitated, integrated financing that allows the 
     provider to pool payments received from public and private 
     programs and individuals.
       ``(v) The assumption by the provider of full financial 
     risk.
       ``(3) Application of certain additional beneficiary and 
     program protections.--
       ``(A) In general.--In issuing such regulations and subject 
     to subparagraph (B), the Secretary may apply with respect to 
     PACE programs, providers, and agreements such requirements of 
     sections 1876 and 1903(m) relating to protection of 
     beneficiaries and program integrity as would apply to 
     eligible organizations under risk-sharing contracts under 
     section 1876 and to health maintenance organizations under 
     prepaid capitation agreements under section 1903(m).
       ``(B) Considerations.--In issuing such regulations, the 
     Secretary shall--
       ``(i) take into account the differences between populations 
     served and benefits provided under this section and under 
     sections 1876 and 1903(m);
       ``(ii) not include any requirement that conflicts with 
     carrying out PACE programs under this section; and
       ``(iii) not include any requirement restricting the 
     proportion of enrollees who are eligible for benefits under 
     this title or title XIX.
       ``(g) Waivers of Requirements.--With respect to carrying 
     out a PACE program under this section, the following 
     requirements of this title (and regulations relating to such 
     requirements) are waived and shall not apply:
       ``(1) Section 1812, insofar as it limits coverage of 
     institutional services.
       ``(2) Sections 1813, 1814, 1833, and 1886, insofar as such 
     sections relate to rules for payment for benefits.
       ``(3) Sections 1814(a)(2)(B), 1814(a)(2)(C), and 
     1835(a)(2)(A), insofar as they limit coverage of extended 
     care services or home health services.
       ``(4) Section 1861(i), insofar as it imposes a 3-day prior 
     hospitalization requirement for coverage of extended care 
     services.
       ``(5) Paragraphs (1) and (9) of section 1862(a), insofar as 
     they may prevent payment for PACE program services to 
     individuals enrolled under PACE programs.
       ``(h) Demonstration Project for For-Profit Entities.--
       ``(1) In general.--In order to demonstrate the operation of 
     a PACE program by a private, for-profit entity, the Secretary 
     (in close consultation with State administering agencies) 
     shall grant waivers from the requirement under subsection 
     (a)(3) that a PACE provider may not be a for-profit, private 
     entity.
       ``(2) Similar terms and conditions.--
       ``(A) In general.--Except as provided under subparagraph 
     (B), and paragraph (1), the terms and conditions for 
     operation of a PACE program by a provider under this 
     subsection shall be the same as those for PACE providers that 
     are nonprofit, private organizations.
       ``(B) Numerical limitation.--The number of programs for 
     which waivers are granted under this subsection shall not 
     exceed 10. Programs with waivers granted under this 
     subsection shall not be counted against the numerical 
     limitation specified in subsection (e)(1)(B).
       ``(i) Miscellaneous Provisions.--Nothing in this section or 
     section 1932 shall be construed as preventing a PACE provider 
     from entering into contracts with other governmental or 
     nongovernmental payers for the care of PACE program eligible 
     individuals who are not eligible for benefits under part A, 
     or enrolled under part B, or eligible for medical assistance 
     under title XIX.''.

     SEC. 5012. EFFECTIVE DATE; TRANSITION.

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

[[Page S6588]]

     transition from demonstration project authority to general 
     authority provided under the amendments made by this 
     subtitle.

     SEC. 5013. STUDY AND REPORTS.

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

         Subchapter B--Social Health Maintenance Organizations

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

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

                      Subchapter C--Other Programs

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

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

                         CHAPTER 3--COMMISSIONS

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

       (a) Establishment.--There is established a commission to be 
     known as the National Bipartisan Commission on the Future of 
     Medicare (in this section referred to as the ``Commission'').
       (b) Findings.--Congress finds that--
       (1) the medicare program under title XVIII of the Social 
     Security Act (42 U.S.C. 1395 et seq.) provides essential 
     health care coverage to this Nation's senior citizens and to 
     individuals with disabilities;
       (2) the Federal Hospital Insurance Trust Fund established 
     under that Act has been spending more than it receives since 
     1995, and will be bankrupt in the year 2001;
       (3) the Federal Hospital Insurance Trust Fund faces even 
     greater solvency problems in the long run with the aging of 
     the baby boom generation and the continuing decline in the 
     number of workers paying into the medicare program for each 
     medicare beneficiary;
       (4) the trustees of the trust funds of the medicare program 
     have reported that growth in spending within the Federal 
     Supplementary Medical Insurance Trust Fund established under 
     that Act is unsustainable; and
       (5) expeditious action is needed in order to restore the 
     financial integrity of the medicare program and to maintain 
     this Nation's commitment to senior citizens and to 
     individuals with disabilities.
       (c) Duties of the Commission.--The Commission shall--
       (1) review and analyze the long-term financial condition of 
     the medicare program under title XVIII of the Social Security 
     Act (42 U.S.C. 1395 et seq.);
       (2) identify problems that threaten the financial integrity 
     of the Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund established under 
     that title (42 U.S.C. 1395i, 1395t), including the extent to 
     which current medicare update indexes do not accurately 
     reflect inflation;
       (3) analyze potential solutions to the problems identified 
     under paragraph (2) that will ensure both the financial 
     integrity of the medicare program and the provision of 
     appropriate benefits under such program;
       (4) make recommendations to restore the solvency of the 
     Federal Hospital Insurance Trust Fund and the financial 
     integrity of the Federal Supplementary Medical Insurance 
     Trust Fund through the year 2030, when the last of the baby 
     boomers reaches age 65;
       (5) make recommendations for establishing the appropriate 
     financial structure of the medicare program as a whole;
       (6) make recommendations for establishing the appropriate 
     balance of benefits covered and beneficiary contributions to 
     the medicare program;
       (7) make recommendations for the time periods during which 
     the recommendations described in paragraphs (4), (5), and (6) 
     should be implemented;
       (8) make recommendations regarding the financing of 
     graduate medical education (GME), including consideration of 
     alternative broad-based sources of funding for such education 
     and funding for institutions not currently eligible for such 
     GME support under the medicare program that conduct approved 
     graduate medical residency programs, such as children's 
     hospitals;
       (9) make recommendations on the feasibility of allowing 
     individuals between the age of 62 and the medicare 
     eligibility age to buy into the medicare program;
       (10) make recommendations on the impact of chronic disease 
     and disability trends on future costs and quality of services 
     under the current benefit, financing, and delivery system 
     structure of the medicare program; and
       (11) review and analyze such other matters as the 
     Commission deems appropriate.
       (d) Membership.--
       (1) Number and appointment.--The Commission shall be 
     composed of 15 members, of whom--
       (A) three shall be appointed by the President;
       (B) six shall be appointed by the Majority Leader of the 
     Senate, in consultation with the Minority Leader of the 
     Senate, of whom not more than 4 shall be of the same 
     political party; and
       (C) six shall be appointed by the Speaker of the House of 
     Representatives, in consultation with the Minority Leader of 
     the House of Representatives, of whom not more than 4 shall 
     be of the same political party.
       (2) Comptroller general.--The Comptroller General of the 
     United States shall advise the Commission on the methodology 
     to be used in identifying problems and analyzing potential 
     solutions in accordance with the duties of the Commission 
     described in subsection (c).
       (3) Terms of appointment.--The members shall serve on the 
     Commission for the life of the Commission.
       (4) Meetings.--The Commission shall locate its headquarters 
     in the District of Columbia, and shall meet at the call of 
     the Chairperson.
       (5) Quorum.--Ten members of the Commission shall constitute 
     a quorum, but a lesser number may hold hearings.
       (6) Chairperson.--The Speaker of the House of 
     Representatives, in consultation with the Majority Leader of 
     the Senate, shall designate 1 of the members appointed under 
     paragraph (1) as Chairperson of the Commission.
       (7) Vacancies.--A vacancy on the Commission shall be filled 
     in the same manner in which the original appointment was made 
     not later than 30 days after the Commission is given notice 
     of the vacancy.
       (8) Compensation.--Members of the Commission shall receive 
     no additional pay, allowances, or benefits by reason of their 
     service on the Commission.
       (9) Expenses.--Each member of the Commission shall receive 
     travel expenses and per diem in lieu of subsistence in 
     accordance with sections 5702 and 5703 of title 5, United 
     States Code.
       (e) Staff and Support Services.--
       (1) Executive director.--

[[Page S6589]]

       (A) Appointment.--The Chairperson shall appoint an 
     executive director of the Commission.
       (B) Compensation.--The executive director shall be paid the 
     rate of basic pay for level V of the Executive Schedule.
       (2) Staff.--With the approval of the Commission, the 
     executive director may appoint such personnel as the 
     executive director considers appropriate.
       (3) Applicability of civil service laws.--The staff of the 
     Commission shall be appointed without regard to the 
     provisions of title 5, United States Code, governing 
     appointments in the competitive service, and shall be paid 
     without regard to the provisions of chapter 51 and subchapter 
     III of chapter 53 of such title (relating to classification 
     and General Schedule pay rates).
       (4) Experts and consultants.--With the approval of the 
     Commission, the executive director may procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code.
       (5) Staff of federal agencies.--Upon the request of the 
     Commission, the head of any Federal agency may detail any of 
     the personnel of such agency to the Commission to assist in 
     carrying out the duties of the Commission.
       (6) Other resources.--The Commission shall have reasonable 
     access to materials, resources, statistical data, and other 
     information from the Library of Congress and agencies and 
     elected representatives of the executive and legislative 
     branches of the Federal Government. The Chairperson of the 
     Commission shall make requests for such access in writing 
     when necessary.
       (7) Physical facilities.--The Administrator of the General 
     Services Administration shall locate suitable office space 
     for the operation of the Commission. The facilities shall 
     serve as the headquarters of the Commission and shall include 
     all necessary equipment and incidentals required for the 
     proper functioning of the Commission.
       (f) Powers of Commission.--
       (1) Hearings.--The Commission may conduct public hearings 
     or forums at the discretion of the Commission, at any time 
     and place the Commission is able to secure facilities and 
     witnesses, for the purpose of carrying out the duties of the 
     Commission.
       (2) Gifts.--The Commission may accept, use, and dispose of 
     gifts or donations of services or property.
       (3) Mails.--The Commission may use the United States mails 
     in the same manner and under the same conditions as other 
     Federal agencies.
       (g) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Commission shall submit a report 
     to the President and Congress which shall contain a detailed 
     statement of the recommendations, findings, and conclusions 
     of the Commission.
       (h) Termination.--The Commission shall terminate on the 
     date which is 30 days after the date the Commission submits 
     its report to the President and to Congress under subsection 
     (g).
       (i) Funding.--There is authorized to be appropriated to the 
     Commission such sums as are necessary to carry out the 
     purposes of this section. Sums appropriated under this 
     subsection shall be paid equally from the Federal Hospital 
     Insurance Trust Fund and from the Federal Supplementary 
     Medical Insurance Trust Fund under title XVIII of the Social 
     Security Act (42 U.S.C. 1395i, 1395t).

     SEC. 5022. MEDICARE PAYMENT ADVISORY COMMISSION.

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


                 ``medicare payment advisory commission

       ``Sec. 1805. (a) Establishment.--There is hereby 
     established the Medicare Payment Advisory Commission (in this 
     section referred to as the `Commission').
       ``(b) Duties.--
       ``(1) Review of payment policies and annual reports.--The 
     Commission shall--
       ``(A) review payment policies under this title, including 
     the topics described in paragraph (2);
       ``(B) make recommendations to Congress concerning such 
     payment policies;
       ``(C) by not later than March 1 of each year (beginning 
     with 1998), submit a report to Congress containing the 
     results of such reviews and its recommendations concerning 
     such policies; and
       ``(D) by not later than June 1 of each year (beginning with 
     1998), submit a report to Congress containing an examination 
     of issues affecting the medicare program, including the 
     implications of changes in health care delivery in the United 
     States and in the market for health care services on the 
     medicare program.
       ``(2) Specific topics to be reviewed.--
       ``(A) Medicare choice program.--Specifically, the 
     Commission shall review, with respect to the Medicare Choice 
     program under part C, the following:
       ``(i) The methodology for making payment to plans under 
     such program, including the making of differential payments 
     and the distribution of differential updates among different 
     payment areas.
       ``(ii) The mechanisms used to adjust payments for risk and 
     the need to adjust such mechanisms to take into account 
     health status of beneficiaries.
       ``(iii) The implications of risk selection both among 
     Medicare Choice organizations and between the Medicare Choice 
     option and the traditional medicare fee-for-service option.
       ``(iv) The development and implementation of mechanisms to 
     assure the quality of care for those enrolled with Medicare 
     Choice organizations.
       ``(v) The impact of the Medicare Choice program on access 
     to care for medicare beneficiaries.
       ``(vi) Other major issues in implementation and further 
     development of the Medicare Choice program.
       ``(B) Traditional medicare fee-for-service system.--
     Specifically, the Commission shall review payment policies 
     under parts A and B, including--
       ``(i) the factors affecting expenditures for services in 
     different sectors, including the process for updating 
     hospital, skilled nursing facility, physician, and other 
     fees,
       ``(ii) payment methodologies, and
       ``(iii) their relationship to access and quality of care 
     for medicare beneficiaries.
       ``(C) Interaction of medicare payment policies with health 
     care delivery generally.--Specifically, the Commission shall 
     review the effect of payment policies under this title on the 
     delivery of health care services other than under this title 
     and assess the implications of changes in health care 
     delivery in the United States and in the general market for 
     health care services on the medicare program.
       ``(3) Comments on certain secretarial reports.--If the 
     Secretary submits to Congress (or a committee of Congress) a 
     report that is required by law and that relates to payment 
     policies under this title, the Secretary shall transmit a 
     copy of the report to the Commission. The Commission shall 
     review the report and, not later than 6 months after the date 
     of submittal of the Secretary's report to Congress, shall 
     submit to the appropriate committees of Congress written 
     comments on such report. Such comments may include such 
     recommendations as the Commission deems appropriate.
       ``(4) Agenda and additional reviews.--The Commission shall 
     consult periodically with the chairmen and ranking minority 
     members of the appropriate committees of Congress regarding 
     the Commission's agenda and progress towards achieving the 
     agenda. The Commission may conduct additional reviews, and 
     submit additional reports to the appropriate committees of 
     Congress, from time to time on such topics relating to the 
     program under this title as may be requested by such chairmen 
     and members and as the Commission deems appropriate.
       ``(5) Availability of reports.--The Commission shall 
     transmit to the Secretary a copy of each report submitted 
     under this subsection and shall make such reports available 
     to the public.
       ``(6) Appropriate committees of congress.--For purposes of 
     this section, the term `appropriate committees of Congress' 
     means the Committees on Ways and Means and Commerce of the 
     House of Representatives and the Committee on Finance of the 
     Senate.
       ``(c) Membership.--
       ``(1) Number and appointment.--The Commission shall be 
     composed of 15 members appointed by the Comptroller General.
       ``(2) Qualifications.--
       ``(A) In general.--The membership of the Commission shall 
     include individuals with national recognition for their 
     expertise in health finance and economics, actuarial science, 
     health facility management, health plans and integrated 
     delivery systems, reimbursement of health facilities, 
     allopathic and osteopathic physicians, and other providers of 
     health services, and other related fields, who provide a mix 
     of different professionals, broad geographic representation, 
     and a balance between urban and rural representatives.
       ``(B) Inclusion.--The membership of the Commission shall 
     include (but not be limited to) physicians and other health 
     professionals, employers, third-party payers, individuals 
     skilled in the conduct and interpretation of biomedical, 
     health services, and health economics research and expertise 
     in outcomes and effectiveness research and technology 
     assessment. Such membership shall also include 
     representatives of consumers and the elderly.
       ``(C) Majority nonproviders.--Individuals who are directly 
     involved in the provision, or management of the delivery, of 
     items and services covered under this title shall not 
     constitute a majority of the membership of the Commission.
       ``(D) Ethical disclosure.--The Comptroller General shall 
     establish a system for public disclosure by members of the 
     Commission of financial and other potential conflicts of 
     interest relating to such members.
       ``(3) Terms.--
       ``(A) In general.--The terms of members of the Commission 
     shall be for 3 years except that the Comptroller General 
     shall designate staggered terms for the members first 
     appointed.
       ``(B) Vacancies.--Any member appointed to fill a vacancy 
     occurring before the expiration of the term for which the 
     member's predecessor was appointed shall be appointed only 
     for the remainder of that term. A member may serve after the 
     expiration of that member's term until a successor has taken 
     office. A vacancy in the Commission shall be filled in the 
     manner in which the original appointment was made.
       ``(4) Compensation.--While serving on the business of the 
     Commission (including traveltime), a member of the Commission 
     shall be entitled to compensation at the per diem equivalent 
     of the rate provided for level IV of the Executive Schedule 
     under section 5315 of title 5, United States Code; and while 
     so serving away from home and the member's regular place of 
     business, a member may be allowed travel expenses, as 
     authorized by the Chairman of the Commission. Physicians 
     serving as personnel of the Commission may be provided a 
     physician comparability allowance by the Commission in the 
     same manner as Government physicians may be provided such an 
     allowance by an agency under section 5948 of title 5, United 
     States Code, and for such purpose subsection (i) of such 
     section shall apply to the Commission in the same manner as 
     it applies to the Tennessee Valley Authority. For purposes of 
     pay (other than pay of members of the Commission) and 
     employment benefits, rights, and privileges, all personnel of 
     the Commission shall be treated as if they were employees of 
     the United States Senate.

[[Page S6590]]

       ``(5) Chairman; vice chairman.--The Comptroller General 
     shall designate a member of the Commission, at the time of 
     appointment of the member, as Chairman and a member as Vice 
     Chairman for that term of appointment.
       ``(6) Meetings.--The Commission shall meet at the call of 
     the Chairman.
       ``(d) Director and Staff; Experts and Consultants.--Subject 
     to such review as the Comptroller General deems necessary to 
     assure the efficient administration of the Commission, the 
     Commission may--
       ``(1) employ and fix the compensation of an Executive 
     Director (subject to the approval of the Comptroller General) 
     and such other personnel as may be necessary to carry out its 
     duties (without regard to the provisions of title 5, United 
     States Code, governing appointments in the competitive 
     service);
       ``(2) seek such assistance and support as may be required 
     in the performance of its duties from appropriate Federal 
     departments and agencies;
       ``(3) enter into contracts or make other arrangements, as 
     may be necessary for the conduct of the work of the 
     Commission (without regard to section 3709 of the Revised 
     Statutes (41 U.S.C. 5));
       ``(4) make advance, progress, and other payments which 
     relate to the work of the Commission;
       ``(5) provide transportation and subsistence for persons 
     serving without compensation; and
       ``(6) prescribe such rules and regulations as it deems 
     necessary with respect to the internal organization and 
     operation of the Commission.
       ``(e) Powers.--
       ``(1) Obtaining official data.--The Commission may secure 
     directly from any department or agency of the United States 
     information necessary to enable it to carry out this section. 
     Upon request of the Chairman, the head of that department or 
     agency shall furnish that information to the Commission on an 
     agreed upon schedule.
       ``(2) Data collection.--In order to carry out its 
     functions, the Commission shall--
       ``(A) utilize existing information, both published and 
     unpublished, where possible, collected and assessed either by 
     its own staff or under other arrangements made in accordance 
     with this section,
       ``(B) carry out, or award grants or contracts for, original 
     research and experimentation, where existing information is 
     inadequate, and
       ``(C) adopt procedures allowing any interested party to 
     submit information for the Commission's use in making reports 
     and recommendations.
       ``(3) Access of gao to information.--The Comptroller 
     General shall have unrestricted access to all deliberations, 
     records, and nonproprietary data of the Commission, 
     immediately upon request.
       ``(4) Periodic audit.--The Commission shall be subject to 
     periodic audit by the Comptroller General.
       ``(f) Authorization of Appropriations.--
       ``(1) Request for appropriations.--The Commission shall 
     submit requests for appropriations in the same manner as the 
     Comptroller General submits requests for appropriations, but 
     amounts appropriated for the Commission shall be separate 
     from amounts appropriated for the Comptroller General.
       ``(2) Authorization.--There are authorized to be 
     appropriated such sums as may be necessary to carry out the 
     provisions of this section. Sixty percent of such 
     appropriation shall be payable from the Federal Hospital 
     Insurance Trust Fund, and 40 percent of such appropriation 
     shall be payable from the Federal Supplementary Medical 
     Insurance Trust Fund.''.
       (b) Abolition of ProPAC and PPRC.--
       (1) ProPAC.--
       (A) In general.--Section 1886(e) (42 U.S.C. 1395ww(e)) is 
     amended--
       (i) by striking paragraphs (2) and (6); and
       (ii) in paragraph (3), by striking ``(A) The Commission'' 
     and all that follows through ``(B)''.
       (B) Conforming amendment.--Section 1862 (42 U.S.C. 1395y) 
     is amended by striking ``Prospective Payment Assessment 
     Commission'' each place it appears in subsection (a)(1)(D) 
     and subsection (i) and inserting ``Medicare Payment Advisory 
     Commission''.
       (2) PPRC.--
       (A) In general.--Title XVIII is amended by striking section 
     1845 (42 U.S.C. 1395w-1).
       (B) Elimination of certain reports.--Section 1848 (42 
     U.S.C. 1395w-4) is amended--
       (i) by striking subparagraph (F) of subsection (d)(2),
       (ii) by striking subparagraph (B) of subsection (f)(1), and
       (iii) in subsection (f)(3), by striking ``Physician Payment 
     Review Commission,''.
       (C) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-
     4) is amended by striking ``Physician Payment Review 
     Commission'' and inserting ``Medicare Payment Advisory 
     Commission'' each place it appears in subsections 
     (c)(2)(B)(iii), (g)(6)(C), and (g)(7)(C).
       (c) Effective Date; Transition.--
       (1) In general.--The Comptroller General shall first 
     provide for appointment of members to the Medicare Payment 
     Advisory Commission (in this subsection referred to as 
     ``MedPAC'') by not later than September 30, 1997.
       (2) Transition.--As quickly as possible after the date a 
     majority of members of MedPAC are first appointed, the 
     Comptroller General, in consultation with the Prospective 
     Payment Assessment Commission (in this subsection referred to 
     as ``ProPAC'') and the Physician Payment Review Commission 
     (in this subsection referred to as ``PPRC''), shall provide 
     for the termination of the ProPAC and the PPRC. As of the 
     date of termination of the respective Commissions, the 
     amendments made by paragraphs (1) and (2), respectively, of 
     subsection (b) become effective. The Comptroller General, to 
     the extent feasible, shall provide for the transfer to the 
     MedPAC of assets and staff of the ProPAC and the PPRC, 
     without any loss of benefits or seniority by virtue of such 
     transfers. Fund balances available to the ProPAC or the PPRC 
     for any period shall be available to the MedPAC for such 
     period for like purposes.
       (3) Continuing responsibility for reports.--The MedPAC 
     shall be responsible for the preparation and submission of 
     reports required by law to be submitted (and which have not 
     been submitted by the date of establishment of the MedPAC) by 
     the ProPAC and the PPRC, and, for this purpose, any reference 
     in law to either such Commission is deemed, after the 
     appointment of the MedPAC, to refer to the MedPAC.

                     CHAPTER 4--MEDIGAP PROTECTIONS

     SEC. 5031. MEDIGAP PROTECTIONS.

       (a) Guaranteeing Issue Without Preexisting Conditions for 
     Continuously Covered Individuals.--Section 1882(s) (42 U.S.C. 
     1395ss(s)) is amended--
       (1) in paragraph (3), by striking ``paragraphs (1) and 
     (2)'' and inserting ``this subsection'',
       (2) by redesignating paragraph (3) as paragraph (4), and
       (3) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3)(A) The issuer of a medicare supplemental policy--
       ``(i) may not deny or condition the issuance or 
     effectiveness of a medicare supplemental policy described in 
     subparagraph (C) that is offered and is available for 
     issuance to new enrollees by such issuer;
       ``(ii) may not discriminate in the pricing of such policy, 
     because of health status, claims experience, receipt of 
     health care, or medical condition; and
       ``(iii) may not impose an exclusion of benefits based on a 
     pre-existing condition under such policy,
     in the case of an individual described in subparagraph (B) 
     who seeks to enroll under the policy not later than 63 days 
     after the date of the termination of enrollment described in 
     such subparagraph and who submits evidence of the date of 
     termination or disenrollment along with the application for 
     such medicare supplemental policy.
       ``(B) An individual described in this subparagraph is an 
     individual described in any of the following clauses:
       ``(i) The individual is enrolled under an employee welfare 
     benefit plan that provides health benefits that supplement 
     the benefits under this title and the plan terminates or 
     ceases to provide all such supplemental health benefits to 
     the individual.
       ``(ii) The individual is enrolled with a Medicare Choice 
     organization under a Medicare Choice plan under part C, and 
     there are circumstances permitting discontinuance of the 
     individual's election of the plan under section 1851(e)(4).
       ``(iii) The individual is enrolled with an eligible 
     organization under a contract under section 1876, a similar 
     organization operating under demonstration project authority, 
     with an organization under an agreement under section 
     1833(a)(1)(A), or with an organization under a policy 
     described in subsection (t), and such enrollment ceases under 
     the same circumstances that would permit discontinuance of an 
     individual's election of coverage under section 1851(c)(4) 
     and, in the case of a policy described in subsection (t), 
     there is no provision under applicable State law for the 
     continuation of coverage under such policy.
       ``(iv) The individual is enrolled under a medicare 
     supplemental policy under this section and such enrollment 
     ceases because--
       ``(I) of the bankruptcy or insolvency of the issuer or 
     because of other involuntary termination of coverage or 
     enrollment under such policy and there is no provision under 
     applicable State law for the continuation of such coverage;
       ``(II) the issuer of the policy substantially violated a 
     material provision of the policy; or
       ``(III) the issuer (or an agent or other entity acting on 
     the issuer's behalf) materially misrepresented the policy's 
     provisions in marketing the policy to the individual.
       ``(v) The individual--
       ``(I) was enrolled under a medicare supplemental policy 
     under this section,
       ``(II) subsequently terminates such enrollment and enrolls, 
     for the first time, with any Medicare Choice organization 
     under a Medicare Choice plan under part C, any eligible 
     organization under a contract under section 1876, any similar 
     organization operating under demonstration project authority, 
     any organization under an agreement under section 
     1833(a)(1)(A), or any policy described in subsection (t), and
       ``(III) the subsequent enrollment under subclause (II) is 
     terminated by the enrollee during the first 12 months of such 
     enrollment.
       ``(vi) The individual, upon first becoming eligible for 
     medicare at age 65, enrolls in a Medicare Choice plan and 
     within 12 months of such enrollment, disenrolls from such 
     plan.
       ``(C)(i) Subject to clauses (ii), a medicare supplemental 
     policy described in this subparagraph is a policy the 
     benefits under which are comparable or lessor in relation to 
     the benefits under the plan, policy, or contract described in 
     the applicable clause of subparagraph (B).
       ``(ii) Only for purposes of an individual described in 
     subparagraph (B)(vi), a medicare supplemental policy 
     described in this subparagraph shall include any medicare 
     supplemental policy.
       ``(D) At the time of an event described in subparagraph (B) 
     because of which an individual ceases enrollment or loses 
     coverage or benefits under a contract or agreement, policy, 
     or plan, the organization that offers the contract or 
     agreement, the insurer offering the policy, or the 
     administrator of the plan, respectively, shall notify the 
     individual of the rights of the individual, and obligations 
     of issuers of medicare supplemental policies, under 
     subparagraph (A).''.

[[Page S6591]]

       (b) Limitation on Imposition of Preexisting Condition 
     Exclusion During Initial Open Enrollment Period.--Section 
     1882(s)(2) (42 U.S.C. 1395ss(s)(2)) is amended--
       (1) in subparagraph (B), by striking ``subparagraph (C)'' 
     and inserting ``subparagraphs (C) and (D)'', and
       (2) by adding at the end the following new subparagraph:
       ``(D) In the case of a policy issued during the 6-month 
     period described in subparagraph (A) to an individual who is 
     65 years of age or older as of the date of issuance and who 
     as of the date of the application for enrollment has a 
     continuous period of creditable coverage (as defined in 
     section 2701(c) of the Public Health Service Act) of--
       ``(i) at least 6 months, the policy may not exclude 
     benefits based on a pre-existing condition; or
       ``(ii) less than 6 months, if the policy excludes benefits 
     based on a preexisting condition, the policy shall reduce the 
     period of any preexisting condition exclusion by the 
     aggregate of the periods of creditable coverage (if any, as 
     so defined) applicable to the individual as of the enrollment 
     date.
     The Secretary shall specify the manner of the reduction under 
     clause (ii), based upon the rules used by the Secretary in 
     carrying out section 2701(a)(3) of such Act.''.
       (c) Extending 6-Month Initial Enrollment Period to Non-
     Elderly Medicare Beneficiaries.--Section 1882(s)(2)(A)(ii) of 
     (42 U.S.C. 1395ss(s)(2)(A)) is amended by striking ``is 
     submitted'' and all that follows and inserting the following: 
     ``is submitted--
       ``(I) before the end of the 6-month period beginning with 
     the first month as of the first day on which the individual 
     is 65 years of age or older and is enrolled for benefits 
     under part B; and
       ``(II) at the time the individual first becomes eligible 
     for benefits under part A pursuant to section 226(b) and is 
     enrolled for benefits under part B, before the end of the 6-
     month period beginning with the first month as of the first 
     day on which the individual is so eligible and so 
     enrolled.''.
       (d) Effective Dates.--
       (1) Guaranteed issue.--The amendment made by subsection (a) 
     shall take effect on July 1, 1998.
       (2) Limit on preexisting condition exclusions.--The 
     amendment made by subsection (b) shall apply to policies 
     issued on or after July 1, 1998.
       (3) Nonelderly medicare beneficiaries.--
       (A) In general.--The amendment made by subsection (c) shall 
     apply to policies issued on and after July 1, 1998.
       (B) Transition rule.--In the case of an individual who 
     first became eligible for benefits under part A of title 
     XVIII of the Social Security Act pursuant to section 226(b) 
     of such Act and enrolled for benefits under part B of such 
     title before July 1, 1998, the 6-month period described in 
     section 1882(s)(2)(A) of such Act shall begin on July 1, 
     1998. Before July 1, 1998, the Secretary of Health and Human 
     Services shall notify any individual described in the 
     previous sentence of their rights in connection with medicare 
     supplemental policies under section 1882 of such Act, by 
     reason of the amendment made by subsection (c).
       (e) Transition Provisions.--
       (1) In general.--If the Secretary of Health and Human 
     Services identifies a State as requiring a change to its 
     statutes or regulations to conform its regulatory program to 
     the changes made by this section, the State regulatory 
     program shall not be considered to be out of compliance with 
     the requirements of section 1882 of the Social Security Act 
     due solely to failure to make such change until the date 
     specified in paragraph (4).
       (2) NAIC standards.--If, within 9 months after the date of 
     the enactment of this Act, the National Association of 
     Insurance Commissioners (in this subsection referred to as 
     the ``NAIC'') modifies its NAIC Model regulation relating to 
     section 1882 of the Social Security Act (referred to in such 
     section as the 1991 NAIC Model Regulation, as modified 
     pursuant to section 171(m)(2) of the Social Security Act 
     Amendments of 1994 (Public Law 103-432) and as modified 
     pursuant to section 1882(d)(3)(A)(vi)(IV) of the Social 
     Security Act, as added by section 271(a) of the Health 
     Insurance Portability and Accountability Act of 1996 (Public 
     Law 104-191) to conform to the amendments made by this 
     section, such revised regulation incorporating the 
     modifications shall be considered to be the applicable NAIC 
     model regulation (including the revised NAIC model regulation 
     and the 1991 NAIC Model Regulation) for the purposes of such 
     section.
       (3) Secretary standards.--If the NAIC does not make the 
     modifications described in paragraph (2) within the period 
     specified in such paragraph, the Secretary of Health and 
     Human Services shall make the modifications described in such 
     paragraph and such revised regulation incorporating the 
     modifications shall be considered to be the appropriate 
     Regulation for the purposes of such section.
       (4) Date specified.--
       (A) In general.--Subject to subparagraph (B), the date 
     specified in this paragraph for a State is the earlier of--
       (i) the date the State changes its statutes or regulations 
     to conform its regulatory program to the changes made by this 
     section, or
       (ii) 1 year after the date the NAIC or the Secretary first 
     makes the modifications under paragraph (2) or (3), 
     respectively.
       (B) Additional legislative action required.--In the case of 
     a State which the Secretary identifies as--
       (i) requiring State legislation (other than legislation 
     appropriating funds) to conform its regulatory program to the 
     changes made in this section, but
       (ii) having a legislature which is not scheduled to meet in 
     1999 in a legislative session in which such legislation may 
     be considered,
     the date specified in this paragraph is the first day of the 
     first calendar quarter beginning after the close of the first 
     legislative session of the State legislature that begins on 
     or after July 1, 1999. For purposes of the previous sentence, 
     in the case of a State that has a 2-year legislative session, 
     each year of such session shall be deemed to be a separate 
     regular session of the State legislature.

     SEC. 5032. ADDITION OF HIGH DEDUCTIBLE MEDIGAP POLICY.

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

                       CHAPTER 5--DEMONSTRATIONS

Subchapter A--Medicare Choice Competitive Pricing Demonstration Project

                           PART I--IN GENERAL

     SEC. 5041. MEDICARE CHOICE COMPETITIVE PRICING DEMONSTRATION 
                   PROJECT.

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

[[Page S6592]]

       (D) An evaluation as to whether the method of payment under 
     section 5042 which was used in the demonstration projects for 
     payment to Medicare Choice plans should be extended to the 
     entire medicare population and if such evaluation determines 
     that such method should not be extended, legislative 
     recommendations to modify such method so that it may be 
     applied to the entire medicare population.
       (3) Submission to congress.--The President shall submit the 
     report under paragraph (2) to the Congress and if the 
     President determines appropriate, any legislative 
     recommendations for extending the project to the entire 
     medicare population.
       (e) Waiver Authority.--The Secretary shall waive compliance 
     with the requirements of titles XI, XVIII, and XIX of the 
     Social Security Act (42 U.S.C. 1301 et seq., 1395 et seq., 
     1396 et seq.) to such extent and for such period as the 
     Secretary determines is necessary to conduct demonstration 
     projects.

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

       (a) In General.--In the case of an applicable Medicare 
     Choice payment area within which a project is being conducted 
     under section 5041, the annual Medicare Choice capitation 
     rate under part C of title XVIII of the Social Security Act 
     for Medicare Choice plans within such area shall be the 
     standardized payment amount determined under this section 
     rather than the amount determined under section 1853 of such 
     Act.
       (b) Determination of Standardized Payment Amount.--
       (1) Submission and charging of premiums.--
       (A) In general.--Not later than June 1 of each calendar 
     year, each Medicare Choice organization offering one or more 
     Medicare Choice plans in an applicable Medicare Choice 
     payment area shall file with the Secretary, in a form and 
     manner and at a time specified by the Secretary, a bid which 
     contains the amount of the monthly premium for coverage under 
     each such Medicare Choice plan.
       (B) Uniform premium.--The premiums charged by a Medicare 
     Choice plan sponsor under this part may not vary among 
     individuals who reside in the same applicable Medicare Choice 
     payment area.
       (C) Terms and conditions of imposing premiums.--Each 
     Medicare Choice organization shall permit the payment of 
     premiums on a monthly basis.
       (2) Announcement of standardized payment amount.--
       (A) Authority to negotiate.--After bids are submitted under 
     paragraph (1), the Secretary may negotiate with Medicare 
     Choice organizations in order to modify such bids if the 
     Secretary determined that the bids do not provide enough 
     revenues to ensure the plan's actuarial soundness, are too 
     high relative to the applicable Medicare Choice payment area, 
     foster adverse selection, or otherwise require renegotiation 
     under this paragraph.
       (B) In general.--Not later than July 31 of each calendar 
     year (beginning with 1998), the Secretary shall determine, 
     and announce in a manner intended to provide notice to 
     interested parties, a standardized payment amount determined 
     in accordance with this paragraph for the following calendar 
     year for each applicable Medicare Choice payment area.
       (3) Calculation of payment amounts.--
       (A) In general.--The standardized payment amount for a 
     calendar year after 1998 for any applicable Medicare Choice 
     payment area shall be equal to the maximum premium determined 
     for such area under subparagraph (B).
       (B) Maximum premium.--The maximum premium for any 
     applicable Medicare Choice payment area shall be equal to the 
     amount determined under subparagraph (C) for the payment 
     area, but in no case shall such amount be greater than the 
     sum of--
       (i) the average per capita amount, as determined by the 
     Secretary as appropriate for the population eligible to 
     enroll in Medicare Choice plans in such payment area, for 
     such calendar year that the Secretary would have expended for 
     an individual in such payment area enrolled under the 
     medicare fee-for-service program under parts A and B, plus
       (ii) the amount equal to the actuarial value of 
     deductibles, coinsurance, and copayments charged an 
     individual for services provided under the medicare fee-for-
     service program (as determined by the Secretary).
       (C) Determination of amount.--
       (i) In general.--The Secretary shall determine for each 
     applicable Medicare Choice payment area for each calendar 
     year an amount equal to the average of the bids (weighted 
     based on capacity) submitted to the Secretary under paragraph 
     (1)(A) for that payment area.
       (ii) Disregard certain plans.--In determining the amount 
     under clause (i), the Secretary may disregard any plan that 
     the Secretary determines would unreasonably distort the 
     amount determined under such subparagraph.
       (4) Adjustments for payments to plan sponsors.--
       (A) In general.--For purposes of determining the amount of 
     payment under part C of title XVIII of the Social Security 
     Act to a Medicare Choice organization with respect to any 
     Medicare Choice eligible individual enrolled in a Medicare 
     Choice plan of the sponsor, the standardized payment amount 
     for the applicable Medicare Choice payment area and the 
     premium charged by the plan sponsor shall be adjusted with 
     respect to such individual for such risk factors as age, 
     disability status, gender, institutional status, health 
     status, and such other factors as the Secretary determines to 
     be appropriate, so as to ensure actuarial equivalence. The 
     Secretary may add to, modify, or substitute for such classes, 
     if such changes will improve the determination of actuarial 
     equivalence.
       (B) Recommendations.--
       (i) In general.--In addition to any other duties required 
     by law, the Physician Payment Review Commission and the 
     Prospective Payment Assessment Commission (or their 
     successors) shall each develop recommendations on--

       (I) the risk factors that the Secretary should use in 
     adjusting the standardized payment amount and premium under 
     subparagraph (A), and
       (II) the methodology that the Secretary should use in 
     determining the risk factors to be used in adjusting the 
     standardized payment amount and premium under subparagraph 
     (A).

       (ii) Time.--The recommendations described in clause (i) 
     shall be developed not later than January 1, 1999.
       (iii) Annual report.--The Physician Payment Review 
     Commission and the Prospective Payment Assessment Commission 
     (or their successors) shall include the recommendations 
     described in clause (i) in their respective annual reports to 
     Congress.
       (c) Payments to Plan Sponsors.--
       (1) Monthly payments.--
       (A) In general.--Subject to paragraph (4), for each 
     individual enrolled with a plan under this subchapter, the 
     Secretary shall make monthly payments in advance to the 
     Medicare Choice organization of the Medicare Choice plan with 
     which the individual is enrolled in an amount equal to \1/12\ 
     of the amount determined under paragraph (2).
       (B) Retroactive adjustments.--The amount of payment under 
     this paragraph may be retroactively adjusted to take into 
     account any difference between the actual number of 
     individuals enrolled in the plan under this section and the 
     number of such individuals estimated to be so enrolled in 
     determining the amount of the advance payment.
       (2) Amount of payment to medicare choice plans.--The amount 
     determined under this paragraph with respect to any 
     individual shall be equal to the sum of--
       (A) the lesser of--
       (i) the standardized payment amount for the applicable 
     Medicare Choice payment area, as adjusted for such individual 
     under subsection (a)(4), or
       (ii) the premium charged by the plan for such individual, 
     as adjusted for such individual under section (a)(4), minus
       (B) the amount such individual paid to the plan pursuant to 
     section 5043 (relating to 10 percent of the premium).
       (3) Payments from trust funds.--The payment to a Medicare 
     Choice organization or to a Medicare Choice account under 
     this section for a medicare-eligible individual shall be made 
     from the Federal Hospital Insurance Trust Fund and the 
     Federal Supplementary Medical Insurance Trust Fund in such 
     proportion as the Secretary determines reflects the relative 
     weight that benefits under parts A and B are representative 
     of the actuarial value of the total benefits under this part.
       (4) Limitation on amounts an out-of-plan physician or other 
     entity may collect.--A physician or other entity (other than 
     a provider of services) that does not have a contract 
     establishing payment amounts for services furnished to an 
     individual enrolled under this subchapter with a Medicare 
     Choice organization shall accept as payment in full for 
     services that are furnished to such an individual the amounts 
     that the physician or other entity could collect if the 
     individual were not so enrolled. Any penalty or other 
     provision of law that applies to such a payment with respect 
     to an individual entitled to benefits under this title (but 
     not enrolled with a Medicare Choice organization under this 
     part) also applies with respect to an individual so enrolled.
       (d) Office of Competition.--
       (1) Establishment.--There is established within the 
     Department of Health and Human Services an office to be known 
     as the `Office of Competition'.
       (2) Director.--The Secretary shall appoint the Director of 
     the Office of Competition.
       (3) Duties.--
       (A) In general.--The Director shall administer this 
     subchapter and so much of part C of title XVIII of the Social 
     Security Act as relates to this subchapter.
       (B) Transfer authority.--The Secretary shall transfer such 
     personnel, administrative support systems, assets, records, 
     funds, and other resources in the Health Care Financing 
     Administration to the Office of Competition as are used in 
     the administration of section 1876 and as may be required to 
     implement the provisions of this part promptly and 
     efficiently.
       (4) Use of non-federal entities.--The Secretary shall, to 
     the maximum extent feasible, enter into contracts with 
     appropriate non-Federal entities to carry out activities 
     under this subchapter.

     SEC. 5043. BENEFITS AND BENEFICIARY PREMIUMS.

       (a) Benefits Provided to Individuals.--
       (1) Basic benefit plan.--Each Medicare Choice plan in an 
     applicable Medicare Choice payment area shall provide to 
     members enrolled under this subchapter, through providers and 
     other persons that meet the applicable requirements of title 
     XVIII of the Social Security Act and part A of title XI of 
     such Act--
       (A) those items and services covered under parts A and B of 
     title XVIII of such Act which are available to individuals 
     residing in such area, subject to nominal copayments as 
     determined by the Secretary,
       (B) prescription drugs, subject to such limits as 
     established by the Secretary, and
       (C) additional health services as the Secretary may 
     approve.
       (2) Supplemental benefits.--
       (A) In general.--Each Medicare Choice plan may offer any of 
     the optional supplemental benefit plans described in 
     subparagraph (B) to an individual enrolled in the basic 
     benefit plan offered by such organization under this 
     subchapter for an additional premium amount. If

[[Page S6593]]

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

               PART II--INFORMATION AND QUALITY STANDARDS

                         Subpart A--Information

     SEC. 5044. INFORMATION REQUIREMENTS.

       (a) In General.--The Secretary shall provide that in the 
     case of a demonstration plan conducted under part I, the 
     information and comparative reports described in this section 
     shall be used in lieu of that provided under part C of title 
     XVIII of the Social Security Act.
       (b) Secretary's Materials; Contents.--The notice and 
     informational materials mailed by the Secretary under this 
     part shall be written and formatted in the most easily 
     understandable manner possible, and shall include, at a 
     minimum, the following:
       (1) General information.--General information with respect 
     to coverage under this part during the next calendar year, 
     including--
       (A) the part B premium rates that will be charged for part 
     B coverage, and a statement of the fact that enrollees in 
     demonstration plans are not required to pay such premium,
       (B) the deductible, copayment, and coinsurance amounts for 
     coverage under the traditional medicare program,
       (C) a description of the coverage under the traditional 
     medicare program and any changes in coverage under the 
     program from the prior year,
       (D) a description of the individual's medicare payment 
     area, and the standardized medicare payment amount available 
     with respect to such individual,
       (E) information and instructions on how to enroll in a 
     demonstration plan,
       (F) the right of each demonstration plan sponsor by law to 
     terminate or refuse to renew its contract and the effect the 
     termination or nonrenewal of its contract may have on 
     individuals enrolled with the demonstration plan under this 
     part,
       (G) appeal rights of enrollees, including the right to 
     address grievances to the Secretary or the applicable 
     external review entity, and
       (H) the benefits offered by plans in basic benefit plans 
     under section 1895H(a), and how those benefits differ from 
     the benefits offered under parts A and B.
       (2) Comparative report.--A copy of the most recent 
     comparative report (as established by the Secretary under 
     subsection (c)) for the demonstration plans in the 
     individual's medicare payment area.
       (c) Comparative Report.--
       (1) In general.--The Secretary shall develop an 
     understandable standardized comparative report on the 
     demonstration plans offered by demonstration plan sponsors, 
     that will assist demonstration eligible individuals in their 
     decisionmaking regarding medical care and treatment by 
     allowing such individuals to compare the demonstration plans 
     that such individuals are eligible to enroll with. In 
     developing such report the Secretary shall consult with 
     outside organizations, including groups representing the 
     elderly, demonstration plan sponsors, providers of services, 
     and physicians and other health care professionals, in order 
     to assist the Secretary in developing the report.
       (2) Report.--The report described in paragraph (1) shall 
     include a comparison for each demonstration plan of--
       (A) the plan's medicare service area;
       (B) coverage by the plan of emergency services and urgently 
     needed care;
       (C) the amount of any deductibles, coinsurance, or any 
     monetary limits on benefits;
       (D) the number of individuals who disenrolled from the plan 
     within 3 months of enrollment during the previous fiscal year 
     (excluding individuals whose disenrollment was due to death 
     or moving outside of the plan's service area) stated as 
     percentages of the total number of individuals in the plan;
       (E) process, outcome, and enrollee satisfaction measures, 
     as recommended by the Quality Advisory Institute as 
     established under section 5044B;
       (F) information on access and quality of services obtained 
     from the analysis described in section 5044B;
       (G) the procedures used by the plan to control utilization 
     of services and expenditures, including any financial 
     incentives;
       (H) the number of applications during the previous fiscal 
     year requesting that the plan cover or pay for certain 
     medical services that were denied by the plan (and the number 
     of such denials that were subsequently reversed by the plan), 
     stated as a percentage of the total number of applications 
     during such period requesting that the plan cover such 
     services;
       (I) the number of times during the previous fiscal year 
     (after an appeal was filed with the Secretary) that the 
     Secretary upheld or reversed a denial of a request that the 
     plan cover certain medical services;
       (J) the restrictions (if any) on payment for services 
     provided outside the plan's health care provider network;
       (K) the process by which services may be obtained through 
     the plan's health care provider network;
       (L) coverage for out-of-area services;
       (M) any exclusions in the types of health care providers 
     participating in the plan's health care provider network;
       (N) whether the plan is, or has within the past two years 
     been, out-of-compliance with any requirements of this part 
     (as determined by the Secretary);
       (O) the plan's premium price for the basic benefit plan 
     submitted under part C of title XVIII of the Social Security 
     Act, an indication of the difference between such premium 
     price and the standardized medicare payment amount, and the 
     portion of the premium an individual must pay out of pocket;
       (P) whether the plan offers any of the optional 
     supplemental benefit plans, and if so, the plan's premium 
     price for such benefits; and
       (Q) any additional information that the Secretary 
     determines would be helpful for demonstration eligible 
     individuals to compare the demonstration plans that such 
     individuals are eligible to enroll with.
       (3) Additional information.--The comparative report shall 
     also include--
       (A) a comparison of each demonstration plan to the fee-for-
     service program under parts A and B of title XVIII of the 
     Social Security Act;
       (B) an explanation of medicare supplemental policies under 
     section 1882 of such Act and how to obtain specific 
     information regarding such policies; and
       (C) a phone number for each demonstration plan that will 
     enable demonstration eligible individuals to call to receive 
     a printed listing of all health care providers participating 
     in the plan's health care provider network.
       (4) Update.--The Secretary shall, not less than annually, 
     update each comparative report.
       (5) Definitions.--In this subsection--
       (A) Health care provider.--The term ``health care 
     provider'' means anyone licensed under State law to provide 
     health care services under part A or B.
       (B) Network.--The term ``network'' means, with respect to a 
     demonstration plan sponsor, the health care providers who 
     have entered into a contract or agreement with the plan 
     sponsor under which such providers are obligated to provide 
     items, treatment, and services under this section to 
     individuals enrolled with the plan sponsor under this part.
       (C) Out-of-network.--The term ``out-of-network'' means 
     services provided by health care providers who have not 
     entered into a contract agreement with the demonstration plan 
     sponsor under which such providers are obligated to provide 
     items, treatment, and services under this section to 
     individuals enrolled with the plan sponsor under this part.
       (6) Cost sharing.--Each demonstration plan sponsor shall 
     pay to the Secretary its pro rata share of the estimated 
     costs incurred by the Secretary in carrying out the 
     requirements of this section and section 4360 of the Omnibus 
     Reconciliation Act of 1990. There are hereby appropriated to 
     the Secretary the amount of the payments under this paragraph 
     for purposes of defraying the cost described in the preceding 
     sentence. Such amounts shall remain available until expended.

               Subpart B--Quality in Demonstration Plans

     SEC. 5044A. DEFINITIONS.

       In this subpart:
       (1) Comparative report.--The term ``comparative report'' 
     means the comparative report developed under section 5044.
       (2) Director.--The term ``Director'' means the Director of 
     the Office of Competition within

[[Page S6594]]

     the Department of Health and Human Services as established 
     under part I.
       (3) Medicare program.--The term ``medicare program'' means 
     the program of health care benefits provided under title 
     XVIII of the Social Security Act (42 U.S.C. 1395 et seq.).
       (4) Demonstration plan.--The term ``demonstration plan'' 
     means a plan established under part I.
       (5) Demonstration plan sponsor.--The term ``demonstration 
     plan sponsor'' means a sponsor of a demonstration plan.

     SEC. 5044B. QUALITY ADVISORY INSTITUTE.

       (a) Establishment.--There is established an Institute to be 
     known as the ``Quality Advisory Institute'' (in this subpart 
     referred to as the ``Institute'') to make recommendations to 
     the Director concerning licensing and certification criteria 
     and comparative measurement methods under this subpart.
       (b) Membership.--
       (1) Composition.--The Institute shall be composed of 5 
     members to be appointed by the Director from among 
     individuals who have demonstrable expertise in--
       (A) health care quality measurement;
       (B) health plan certification criteria setting;
       (C) the analysis of information that is useful to consumers 
     in making choices regarding health coverage options, health 
     plans, health care providers, and decisions regarding health 
     treatments; and
       (D) the analysis of health plan operations.
       (2) Terms and vacancies.--The members of the Institute 
     shall be appointed for 5-year terms with the terms of the 
     initial members staggered as determined appropriate by the 
     Director. Vacancies shall be filled in a manner provided for 
     by the Director.
       (c) Duties.--The Institute shall--
       (1) not later than 1 year after the date on which all 
     members of the Institute are appointed under subsection 
     (b)(2), provide advice to the Director concerning the initial 
     set of criteria for the certification of demonstration plans;
       (2) analyze the use of the criteria for the certification 
     of demonstration plans implemented by the Director under this 
     subpart and recommend modifications in such criteria as 
     needed;
       (3) analyze the use of the comparative measurements 
     implemented by the Director in developing comparative reports 
     and recommend modifications in such measurements as needed;
       (4) perform, or enter into contracts with other entities 
     for the performance of, an analysis of access to services and 
     clinical outcomes based on patient encounter data;
       (5) enter into contracts with other entities for the 
     development of such criteria and measurements and to 
     otherwise carry out its duties under this section; and
       (6) carry out any other activities determined appropriate 
     by the Institute to carry out its duties under this section.
     The analysis described in paragraph (4) should focus on 
     conditions and procedures of significance to beneficiaries 
     under the medicare program, as determined by the Institute, 
     and should be designed, and the results summarized, in a 
     manner that facilitates comparisons across health plans.

     SEC. 5044C. DUTIES OF DIRECTOR.

       (a) In General.--The Director shall--
       (1) adopt, adapt, or develop criteria in accordance with 
     sections 5044F through 5044I to be used in the licensing of 
     certifying entities and in the certification of demonstration 
     plans, including any minimum criteria needed for the 
     operation of demonstration plans during the transition period 
     described in section 5044F(c);
       (2) issue licenses to certifying entities that meet the 
     criteria developed under paragraph (1) for the purpose of 
     enabling such entities to certify demonstration plans in 
     accordance with this subpart;
       (3) develop comparative health care measures in addition to 
     those implemented by the Director in developing comparative 
     reports in order to guide consumer choice under the medicare 
     program and to improve the delivery of quality health care 
     under such program;
       (4) develop procedures, consistent with section 5044A, for 
     the dissemination of certification and comparative quality 
     information provided to the Director;
       (5) contract with an independent entity for the conduct of 
     audits concerning certification and quality measurement and 
     require that as part of the certification process performed 
     by licensed certification entities that there include an 
     onsite evaluation, using performance-based standards, of the 
     providers of items and services under a demonstration plan;
       (6) at least quarterly, meet jointly with the Agency for 
     Health Care Policy and Research to review innovative health 
     outcomes measures, new measurement processes, and other 
     matters determined appropriate by the Director;
       (7) at least annually, meet with the Institute concerning 
     certification criteria;
       (8) not later than January 1, 1999, and each January 1 
     thereafter, prepare and submit to demonstration plan sponsors 
     and to Congress, a report concerning the activities of the 
     Director for the previous year;
       (9) advise the President and Congress concerning health 
     insurance and health care provided under demonstration plans 
     and make recommendations concerning measures that may be 
     implemented to protect the health of all enrollees in 
     demonstration plans; and
       (10) carry out other activities determined appropriate by 
     the Director.
       (b) Rule of Construction.--Nothing in this section shall be 
     construed to limit the authority of the Director or the 
     Secretary of Health and Human Services with respect to 
     requirements other than those applied under this subpart with 
     respect to demonstration plans.

     SEC. 5044D. COMPLIANCE.

       (a) In General.--Not later than January 1, 1999, the 
     Director shall ensure that a demonstration plan may not be 
     offered unless it has been certified in accordance with this 
     subpart.
       (b) Contracts or Reimbursements.--In carrying out 
     subsection (a), the Director--
       (1) may not enter into a contract with a demonstration plan 
     sponsor for the provision of a demonstration plan unless the 
     demonstration plan is certified in accordance with this 
     subpart;
       (2) may not reimburse a demonstration plan sponsor for 
     items and services provided under a demonstration plan unless 
     the demonstration plan is certified in accordance with this 
     subpart; and
       (3) shall, after providing notice to the demonstration plan 
     sponsor operating a demonstration plan and an opportunity for 
     such demonstration plan to be certified, and in accordance 
     with any applicable grievance and appeals procedures under 
     section 5044I, terminate any contract with a demonstration 
     plan sponsor for the operation of a demonstration plan if 
     such demonstration plan is not certified in accordance with 
     this subpart.

     SEC. 5044E. PAYMENTS FOR VALUE.

       (a) Establishment of Program.--The Director shall establish 
     a program under which payments are made to various 
     demonstration plans to reward such plans for meeting or 
     exceeding quality targets.
       (b) Performance Measures.--In carrying out the program 
     under subsection (a), the Director shall establish broad 
     categories of quality targets and performance measures. Such 
     targets and measures shall be designed to permit the Director 
     to determine whether a demonstration plan is being operated 
     in a manner consistent with this subpart.
       (c) Use of Funds.--
       (1) In general.--The Secretary shall withhold 0.50 percent 
     from any payment that a demonstration plan sponsor receives 
     with respect to an individual enrolled with such plan under 
     part I.
       (2) Payments.--The Director shall use amounts collected 
     under paragraph (1) to make annual payments to those 
     demonstration plans that have been determined by the Director 
     to meet or exceed the quality targets and performance 
     measures established under subsection (b). Any amounts 
     collected under such paragraph for a fiscal year and 
     remaining available after payments are made under subsection 
     (d), shall be used for deficit reduction.
       (d) Amount of Payment.--
       (1) Formula.--The amount of any payment made to a 
     demonstration plan under this section shall be determined in 
     accordance with a formula to be developed by the Director. 
     The formula shall ensure that a payment made to a 
     demonstration plan under this section be in an amount equal 
     to--
       (A) with respect to a demonstration plan that is determined 
     to be in the first quintile, 1 percent of the amount 
     allocated to the plan under this subpart;
       (B) with respect to a demonstration plan that is determined 
     to be in the second quintile, 0.75 percent of the amount 
     allocated to the plan under this subpart;
       (C) with respect to a demonstration plan that is determined 
     to be in the third quintile, 0.50 percent of the amount 
     allocated by the plan under this subpart; and
       (D) with respect to a demonstration plan that is determined 
     to be in the fourth quintile, 0.25 percent of the amount 
     allocated by the plan under this subpart.
       (2) No payment.--A demonstration plan that is determined by 
     the Director to be in the fifth quintile shall not be 
     eligible to receive a payment under this section.
       (3) Determination of quintiles.--Not later than April 30 of 
     each calendar year, the Director shall rank each 
     demonstration plan based on the performance of the plan 
     during the preceding year as determined using the quality 
     targets and performance measures established under subsection 
     (b). Such rankings shall be divided into quintiles with the 
     first quintile containing the highest ranking plans and the 
     fifth quintile containing the lowest ranking plans. Each such 
     quintile shall contain plans that in the aggregate cover an 
     equal number of beneficiaries as compared to another 
     quintile.

     SEC. 5044F. CERTIFICATION REQUIREMENT.

       (a) In General.--To be eligible to enter into a contract 
     with the Director to enroll individuals in a demonstration 
     plan, a demonstration plan sponsor shall participate in the 
     certification process and have the demonstration plans 
     offered by such plan sponsor certified in accordance with 
     this subpart.
       (b) Effect of Mergers or Purchase.--
       (1) Certified plans.--Where 2 or more demonstration plan 
     sponsors offering certified demonstration plans are merged or 
     where 1 such plan sponsor is purchased by another plan 
     sponsor, the resulting plan sponsor may continue to operate 
     and enroll individuals for coverage under the demonstration 
     plan as if the demonstration plan involved were certified. 
     The certification of any resulting demonstration plan shall 
     be reviewed by the applicable certifying entity to ensure the 
     continued compliance of the contract with the certification 
     criteria.
       (2) Noncertified plans.--The certification of a 
     demonstration plan shall be terminated upon the merger of the 
     demonstration plan sponsor involved or the purchase of the 
     plan sponsor by another entity that does not offer any 
     certified demonstration plans. Any demonstration plans 
     offered through the resulting plan sponsor may reapply for 
     certification after the completion of the merger or purchase.
       (c) Transition for New Plans.--
       (1) In general.--A demonstration plan that has not provided 
     health insurance coverage to individuals prior to the 
     effective date of this Act

[[Page S6595]]

     shall be permitted to contract with the Director and operate 
     and enroll individuals under a demonstration plan without 
     being certified for the 2-year period beginning on the date 
     on which such demonstration plan sponsor enrolls the first 
     individual in the demonstration plan. Such demonstration plan 
     must be certified in order to continue to provide coverage 
     under the contract after such period.
       (2) Limitation.--A new demonstration plan described in 
     paragraph (1) shall, during the period referred to in 
     paragraph (1) prior to certification, comply with the minimum 
     criteria developed by the Director under section 5044F(a)(1).

     SEC. 5044G. LICENSING OF CERTIFICATION ENTITIES.

       (a) In General.--The Director shall develop procedures for 
     the licensing of entities to certify demonstration plans 
     under this subpart.
       (b) Requirements.--The procedures developed under 
     subsection (a) shall ensure that--
       (1) to be licensed under this section a certification 
     entity shall apply the requirements of this subpart to 
     demonstration plans seeking certification;
       (2) a certification entity has procedures in place to 
     suspend or revoke the certification of a demonstration plan 
     that is failing to comply with the certification 
     requirements; and
       (3) the Director will give priority to licensing entities 
     that are accrediting health plans that contract with the 
     Director on the date of enactment of this Act.

     SEC. 5044H. CERTIFICATION CRITERIA.

       (a) Establishment.--The Director shall establish minimum 
     criteria under this section to be used by licensed certifying 
     entities in the certification of demonstration plans under 
     this subpart.
       (b) Requirements.--Criteria established by the Director 
     under subsection (a) shall require that, in order to be 
     certified, a demonstration plan shall comply at a minimum 
     with the following:
       (1) Quality improvement plan.--The demonstration plan shall 
     implement a total quality improvement plan that is designed 
     to improve the clinical and administrative processes of the 
     demonstration plan on an ongoing basis and demonstrate that 
     improvements in the quality of items and services provided 
     under the demonstration plan have occurred as a result of 
     such improvement plan.
       (2) Provider credentials.--The demonstration plan shall 
     compile and annually provide to the licensed certifying 
     entity documentation concerning the credentials of the 
     hospitals, physicians, and other health care professionals 
     reimbursed under the demonstration plan.
       (3) Comparative Information.--The demonstration plan shall 
     compile and provide, as requested by the Secretary of Health 
     and Human Services, to the such Secretary the information 
     necessary to develop a comparative report.
       (4) Encounter data.--The demonstration plan shall maintain 
     patient encounter data in accordance with standards 
     established by the Institute, and shall provide these data, 
     as requested by the Institute, to the Institute in support of 
     conducting the analysis described in section 5044B(c)(4).
       (5) Other requirements.--The demonstration plan shall 
     comply with other requirements authorized under this subpart 
     and implemented by the Director.

     SEC. 5044I. GRIEVANCE AND APPEALS.

       The Director shall develop grievance and appeals procedures 
     under which a demonstration plan that is denied certification 
     under this subpart may appeal such denial to the Director.

                      Subchapter B--Other Projects

     SEC. 5045. MEDICARE ENROLLMENT DEMONSTRATION PROJECT.

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

     SEC. 5046. MEDICARE COORDINATED CARE DEMONSTRATION PROJECT.

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

     SEC. 5047. ESTABLISHMENT OF MEDICARE REIMBURSEMENT 
                   DEMONSTRATION PROJECTS.

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


        ``MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR VETERANS

       ``Sec. 1896. (a) Definitions.--In this section:
       ``(1) Administering secretaries.--The term `administering 
     Secretaries' means the Secretary and the Secretary of 
     Veterans Affairs acting jointly.

[[Page S6596]]

       ``(2) Demonstration project; project.--The terms 
     `demonstration project' and `project' mean the demonstration 
     project carried out under this section.
       ``(3) Military retiree.--The term `military retiree' means 
     a member or former member of the Armed Forces who is entitled 
     to retired pay.
       ``(4) Targeted medicare-eligible veteran.--The term 
     `targeted medicare-eligible veteran' means an individual 
     who--
       ``(A) is a veteran (as defined in section 101(2) of title 
     38, United States Code) and is described in section 
     1710(a)(3) of title 38, United States Code; and
       ``(B) is entitled to benefits under part A of this title 
     and is enrolled under part B of this title.
       ``(5) Trust funds.--The term `trust funds' means the 
     Federal Hospital Insurance Trust Fund established in section 
     1817 and the Federal Supplementary Medical Insurance Trust 
     Fund established in section 1841.
       ``(b) Demonstration Project.--
       ``(1) In general.--
       ``(A) Establishment.--The administering Secretaries are 
     authorized to establish a demonstration project (under an 
     agreement entered into by the administering Secretaries) 
     under which the Secretary shall reimburse the Secretary of 
     Veterans Affairs, from the trust funds, for medicare health 
     care services furnished to certain targeted medicare-eligible 
     veterans.
       ``(B) Agreement.--The agreement entered into under 
     subparagraph (A) shall include at a minimum--
       ``(i) a description of the benefits to be provided to the 
     participants of the demonstration project established under 
     this section;
       ``(ii) a description of the eligibility rules for 
     participation in the demonstration project, including any 
     criteria established under subsection (c) and any cost 
     sharing under subsection (d);
       ``(iii) a description of how the demonstration project will 
     satisfy the requirements under this title;
       ``(iv) a description of the sites selected under paragraph 
     (2);
       ``(v) a description of how reimbursement and maintenance of 
     effort requirements under subsection (l) will be implemented 
     in the demonstration project; and
       ``(vi) a statement that the Secretary shall have access to 
     all data of the Department of Veterans Affairs that the 
     Secretary determines is necessary to conduct independent 
     estimates and audits of the maintenance of effort 
     requirement, the annual reconciliation, and related matters 
     required under the demonstration project.
       ``(2) Number of sites.--The administering Secretaries shall 
     establish a plan for the selection of up to 12 medical 
     centers under the jurisdiction of the Secretary of Veterans 
     Affairs and located in geographically dispersed locations to 
     participate in the project.
       ``(3) General criteria.--The selection plan shall favor 
     selection of those medical centers that are suited to serve 
     targeted medicare-eligible individuals because--
       ``(A) there is a high potential demand by targeted 
     medicare-eligible veterans for their services;
       ``(B) they have sufficient capability in billing and 
     accounting to participate;
       ``(C) they have favorable indicators of quality of care, 
     including patient satisfaction;
       ``(D) they deliver a range of services required by targeted 
     medicare-eligible veterans; and
       ``(E) they meet other relevant factors identified in the 
     plan.
       ``(4) Medical center near closed base.--The administering 
     Secretaries shall endeavor to include at least 1 medical 
     center that is in the same catchment area as a military 
     medical facility which was closed pursuant to either of the 
     following laws:
       ``(A) The Defense Base Closure and Realignment Act of 1990.
       ``(B) Title II of the Defense Authorization Amendments and 
     Base Closure and Realignment Act.
       ``(5) Restriction.--No new facilities will be built or 
     expanded with funds from the demonstration project.
       ``(6) Duration.--The administering Secretaries shall 
     conduct the demonstration project during the 3-year period 
     beginning on January 1, 1998.
       ``(c) Voluntary Participation.--Participation of targeted 
     medicare-eligible veterans in the demonstration project shall 
     be voluntary, subject to the capacity of participating 
     medical centers and the funding limitations specified in 
     subsection (l), and shall be subject to such terms and 
     conditions as the administering Secretaries may establish. In 
     the case of a demonstration project at a medical center 
     described in subsection (b)(3), targeted medicare-eligible 
     veterans who are military retirees shall be given preference 
     in participating in the project.
       ``(d) Cost Sharing.--The Secretary of Veterans Affairs may 
     establish cost-sharing requirements for veterans 
     participating in the demonstration project. If such cost 
     sharing requirements are established, those requirements 
     shall be the same as the requirements that apply to targeted 
     medicare-eligible patients at nongovernmental facilities.
       ``(e) Crediting of Payments.--A payment received by the 
     Secretary of Veterans Affairs under the demonstration project 
     shall be credited to the applicable Department of Veterans 
     Affairs medical appropriation and (within that appropriation) 
     to funds that have been allotted to the medical center that 
     furnished the services for which the payment is made. Any 
     such payment received during a fiscal year for services 
     provided during a prior fiscal year may be obligated by the 
     Secretary of Veterans Affairs during the fiscal year during 
     which the payment is received.
       ``(f) Authority To Waive Certain Medicare Requirements.--
     The Secretary may, to the extent necessary to carry out the 
     demonstration project, waive any requirement under this 
     title. If the Secretary waives any such requirement, the 
     Secretary shall include a description of such waiver in the 
     agreement described in subsection (b)(1)(B).
       ``(g) Inspector General.--Nothing in the agreement entered 
     into under subsection (b) shall limit the Inspector General 
     of the Department of Health and Human Services from 
     investigating any matters regarding the expenditure of funds 
     under this title for the demonstration project, including 
     compliance with the provisions of this title and all other 
     relevant laws.
       ``(h) Report.--At least 30 days prior to the commencement 
     of the demonstration project, the administering Secretaries 
     shall submit a copy of the agreement entered into under 
     subsection (b) to the committees of jurisdiction in Congress.
       ``(i) Managed Health Care Plans.--(1) In carrying out the 
     demonstration project, the Secretary of Veterans Affairs may 
     establish and operate managed health care plans.
       ``(2) Any such plan shall be operated by or through a 
     Department of Veterans Affairs medical center or group of 
     medical centers and may include the provision of health care 
     services through other facilities under the jurisdiction of 
     the Secretary of Veterans Affairs as well as public and 
     private entities under arrangements made between the 
     Department and the other public or private entity concerned. 
     Any such managed health care plan shall be established and 
     operated in conformance with standards prescribed by the 
     administering Secretaries.
       ``(3) The administering Secretaries shall prescribe the 
     minimum health care benefits to be provided under such a plan 
     to veterans enrolled in the plan. Those benefits shall 
     include at least all health care services covered under the 
     medicare program under this title.
       ``(4) The establishment of a managed health care plan under 
     this section shall be counted as the selection of a medical 
     center for purposes of applying the numerical limitation 
     under subsection (b)(1).
       ``(j) Medical Center Requirements.--The Secretary of 
     Veterans Affairs may establish a managed health care plan 
     using 1 or more medical centers and other facilities only 
     after the Secretary of Veterans Affairs submits to Congress a 
     report setting forth a plan for the use of such centers and 
     facilities. The plan may not be implemented until the 
     Secretary of Veterans Affairs has received from the Inspector 
     General of the Department of Veterans Affairs, and has 
     forwarded to Congress, certification of each of the 
     following:
       ``(1) The cost accounting system of the Veterans Health 
     Administration (known as the Decision Support System) is 
     operational and is providing reliable cost information on 
     care delivered on an inpatient and outpatient basis at such 
     centers and facilities.
       ``(2) The centers and facilities have operated in 
     conformity with the eligibility reform amendments made by 
     title I of the Veterans Health Care Act of 1996 for not less 
     than 3 months.
       ``(3) The centers and facilities have developed a credible 
     plan (on the basis of market surveys, data from the Decision 
     Support System, actuarial analysis, and other appropriate 
     methods and taking into account the level of payment under 
     subsection (l) and the costs of providing covered services at 
     the centers and facilities) to minimize, to the extent 
     feasible, the risk that appropriated funds allocated to the 
     centers and facilities will be required to meet the centers' 
     and facilities' obligation to targeted medicare-eligible 
     veterans under the demonstration project.
       ``(4) The centers and facilities collectively have 
     available capacity to provide the contracted benefits package 
     to a sufficient number of targeted medicare-eligible 
     veterans.
       ``(5) The entity administering the health plan has 
     sufficient systems and safeguards in place to minimize any 
     risk that instituting the managed care model will result in 
     reducing the quality of care delivered to enrollees in the 
     demonstration project or to other veterans receiving care 
     under paragraphs subsection (1) or (2) of section 1710(a) of 
     title 38, United States Code.
       ``(k) Reserves.--The Secretary of Veterans Affairs shall 
     maintain such reserves as may be necessary to ensure against 
     the risk that appropriated funds, allocated to medical 
     centers and facilities participating in the demonstration 
     project through a managed health care plan under this 
     section, will be required to meet the obligations of those 
     medical centers and facilities to targeted medicare-eligible 
     veterans.
       ``(l) Payments Based on Regular Medicare Payment Rates.--
       ``(1) Payments.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this subsection, the Secretary shall reimburse the Secretary 
     of Veterans Affairs for services provided under the 
     demonstration project at the following rates:
       ``(i) Noncapitation.--Except as provided in clause (ii) and 
     subject to subparagraphs (B)(i) and (D), at a rate equal to 
     95 percent of the amounts that otherwise would be payable 
     under this title on a noncapitated basis for such services if 
     the medical center were not a Federal medical center, were 
     participating in the program, and imposed charges for such 
     services.
       ``(ii) Capitation.--Subject to subparagraphs (B)(ii) and 
     (D), in the case of services provided to an enrollee under a 
     managed health care plan established under subsection (i), at 
     a rate equal to 95 percent of the amount paid to a Medicare 
     Choice organization under part C with respect to such an 
     enrollee.
     In cases in which a payment amount may not otherwise be 
     readily computed, the Secretaries shall establish rules for 
     computing equivalent or comparable payment amounts.
       ``(B) Exclusion of certain amounts.--
       ``(i) Noncapitation.--In computing the amount of payment 
     under subparagraph (A)(i), the following shall be excluded:

[[Page S6597]]

       (i) Disproportionate share hospital adjustment.--Any amount 
     attributable to an adjustment under subsection (d)(5)(F) of 
     section 1886 of the Social Security Act (42 U.S.C. 1395ww).
       (ii) Direct graduate medical education payments.--Any 
     amount attributable to a payment under subsection (h) of such 
     section.
       (iii) Percentage of indirect medical education 
     adjustment.--40 percent of any amount attributable to the 
     adjustment under subsection (d)(5)(B) of such section.
       (iv) Percentage of capital payments.--67 percent of any 
     amounts attributable to payments for capital-related costs 
     under subsection (g) of such section.
       ``(ii) Capitation.--In the case of years before 2001, in 
     computing the amount of payment under subparagraph (A)(ii), 
     the payment rate shall be computed as though the amounts 
     excluded under clause (i) had been excluded in the 
     determination of the amount paid to a Medicare Choice 
     organization under part C with respect to an enrollee.
       ``(C) Periodic payments from medicare trust funds.--
     Payments under this subsection shall be made--
       ``(i) on a periodic basis consistent with the periodicity 
     of payments under this title; and
       ``(ii) in appropriate part, as determined by the Secretary, 
     from the trust funds.
       ``(D) Annual limit on medicare payments.--The amount paid 
     to the Department of Veterans Affairs under this subsection 
     for any year for the demonstration project may not exceed 
     $50,000,000.
       ``(2) Reduction in payment for va failure to maintain 
     effort.--
       ``(A) In general.--In order to avoid shifting onto the 
     medicare program under this title costs previously assumed by 
     the Department of Veterans Affairs for the provision of 
     medicare-covered services to targeted medicare-eligible 
     veterans, the payment amount under this subsection for the 
     project for a fiscal year shall be reduced by the amount (if 
     any) by which--
       ``(i) the amount of the VA effort level for targeted 
     veterans (as defined in subparagraph (B)) for the fiscal year 
     ending in such year, is less than
       ``(ii) the amount of the VA effort level for targeted 
     veterans for fiscal year 1997.
       ``(B) VA effort level for targeted veterans defined.--For 
     purposes of subparagraph (A), the term `VA effort level for 
     targeted veterans' means, for a fiscal year, the amount, as 
     estimated by the administering Secretaries, that would have 
     been expended under the medicare program under this title for 
     VA-provided medicare-covered services for targeted veterans 
     (as defined in subparagraph (C)) for that fiscal year if 
     benefits were available under the medicare program for those 
     services. Such amount does not include expenditures 
     attributable to services for which reimbursement is made 
     under the demonstration project.
       ``(C) VA-provided medicare-covered services for targeted 
     veterans.--For purposes of subparagraph (B), the term `VA-
     provided medicare-covered services for targeted veterans' 
     means, for a fiscal year, items and services--
       ``(i) that are provided during the fiscal year by the 
     Department of Veterans Affairs to targeted medicare-eligible 
     veterans;
       ``(ii) that constitute hospital care and medical services 
     under chapter 17 of title 38, United States Code; and
       ``(iii) for which benefits would be available under the 
     medicare program under this title if they were provided other 
     than by a Federal provider of services that does not charge 
     for those services.
       ``(3) Assuring no increase in cost to medicare program.--
       ``(A) Monitoring effect of demonstration program on costs 
     to medicare program.--
       ``(i) In general.--The Secretaries, in consultation with 
     the Comptroller General, shall closely monitor the 
     expenditures made under the medicare program for targeted 
     medicare-eligible veterans during the period of the 
     demonstration project compared to the expenditures that would 
     have been made for such veterans during that period if the 
     demonstration project had not been conducted.
       ``(ii) Annual report by the comptroller general.--Not later 
     than December 31 of each year during which the demonstration 
     project is conducted, the Comptroller General shall submit to 
     the Secretaries and the appropriate committees of Congress a 
     report on the extent, if any, to which the costs of the 
     Secretary under the medicare program under this title 
     increased during the preceding fiscal year as a result of the 
     demonstration project.
       ``(B) Required response in case of increase in costs.--
       ``(i) In general.--If the administering Secretaries find, 
     based on subparagraph (A), that the expenditures under the 
     medicare program under this title increased (or are expected 
     to increase) during a fiscal year because of the 
     demonstration project, the administering Secretaries shall 
     take such steps as may be needed--

       ``(I) to recoup for the medicare program the amount of such 
     increase in expenditures; and
       ``(II) to prevent any such increase in the future.

       ``(ii) Steps.--Such steps--

       ``(I) under clause (i)(I) shall include payment of the 
     amount of such increased expenditures by the Secretary of 
     Veterans Affairs from the current medical care appropriation 
     of the Department of Veterans Affairs to the trust funds; and
       ``(II) under clause (i)(II) shall include suspending or 
     terminating the demonstration project (in whole or in part) 
     or lowering the amount of payment under paragraph (1)(A).

       ``(m) Evaluation and Reports.--
       ``(1) Independent evaluation.--The administering 
     Secretaries shall arrange for an independent entity with 
     expertise in the evaluation of health services to conduct an 
     evaluation of the demonstration project. The entity shall 
     submit annual reports on the demonstration project to the 
     administering Secretaries and to the committees of 
     jurisdiction in the Congress. The first report shall be 
     submitted not later than 12 months after the date on which 
     the demonstration project begins operation, and the final 
     report not later than 3\1/2\ years after that date. The 
     evaluation and reports shall include an assessment, based on 
     the agreement entered into under subsection (b), of the 
     following:
       ``(A) The cost to the Department of Veterans Affairs of 
     providing care to veterans under the project.
       ``(B) Compliance of participating medical centers with 
     applicable measures of quality of care, compared to such 
     compliance for other medicare-participating medical centers.
       ``(C) A comparison of the costs of medical centers' 
     participation in the program with the reimbursements provided 
     for services of such medical centers.
       ``(D) Any savings or costs to the medicare program under 
     this title from the project.
       ``(E) Any change in access to care or quality of care for 
     targeted medicare-eligible veterans participating in the 
     project.
       ``(F) Any effect of the project on the access to care and 
     quality of care for targeted medicare-eligible veterans not 
     participating in the project and other veterans not 
     participating in the project.
       ``(G) The provision of services under managed health care 
     plans under subsection (l), including the circumstances (if 
     any) under which the Secretary of Veterans Affairs uses 
     reserves described in subsection (k) and the Secretary of 
     Veterans Affairs' response to such circumstances (including 
     the termination of managed health care plans requiring the 
     use of such reserves).
       ``(H) Any effect that the demonstration project has on the 
     enrollment in Medicare Choice organizations under part C of 
     this title in the established site areas.
       ``(2) Report on extension and expansion of demonstration 
     project.--Not later than six months after the date of the 
     submission of the penultimate report under paragraph (1), the 
     administering Secretaries shall submit to Congress a report 
     containing their recommendation as to--
       ``(A) whether to extend the demonstration project or make 
     the project permanent;
       ``(B) whether to expand the project to cover additional 
     sites and areas and to increase the maximum amount of 
     reimbursement (or the maximum amount of reimbursement 
     permitted for managed health care plans under this section) 
     under the project in any year; and
       ``(C) whether the terms and conditions of the project 
     should be continued (or modified) if the project is extended 
     or expanded.


   ``MEDICARE SUBVENTION DEMONSTRATION PROJECT FOR MILITARY RETIREES

       ``Sec. 1897. (a) Definitions.--In this section:
       ``(1) Administering secretaries.--The term `administering 
     Secretaries' means the Secretary and the Secretary of Defense 
     acting jointly.
       ``(2) Demonstration project; project.--The terms 
     `demonstration project' and `project' mean the demonstration 
     project carried out under this section.
       ``(3) Designated provider.--The term `designated provider' 
     has the meaning given that term in section 721(5) of the 
     National Defense Authorization Act For Fiscal Year 1997 
     (Public Law 104-201; 110 Stat. 2593; 10 U.S.C. 1073 note).
       ``(4) Medicare-eligible military retiree or dependent.--The 
     term `medicare-eligible military retiree or dependent' means 
     an individual described in section 1074(b) or 1076(b) of 
     title 10, United States Code, who--
       ``(A) would be eligible for health benefits under section 
     1086 of such title by reason of subsection (c)(1) of such 
     section 1086 but for the operation of subsection (d) of such 
     section 1086;
       ``(B)(i) is entitled to benefits under part A of this 
     title; and
       ``(ii) if the individual was entitled to such benefits 
     before July 1, 1996, received health care items or services 
     from a health care facility of the uniformed services before 
     that date, but after becoming entitled to benefits under part 
     A of this title;
       ``(C) is enrolled for benefits under part B of this title; 
     and
       ``(D) has attained age 65.
       ``(5) Medicare health care services.--The term `medicare 
     health care services' means items or services covered under 
     part A or B of this title.
       ``(6) Military treatment facility.--The term `military 
     treatment facility' means a facility referred to in section 
     1074(a) of title 10, United States Code.
       ``(7) TRICARE.--The term `TRICARE' has the same meaning as 
     the term `TRICARE program' under section 711 of the National 
     Defense Authorization Act for Fiscal Year 1996 (10 U.S.C. 
     1073 note).
       ``(5) Trust funds.--The term `trust funds' means the 
     Federal Hospital Insurance Trust Fund established in section 
     1817 and the Federal Supplementary Medical Insurance Trust 
     Fund established in section 1841.
       ``(b) Demonstration Project.--
       ``(1) In general.--
       ``(A) Establishment.--The administering Secretaries are 
     authorized to establish a demonstration project (under an 
     agreement entered into by the administering Secretaries) 
     under which the Secretary shall reimburse the Secretary of 
     Defense, from the trust funds, for medicare health care 
     services furnished to certain medicare-eligible military 
     retirees or dependents.
       ``(B) Agreement.--The agreement entered into under 
     subparagraph (A) shall include at a minimum--
       ``(i) a description of the benefits to be provided to the 
     participants of the demonstration project established under 
     this section;

[[Page S6598]]

       ``(ii) a description of the eligibility rules for 
     participation in the demonstration project, including any 
     cost sharing requirements established under subsection (h);
       ``(iii) a description of how the demonstration project will 
     satisfy the requirements under this title;
       ``(iv) a description of the sites selected under paragraph 
     (2);
       ``(v) a description of how reimbursement and maintenance of 
     effort requirements under subsection (j) will be implemented 
     in the demonstration project; and
       ``(vi) a statement that the Secretary shall have access to 
     all data of the Department of Defense that the Secretary 
     determines is necessary to conduct independent estimates and 
     audits of the maintenance of effort requirement, the annual 
     reconciliation, and related matters required under the 
     demonstration project.
       ``(2) In general.--The project established under this 
     section shall be conducted in no more than 6 sites, 
     designated jointly by the administering Secretaries after 
     review of all TRICARE regions.
       ``(3) Restriction.--No new military treatment facilities 
     will be built or expanded with funds from the demonstration 
     project.
       ``(4) Duration.--The administering Secretaries shall 
     conduct the demonstration project during the 3-year period 
     beginning on January 1, 1998.
       ``(c) Crediting of Payments.--A payment received by the 
     Secretary of Defense under the demonstration project shall be 
     credited to the applicable Department of Defense medical 
     appropriation and (within that appropriation). Any such 
     payment received during a fiscal year for services provided 
     during a prior fiscal year may be obligated by the Secretary 
     of Defense during the fiscal year during which the payment is 
     received.
       ``(d) Authority To Waive Certain Medicare Requirements.--
     The Secretary may, to the extent necessary to carry out the 
     demonstration project, waive any requirement under this 
     title. If the Secretary waives any such requirement, the 
     Secretary shall include a description of such waiver in the 
     agreement described in subsection (b).
       ``(e) Inspector General.--Nothing in the agreement entered 
     into under subsection (b) shall limit the Inspector General 
     of the Department of Health and Human Services from 
     investigating any matters regarding the expenditure of funds 
     under this title for the demonstration project, including 
     compliance with the provisions of this title and all other 
     relevant laws.
       ``(f) Report.--At least 30 days prior to the commencement 
     of the demonstration project, the administering Secretaries 
     shall submit a copy of the agreement entered into under 
     subsection (b) to the committees of jurisdiction in Congress.
       ``(g) Voluntary Participation.--Participation of medicare-
     eligible military retirees or dependents in the demonstration 
     project shall be voluntary, subject to the capacity of 
     participating military treatment facilities and designated 
     providers and the funding limitations specified in subsection 
     (j), and shall be subject to such terms and conditions as the 
     administering Secretaries may establish.
       ``(h) Cost-Sharing by Demonstration Enrollees.--The 
     Secretary of Defense may establish cost-sharing requirements 
     for medicare-eligible military retirees and dependents who 
     enroll in the demonstration project consistent with part C of 
     this title.
       ``(i) TRICARE Health Care Plans.--
       ``(1) TRICARE program enrollment fee waiver.--The Secretary 
     of Defense shall waive the enrollment fee applicable to any 
     medicare-eligible military retiree or dependent enrolled in 
     the managed care option of the TRICARE program for any period 
     for which reimbursement is made under this section with 
     respect to such retiree or dependent.
       ``(2) Modification of tricare contracts.--In carrying out 
     the demonstration project, the Secretary of Defense is 
     authorized to amend existing TRICARE contracts in order to 
     provide the medicare health care services to the medicare-
     eligible military retirees and dependents enrolled in the 
     demonstration project.
       ``(3) Health care benefits.--The administering Secretaries 
     shall prescribe the minimum health care benefits to be 
     provided under such a plan to medicare-eligible military 
     retirees or dependents enrolled in the plan. Those benefits 
     shall include at least all medicare health care services 
     covered under this title.
       ``(j) Payments Based on Regular Medicare Payment Rates.--
       ``(1) Payments.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this subsection, the Secretary shall reimburse the Secretary 
     of Defense for services provided under the demonstration 
     project at the following rates:
       ``(i) Noncapitation.--Except as provided in clause (ii) and 
     subject to subparagraphs (B)(i) and (D), at a rate equal to 
     95 percent of the amounts that otherwise would be payable 
     under this title on a noncapitated basis for such services if 
     the military treatment facility or designated provider were 
     not a Federal medical center, were participating in the 
     program, and imposed charges for such services.
       ``(ii) Capitation.--Subject to subparagraphs (B)(ii) and 
     (D), in the case of services provided to an enrollee under a 
     managed health care plan established under subsection (i), at 
     a rate equal to 95 percent of the amount paid to a Medicare 
     Choice organization under part C with respect to such an 
     enrollee.
     In cases in which a payment amount may not otherwise be 
     readily computed, the Secretaries shall establish rules for 
     computing equivalent or comparable payment amounts.
       ``(B) Exclusion of certain amounts.--
       ``(i) Noncapitation.--In computing the amount of payment 
     under subparagraph (A)(i), the following shall be excluded:

       ``(I) Special payments.--Any amount attributable to an 
     adjustment under subparagraphs (B) and (F) of section 
     1886(d)(5) and subsection (h) of such section.
       ``(II) Percentage of capital payments.--An amount 
     determined by the administering Secretaries for amounts 
     attributable to payments for capital-related costs under 
     subsection (g) of such section.

       ``(ii) Capitation.--In the case of years before 2001, in 
     computing the amount of payment under subparagraph (A)(ii), 
     the payment rate shall be computed as though the amounts 
     excluded under clause (i) had been excluded in the 
     determination of the amount paid to a Medicare Choice 
     organization under part C with respect to an enrollee.
       ``(C) Periodic payments from medicare trust funds.--
     Payments under this subsection shall be made--
       ``(i) on a periodic basis consistent with the periodicity 
     of payments under this title; and
       ``(ii) in appropriate part, as determined by the Secretary, 
     from the trust funds.
       ``(D) Cap on amount.--The aggregate amount to be reimbursed 
     under this paragraph pursuant to the agreement entered into 
     between the administering Secretaries under subsection (b) 
     shall not exceed a total of--
       ``(i) $55,000,000 for calendar year 1998;
       ``(ii) $65,000,000 for calendar year 1999; and
       ``(iii) $75,000,000 for calendar year 2000.
       ``(2) Assuring no increase in cost to medicare program.--
       ``(A) Monitoring effect of demonstration program on costs 
     to medicare program.--
       ``(i) In general.--The Secretaries, in consultation with 
     the Comptroller General, shall closely monitor the 
     expenditures made under the medicare program for medicare-
     eligible military retirees or dependents during the period of 
     the demonstration project compared to the expenditures that 
     would have been made for such medicare-eligible military 
     retirees or dependents during that period if the 
     demonstration project had not been conducted. The agreement 
     entered into by the administering Secretaries under 
     subsection (b) shall require any participating military 
     treatment facility to maintain the level of effort for space 
     available care to medicare-eligible military retirees or 
     dependents.
       ``(ii) Annual report by the comptroller general.--Not later 
     than December 31 of each year during which the demonstration 
     project is conducted, the Comptroller General shall submit to 
     the Secretaries and the appropriate committees of Congress a 
     report on the extent, if any, to which the costs of the 
     Secretary under the medicare program under this title 
     increased during the preceding fiscal year as a result of the 
     demonstration project.
       ``(B) Required response in case of increase in costs.--
       ``(i) In general.--If the administering Secretaries find, 
     based on subparagraph (A), that the expenditures under the 
     medicare program under this title increased (or are expected 
     to increase) during a fiscal year because of the 
     demonstration project, the administering Secretaries shall 
     take such steps as may be needed--

       ``(I) to recoup for the medicare program the amount of such 
     increase in expenditures; and
       ``(II) to prevent any such increase in the future.

       ``(ii) Steps.--Such steps--

       ``(I) under clause (i)(I) shall include payment of the 
     amount of such increased expenditures by the Secretary of 
     Defense from the current medical care appropriation of the 
     Department of Defense to the trust funds; and
       ``(II) under clause (i)(II) shall include suspending or 
     terminating the demonstration project (in whole or in part) 
     or lowering the amount of payment under paragraph (1)(A).

       ``(k) Evaluation and Reports.--
       ``(1) Independent evaluation.--The administering 
     Secretaries shall arrange for an independent entity with 
     expertise in the evaluation of health services to conduct an 
     evaluation of the demonstration project. The entity shall 
     submit annual reports on the demonstration project to the 
     administering Secretaries and to the committees of 
     jurisdiction in the Congress. The first report shall be 
     submitted not later than 12 months after the date on which 
     the demonstration project begins operation, and the final 
     report not later than 3\1/2\ years after that date. The 
     evaluation and reports shall include an assessment, based on 
     the agreement entered into under subsection (b), of the 
     following:
       ``(A) The number of medicare-eligible military retirees and 
     dependents opting to participate in the demonstration project 
     instead of receiving health benefits through another health 
     insurance plan (including benefits under this title).
       ``(B) Compliance by the Department of Defense with the 
     requirements under this title.
       ``(C) The cost to the Department of Defense of providing 
     care to medicare-eligible military retirees and dependents 
     under the demonstration project.
       ``(D) Compliance by the Department of Defense with the 
     standards of quality required of entities that furnish 
     medicare health care services.
       ``(E) An analysis of whether, and in what manner, easier 
     access to the uniformed services treatment system affects the 
     number of medicare-eligible military retirees and dependents 
     receiving medicare health care services.
       ``(F) Any savings or costs to the medicare program under 
     this title resulting from the demonstration project.
       ``(G) An assessment of the access to care and quality of 
     care for medicare-eligible military retirees and dependents 
     under the demonstration project.
       ``(H) Any impact of the demonstration project on the access 
     to care for medicare-eligible military retirees and 
     dependents who did not enroll in the demonstration project 
     and for other individuals entitled to benefits under this 
     title.

[[Page S6599]]

       ``(I) Any impact of the demonstration project on private 
     health care providers.
       ``(J) Any impact of the demonstration project on access to 
     care for active duty military personnel and their dependents.
       ``(K) A list of the health insurance plans and programs 
     that were the primary payers for medicare-eligible military 
     retirees and dependents during the year prior to their 
     participation in the demonstration project and the 
     distribution of their previous enrollment in such plans and 
     programs.
       ``(L) An identification of cost-shifting (if any) between 
     the medicare program under this title and the Defense health 
     program as a result of the demonstration project and a 
     description of the nature of any such cost-shifting.
       ``(M) An analysis of how the demonstration project affects 
     the overall accessibility of the uniformed services treatment 
     system and the amount of space available for point-of-service 
     care, and a description of the unintended effects (if any) 
     upon the normal treatment priority system.
       ``(N) A description of the difficulties (if any) 
     experienced by the Department of Defense in managing the 
     demonstration project.
       ``(O) A description of the effects of the demonstration 
     project on military treatment facility readiness and training 
     and the probable effects of the project on overall Department 
     of Defense medical readiness and training.
       ``(P) A description of the effects that the demonstration 
     project, if permanent, would be expected to have on the 
     overall budget of the Defense health program, the budgets of 
     individual military treatment facilities and designated 
     providers, and on the budget of the medicare program under 
     this title.
       ``(Q) An analysis of whether the demonstration project 
     affects the cost to the Department of Defense of prescription 
     drugs or the accessibility, availability, and cost of such 
     drugs to demonstration program beneficiaries.
       ``(R) Any additional elements specified in the agreement 
     entered into under subsection (b).
       ``(2) Report on extension and expansion of demonstration 
     project.--Not later than six months after the date of the 
     submission of the penultimate report under paragraph (1), the 
     administering Secretaries shall submit to Congress a report 
     containing their recommendation as to--
       ``(A) whether to extend the demonstration project or make 
     the project permanent;
       ``(B) whether to expand the project to cover additional 
     sites and areas and to increase the maximum amount of 
     reimbursement (or the maximum amount of reimbursement 
     permitted for managed health care plans under this section) 
     under the project in any year; and
       ``(C) whether the terms and conditions of the project 
     should be continued (or modified) if the project is extended 
     or expanded.''.

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

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

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

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

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

     SEC. 5102. COVERAGE OF COLORECTAL SCREENING.

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

                   ``Colorectal Cancer Screening Test

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

     SEC. 5103. DIABETES SCREENING TESTS.

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

        ``Diabetes Outpatient Self-Management Training Services

       ``(pp)(1) The term `diabetes outpatient self-management 
     training services' means educational and training services 
     furnished to an individual with diabetes by a certified 
     provider (as described in paragraph (2)(A)) in an outpatient 
     setting by an individual or entity that meets the quality 
     standards described in paragraph (2)(B), but only if the 
     physician who is managing the individual's diabetic condition 
     certifies that the services are needed under a comprehensive 
     plan of care related to the individual's diabetic condition 
     to provide the individual with necessary skills and knowledge 
     (including skills related to the self-administration of 
     injectable drugs) to participate in the management of the 
     individual's condition.
       ``(2) In paragraph (1)--
       ``(A) a `certified provider' is a physician, or other 
     individual or entity designated by the Secretary, that, in 
     addition to providing diabetes outpatient self-management 
     training services, provides other items or services for which 
     payment may be made under this title; and
       ``(B) a physician, or other such individual or entity, 
     meets the quality standards described in this subparagraph if 
     the physician, or individual or entity, meets quality 
     standards established by the Secretary, except that the 
     physician, or other individual or entity, shall be deemed to 
     have met such standards if the physician or other individual 
     or entity--

[[Page S6600]]

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

     SEC. 5104. COVERAGE OF BONE MASS MEASUREMENTS.

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

                        ``Bone Mass Measurement

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

     SEC. 5105. STUDY ON MEDICAL NUTRITION THERAPY SERVICES.

       (a) Study.--The Secretary of Health and Human Services 
     shall request the National Academy of Sciences, in 
     conjunction with the United States Preventive Services Task 
     Force, to analyze the expansion or modification of the 
     preventive benefits provided to medicare beneficiaries under 
     title XVIII of the Social Security Act to include medical 
     nutrition therapy services by a registered dietitian.
       (b) Report.--
       (1) Initial report.--Not later than 2 years after the date 
     of the enactment of this Act, the Secretary shall submit a 
     report on the findings of the analysis conducted under 
     subsection (a) to the Committee on Ways and Means and the 
     Committee on Commerce of the House of Representatives and the 
     Committee on Finance of the Senate.
       (2) Contents.--Such report shall include specific findings 
     with respect to the expansion or modification of coverage of 
     medical nutrition therapy services by a registered dietitian 
     for medicare beneficiaries regarding--
       (A) cost to the medicare system;
       (B) savings to the medicare system;
       (C) clinical outcomes; and
       (D) short and long term benefits to the medicare system.
       (3) Funding.--From funds appropriated to the Department of 
     Health and Human Services for fiscal years 1998 and 1999, the 
     Secretary shall provide for such funding as may be necessary 
     for the conduct of the analysis by the National Academy of 
     Sciences under this section.
                     Subtitle C--Rural Initiatives

     SEC. 5151. SOLE COMMUNITY HOSPITALS.

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

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

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

     SEC. 5153. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

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


             ``medicare rural hospital flexibility program

       ``Sec. 1820. (a) Establishment.--Any State that submits an 
     application in accordance with subsection (b) may establish a 
     medicare rural hospital flexibility program described in 
     subsection (c).
       ``(b) Application.--A State may establish a medicare rural 
     hospital flexibility program described in subsection (c) if 
     the State submits to the Secretary at such time and in such 
     form as the Secretary may require an application containing--
       ``(1) assurances that the State--
       ``(A) has developed, or is in the process of developing, a 
     State rural health care plan that--

[[Page S6601]]

       ``(i) provides for the creation of 1 or more rural health 
     networks (as defined in subsection (d)) in the State;
       ``(ii) promotes regionalization of rural health services in 
     the State; and
       ``(iii) improves access to hospital and other health 
     services for rural residents of the State; and
       ``(B) has developed the rural health care plan described in 
     subparagraph (A) in consultation with the hospital 
     association of the State, rural hospitals located in the 
     State, and the State Office of Rural Health (or, in the case 
     of a State in the process of developing such plan, that 
     assures the Secretary that the State will consult with its 
     State hospital association, rural hospitals located in the 
     State, and the State Office of Rural Health in developing 
     such plan);
       ``(2) assurances that the State has designated (consistent 
     with the rural health care plan described in paragraph 
     (1)(A)), or is in the process of so designating, rural 
     nonprofit or public hospitals or facilities located in the 
     State as critical access hospitals; and
       ``(3) such other information and assurances as the 
     Secretary may require.
       ``(c) Medicare Rural Hospital Flexibility Program 
     Described.--
       ``(1) In general.--A State that has submitted an 
     application in accordance with subsection (b), may establish 
     a medicare rural hospital flexibility program that provides 
     that--
       ``(A) the State shall develop at least 1 rural health 
     network (as defined in subsection (d)) in the State; and
       ``(B) at least 1 facility in the State shall be designated 
     as a critical access hospital in accordance with paragraph 
     (2).
       ``(2) State designation of facilities.--
       ``(A) In general.--A State may designate 1 or more 
     facilities as a critical access hospital in accordance with 
     subparagraph (B).
       ``(B) Criteria for designation as critical access 
     hospital.--A State may designate a facility as a critical 
     access hospital if the facility--
       ``(i) is a nonprofit or public hospital and is located in a 
     county (or equivalent unit of local government) in a rural 
     area (as defined in section 1886(d)(2)(D)) that--

       ``(I) is located more than a 35-mile drive from a hospital, 
     or another facility described in this subsection; or
       ``(II) is certified by the State as being a necessary 
     provider of health care services to residents in the area;

       ``(ii) makes available 24-hour emergency care services that 
     a State determines are necessary for ensuring access to 
     emergency care services in each area served by a critical 
     access hospital;
       ``(iii) provides not more than 15 acute care inpatient beds 
     (meeting such standards as the Secretary may establish) for 
     providing inpatient care for a period not to exceed 96 hours 
     (unless a longer period is required because transfer to a 
     hospital is precluded because of inclement weather or other 
     emergency conditions), except that a peer review organization 
     or equivalent entity may, on request, waive the 96-hour 
     restriction on a case-by-case basis;
       ``(iv) meets such staffing requirements as would apply 
     under section 1861(e) to a hospital located in a rural area, 
     except that--

       ``(I) the facility need not meet hospital standards 
     relating to the number of hours during a day, or days during 
     a week, in which the facility must be open and fully staffed, 
     except insofar as the facility is required to make available 
     emergency care services as determined under clause (ii) and 
     must have nursing services available on a 24-hour basis, but 
     need not otherwise staff the facility except when an 
     inpatient is present;
       ``(II) the facility may provide any services otherwise 
     required to be provided by a full-time, on site dietitian, 
     pharmacist, laboratory technician, medical technologist, and 
     radiological technologist on a part-time, off site basis 
     under arrangements as defined in section 1861(w)(1); and
       ``(III) the inpatient care described in clause (iii) may be 
     provided by a physician's assistant, nurse practitioner, or 
     clinical nurse specialist subject to the oversight of a 
     physician who need not be present in the facility; and

       ``(v) meets the requirements of section 1861(aa)(2)(I).
       ``(d) Definition of Rural Health Network.--
       ``(1) In general.--In this section, the term `rural health 
     network' means, with respect to a State, an organization 
     consisting of--
       ``(A) at least 1 facility that the State has designated or 
     plans to designate as a critical access hospital; and
       ``(B) at least 1 hospital that furnishes acute care 
     services.
       ``(2) Agreements.--
       ``(A) In general.--Each critical access hospital that is a 
     member of a rural health network shall have an agreement with 
     respect to each item described in subparagraph (B) with at 
     least 1 hospital that is a member of the network.
       ``(B) Items described.--The items described in this 
     subparagraph are the following:
       ``(i) Patient referral and transfer.
       ``(ii) The development and use of communications systems 
     including (where feasible)--

       ``(I) telemetry systems; and
       ``(II) systems for electronic sharing of patient data.

       ``(iii) The provision of emergency and non-emergency 
     transportation among the facility and the hospital.
       ``(C) Credentialing and quality assurance.--Each critical 
     access hospital that is a member of a rural health network 
     shall have an agreement with respect to credentialing and 
     quality assurance with at least--
       ``(i) 1 hospital that is a member of the network;
       ``(ii) 1 peer review organization or equivalent entity; or
       ``(iii) 1 other appropriate and qualified entity identified 
     in the State rural health care plan.
       ``(e) Certification by the Secretary.--The Secretary shall 
     certify a facility as a critical access hospital if the 
     facility--
       ``(1) is located in a State that has established a medicare 
     rural hospital flexibility program in accordance with 
     subsection (c);
       ``(2) is designated as a critical access hospital by the 
     State in which it is located; and
       ``(3) meets such other criteria as the Secretary may 
     require.
       ``(f) Permitting Maintenance of Swing Beds.--Nothing in 
     this section shall be construed to prohibit a critical access 
     hospital from entering into an agreement with the Secretary 
     under section 1883 under which the facility's inpatient 
     hospital facilities are used for the furnishing of extended 
     care services.
       ``(g) Grants.--
       ``(1) Medicare rural hospital flexibility program.--The 
     Secretary may award grants to States that have submitted 
     applications in accordance with subsection (b) for--
       ``(A) engaging in activities relating to planning and 
     implementing a rural health care plan;
       ``(B) engaging in activities relating to planning and 
     implementing rural health networks; and
       ``(C) designating facilities as critical access hospitals.
       ``(2) Rural emergency medical services.--
       ``(A) In general.--The Secretary may award grants to States 
     that have submitted applications in accordance with 
     subparagraph (B) for the establishment or expansion of a 
     program for the provision of rural emergency medical 
     services.
       ``(B) Application.--An application is in accordance with 
     this subparagraph if the State submits to the Secretary at 
     such time and in such form as the Secretary may require an 
     application containing the assurances described in 
     subparagraphs (A)(ii), (A)(iii), and (B) of subsection (b)(1) 
     and paragraph (3) of that subsection.
       ``(h) Grandfathering of Certain Facilities.--
       ``(1) In general.--Any medical assistance facility 
     operating in Montana and any rural primary care hospital 
     designated by the Secretary under this section prior to the 
     date of the enactment of the Balanced Budget Act of 1997 
     shall be deemed to have been certified by the Secretary under 
     subsection (e) as a critical access hospital if such facility 
     or hospital is otherwise eligible to be designated by the 
     State as a critical access hospital under subsection (c).
       ``(2) Continuation of medical assistance facility and rural 
     primary care hospital terms.--Notwithstanding any other 
     provision of this title, with respect to any medical 
     assistance facility or rural primary care hospital described 
     in paragraph (1), any reference in this title to a `critical 
     access hospital' shall be deemed to be a reference to a 
     `medical assistance facility' or `rural primary care 
     hospital'.
       ``(i) Waiver of Conflicting Part A Provisions.--The 
     Secretary is authorized to waive such provisions of this part 
     and part D as are necessary to conduct the program 
     established under this section.
       ``(j) Authorization of Appropriations.--There are 
     authorized to be appropriated from the Federal Hospital 
     Insurance Trust Fund for making grants to all States under 
     subsection (g), $25,000,000 in each of the fiscal years 1998 
     through 2002.''.
       (b) Report on Alternative to 96-Hour Rule.--Not later than 
     January 1, 1998, the Administrator of the Health Care 
     Financing Administration shall submit to Congress a report on 
     the feasibility of, and administrative requirements necessary 
     to establish an alternative for certain medical diagnoses (as 
     determined by the Administrator) to the 96-hour limitation 
     for inpatient care in critical access hospitals required by 
     section 1820(c)(2)(B)(iii) of the Social Security Act (42 
     U.S.C. 1395i-4), as added by subsection (a) of this section.
       (c) Conforming Amendments Relating to Rural Primary Care 
     Hospitals and Critical Access Hospitals.--
       (1) In general.--Title XI of the Social Security Act (42 
     U.S.C. 1301 et seq.) and title XVIII of that Act (42 U.S.C. 
     1395 et seq.) are each amended by striking ``rural primary 
     care'' each place it appears and inserting ``critical 
     access''.
       (2) Definitions.--Section 1861(mm) of the Social Security 
     Act (42 U.S.C. 1395x(mm)) is amended to read as follows:


     ``critical access hospital; critical access hospital services

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

       ``Payment for Inpatient Critical Access Hospital Services

       ``(l) The amount of payment under this part for inpatient 
     critical access hospital services is the reasonable costs of 
     the critical access hospital in providing such services.''.
       (4) Payment continued to designated eachs.--Section 
     1886(d)(5)(D) of the Social Security Act (42 U.S.C. 
     1395ww(d)(5)(D)) is amended--

[[Page S6602]]

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

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

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

     SEC. 5155. RURAL HEALTH CLINIC SERVICES.

       (a) Per-Visit Payment Limits for Provider-Based Clinics.--
       (1) Extension of limit.--
       (A) In general.--The matter in section 1833(f) (42 U.S.C. 
     1395l(f)) preceding paragraph (1) is amended by striking 
     ``independent rural health clinics'' and inserting ``rural 
     health clinics (other than such clinics in rural hospitals 
     with less than 50 beds)''.
       (B) Effective date.--The amendment made by subparagraph (A) 
     applies to services furnished after 1997.
       (2) Technical clarification.--Section 1833(f)(1) (42 U.S.C. 
     1395l(f)(1)) is amended by inserting ``per visit'' after 
     ``$46''.
       (b) Assurance of Quality Services.--
       (1) In general.--Subparagraph (I) of the first sentence of 
     section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended to 
     read as follows:
       ``(I) has a quality assessment and performance improvement 
     program, and appropriate procedures for review of utilization 
     of clinic services, as the Secretary may specify,''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on January 1, 1998.
       (c) Waiver of Certain Staffing Requirements Limited to 
     Clinics in Program.--
       (1) In general.--Section 1861(aa)(7)(B)) (42 U.S.C. 
     1395x(aa)(7)(B)) is amended by inserting before the period 
     ``, or if the facility has not yet been determined to meet 
     the requirements (including subparagraph (J) of the first 
     sentence of paragraph (2)) of a rural health clinic.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies to waiver requests made after 1997.
       (d) Refinement of Shortage Area Requirements.--
       (1) Designation reviewed triennially.--Section 1861(aa)(2) 
     (42 U.S.C. 1395x(aa)(2)) is amended in the second sentence, 
     in the matter in clause (i) preceding subclause (I)--
       (A) by striking ``and that is designated'' and inserting 
     ``and that, within the previous 3-year period, has been 
     designated''; and
       (B) by striking ``or that is designated'' and inserting 
     ``or designated''.
       (2) Area must have shortage of health care practitioners.--
     Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)), as amended by 
     paragraph (1), is further amended in the second sentence, in 
     the matter in clause (i) preceding subclause (I)--
       (A) by striking the comma after ``personal health 
     services''; and
       (B) by inserting ``and in which there are insufficient 
     numbers of needed health care practitioners (as determined by 
     the Secretary),'' after ``Bureau of the Census)''.
       (3) Previously qualifying clinics grandfathered only to 
     prevent shortage.--
       (A) In General.--Section 1861(aa)(2) (42 U.S.C. 
     1395x(aa)(2)) is amended in the third sentence by inserting 
     before the period ``if it is determined, in accordance with 
     criteria established by the Secretary in regulations, to be 
     essential to the delivery of primary care services that would 
     otherwise be unavailable in the geographic area served by the 
     clinic''.
       (B) Payment for certain physician assistant services.--
       (i) In general.--With respect to any regulations issued to 
     implement section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) (as 
     amended by subparagraph (A)), the Secretary of Health and 
     Human Services shall include in such regulations provisions 
     providing for the direct payment to the physician assistant 
     for any physician assistant services as described in clause 
     (ii).
       (ii) Services described.--Services described in this clause 
     are physician assistant services provided at a rural health 
     clinic that is principally owned, as determined by the 
     Secretary, by a physician assistant--

       (I) as of the date of enactment of this Act; and
       (II) continuously from such date through the date on which 
     such services are provided.

       (iii) Sunset.--The provisions of this subparagraph shall 
     not apply after January 1, 2003.
       (4) Effective dates; implementing regulations.--
       (A) In general.--Except as otherwise provided, the 
     amendments made by the preceding paragraphs take effect on 
     January 1 of the first calendar year beginning at least 1 
     month after enactment of this Act.
       (B) Current rural health clinics.--The amendments made by 
     the preceding paragraphs take effect, with respect to 
     entities that are rural health clinics under title XVIII of 
     the Social Security Act (42 U.S.C. 1395 et seq.) on the date 
     of enactment of this Act, on January 1 of the second calendar 
     year following the calendar year specified in subparagraph 
     (A).
       (C) Grandfathered clinics.--
       (i) In general.--The amendment made by paragraph (3) shall 
     take effect on the effective date of regulations issued by 
     the Secretary under clause (ii).
       (ii) Regulations.--The Secretary shall issue final 
     regulations implementing paragraph (3) that shall take effect 
     no later than January 1 of the third calendar year beginning 
     at least 1 month after the date of enactment of this Act.

     SEC. 5156. MEDICARE REIMBURSEMENT FOR TELEHEALTH SERVICES.

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

[[Page S6603]]

     making the payments described in that paragraph using various 
     reimbursement schemes.

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

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

         CHAPTER 1--REVISIONS TO SANCTIONS FOR FRAUD AND ABUSE

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

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

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

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

     SEC. 5203. IMPOSITION OF CIVIL MONEY PENALTIES.

       (a) Civil Money Penalties for Persons That Contract With 
     Excluded Individuals.--Section 1128A(a) (42 U.S.C. 1320a-
     7a(a)) is amended--
       (1) in paragraph (4), by striking ``or'' at the end;
       (2) in paragraph (5), by adding ``or'' at the end; and
       (3) by inserting after paragraph (5) the following:
       ``(6) arranges or contracts (by employment or otherwise) 
     with an individual or entity that the person knows or should 
     know is excluded from participation in a Federal health care 
     program (as defined in section 1128B(f)), for the provision 
     of items or services for which payment may be made under such 
     a program;''.
       (b) Civil Money Penalties for Services Ordered or 
     Prescribed by an Excluded Individual or Entity.--Section 
     1128A(a)(1) (42 U.S.C. 1320a-7a(a)(1)) is amended--
       (1) in subparagraph (D)--
       (A) by inserting ``, ordered, or prescribed by such 
     person'' after ``other item or service furnished'';
       (B) by inserting ``(pursuant to this title or title 
     XVIII)'' after ``period in which the person was excluded'';
       (C) by striking ``pursuant to a determination by the 
     Secretary'' and all that follows through ``the provisions of 
     section 1842(j)(2)''; and
       (D) by striking ``or'' at the end;
       (2) by redesignating subparagraph (E) as subparagraph (F); 
     and
       (3) by inserting after subparagraph (D) the following:
       ``(E) is for a medical or other item or service ordered or 
     prescribed by a person excluded pursuant to this title or 
     title XVIII from the program under which the claim was made, 
     and the

[[Page S6604]]

     person furnishing such item or service knows or should know 
     of such exclusion, or''.
       (c) Civil Money Penalties for Kickbacks.--
       (1) Permitting secretary to impose civil money penalty.--
     Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by 
     subsection (a), is amended--
       (A) in paragraph (5), by striking ``or'' at the end;
       (B) in paragraph (6), by adding ``or'' at the end; and
       (C) by adding after paragraph (6) the following:
       ``(7) commits an act described in paragraph (1) or (2) of 
     section 1128B(b);''.
       (2) Description of civil money penalty applicable.--Section 
     1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by paragraph 
     (1), is amended in the matter following paragraph (7)--
       (A) by striking ``occurs).'' and inserting ``occurs; or in 
     cases under paragraph (7), $50,000 for each such act).''; and
       (B) by inserting after ``of such claim'' the following: 
     ``(or, in cases under paragraph (7), damages of not more than 
     3 times the total amount of remuneration offered, paid, 
     solicited, or received, without regard to whether a portion 
     of such remuneration was offered, paid, solicited, or 
     received for a lawful purpose)''.
       (d) Effective Dates.--
       (1) Contracts with excluded persons.--The amendments made 
     by subsection (a) shall apply to arrangements and contracts 
     entered into after the date of the enactment of this Act.
       (2) Services ordered or prescribed.--The amendments made by 
     subsection (b) shall apply to items and services furnished, 
     ordered, or prescribed after the date of the enactment of 
     this Act.
       (3) Kickbacks.--The amendments made by subsection (c) shall 
     apply to acts taken after the date of the enactment of this 
     Act.

        CHAPTER 2--IMPROVEMENTS IN PROTECTING PROGRAM INTEGRITY

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

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

     SEC. 5212. PROVISION OF CERTAIN IDENTIFICATION NUMBERS.

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

[[Page S6605]]

       (e) Effective Dates.--
       (1) Disclosure requirements.--The amendment made by 
     subsection (a) shall apply to the application of conditions 
     of participation, and entering into and renewal of contracts 
     and agreements, occurring more than 90 days after the date of 
     submission of the report under subsection (d).
       (2) Other providers.--The amendments made by subsection (b) 
     shall apply to payment for items and services furnished more 
     than 90 days after the date of submission of such report.

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

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


       ``application of certain provisions of the bankruptcy code

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


           ``application of provisions of the bankruptcy code

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

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

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

[[Page S6606]]

       (22) Section 1848(i)(3) (42 U.S.C. 1395w-4(i)(3)) is 
     repealed.
       (23) Section 1866(a)(2)(A)(ii) (42 U.S.C. 
     1395cc(a)(2)(A)(ii)) is amended by striking ``reasonable 
     charges'' and all that follows through ``provider)'' and 
     inserting ``amount customarily charged for the items and 
     services by the provider''.
       (24) Section 1881(b)(3)(A) (42 U.S.C. 1395rr(b)(3)(A)) is 
     amended by striking ``a reasonable charge'' and all that 
     follows through ``section 1848)'' and inserting ``the basis 
     described in section 1848''.
       (25) Section 9340 of OBRA--1986 (42 U.S.C. 1395u note; 
     Public Law 99-509) is repealed.
       (c) Effective Dates.--The amendments made by this section 
     to the extent such amendments substitute fee schedules for 
     reasonable charges, shall apply to particular services as of 
     the date specified by the Secretary of Health and Human 
     Services.
       (d) Initial Budget Neutrality.--The Secretary, in 
     developing a fee schedule for particular services (under the 
     amendments made by this section), shall set amounts for the 
     first year period to which the fee schedule applies at a 
     level so that the total payments under title XVIII of the 
     Social Security Act (42 U.S.C. 1395 et seq.) for those 
     services for that year period shall be approximately equal to 
     the estimated total payments if those amendments had not been 
     made.

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

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

     SEC. 5216. REQUIREMENT TO FURNISH DIAGNOSTIC INFORMATION.

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

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

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

     SEC. 5218. COMPETITIVE BIDDING.

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

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

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

     SEC. 5219. IMPROVING INFORMATION TO MEDICARE BENEFICIARIES.

       (a) Clarification of Requirement To Provide Explanation of 
     Medicare Benefits.--Section 1804 of the Social Security Act 
     (42 U.S.C. 1395b-2) is amended by adding at the end the 
     following new subsection:
       ``(c)(1) The Secretary shall provide a statement which 
     explains the benefits provided under this title with respect 
     to each item or service for which payment may be made under 
     this title which is furnished to an individual, without 
     regard to whether or not a deductible or coinsurance may be 
     imposed against the individual with respect to such item or 
     service.
       ``(2) Each explanation of benefits provided under paragraph 
     (1) shall include--
       ``(A) a statement which indicates that because errors do 
     occur and because medicare fraud, waste and abuse is a 
     significant problem, beneficiaries should carefully check the 
     statement for accuracy and report any errors or questionable 
     charges by calling the toll-free phone number described in 
     subparagraph (C);
       ``(B) a statement of the beneficiary's right to request an 
     itemized bill (as provided in section 1128A(n)); and
       ``(C) a toll-free telephone number for reporting errors, 
     questionable charges or other acts that would constitute 
     medicare fraud, waste, or abuse, which may be the same number 
     as described in subsection (b).''.
       (b) Request for Itemized Bill for Medicare Items and 
     Services.--
       (1) In general.--Section 1128A of the Social Security Act 
     (42 U.S.C. 1320a-7a) is amended by adding at the end the 
     following new subsection:
       ``(m) Written Request for Itemized Bill.--
       ``(1) In general.--A beneficiary may submit a written 
     request for an itemized bill for medical or other items or 
     services provided to such beneficiary by any person 
     (including an organization, agency, or other entity) that 
     receives payment under title XVIII for providing such items 
     or services to such beneficiary.
       ``(2) 30-day period to receive bill.--
       ``(A) In general.--Not later than 30 days after the date on 
     which a request under paragraph (1) has been received, a 
     person described in such paragraph shall furnish an itemized 
     bill describing each medical or other item or service 
     provided to the beneficiary requesting the itemized bill.
       ``(B) Penalty.--Whoever knowingly fails to furnish an 
     itemized bill in accordance with subparagraph (A) shall be 
     subject to a civil fine of not more than $100 for each such 
     failure.
       ``(3) Review of itemized bill.--
       ``(A) In general.--Not later than 90 days after the receipt 
     of an itemized bill furnished under paragraph (1), a 
     beneficiary may submit a written request for a review of the 
     itemized bill to the appropriate fiscal intermediary or 
     carrier with a contract under section 1816 or 1842.
       ``(B) Specific allegations.--A request for a review of the 
     itemized bill shall identify--
       ``(i) specific medical or other items or services that the 
     beneficiary believes were not provided as claimed, or
       ``(ii) any other billing irregularity (including duplicate 
     billing).
       ``(4) Findings of fiscal intermediary or carrier.--Each 
     fiscal intermediary or carrier with a contract under section 
     1816 or 1842 shall, with respect to each written request 
     submitted to the fiscal intermediary or carrier under 
     paragraph (3), determine whether the itemized bill identifies 
     specific medical or other items or services that were not 
     provided as claimed or any other billing irregularity 
     (including duplicate

[[Page S6607]]

     billing) that has resulted in unnecessary payments under the 
     title XVIII.
       ``(5) Recovery of amounts.--The Secretary shall require 
     fiscal intermediaries and carriers to take all appropriate 
     measures to recover amounts unnecessarily paid under title 
     XVIII with respect to a bill described in paragraph (4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to medical or other items or 
     services provided on or after January 1, 1998.

     SEC. 5220. PROHIBITING UNNECESSARY AND WASTEFUL MEDICARE 
                   PAYMENTS FOR CERTAIN ITEMS.

       Section 1861(v) of the Social Security Act is amended by 
     adding at the end the following new paragraph:
       ``(8) Items unrelated to patient care.--Reasonable costs do 
     not include costs for the following--
       ``(i) entertainment;
       ``(ii) gifts or donations;
       ``(iii) costs for fines and penalties resulting from 
     violations of Federal, State, or local laws; and
       ``(iv) education expenses for spouses or other dependents 
     of providers of services, their employees or contractors.''.

     SEC. 5221. REDUCING EXCESSIVE BILLINGS AND UTILIZATION FOR 
                   CERTAIN ITEMS.

       Section 1834(a)(15) of the Social Security Act (42 U.S.C. 
     1395m(a)(15)) is amended by striking ``Secretary may'' both 
     places it appears and inserting ``Secretary shall''.

     SEC. 5222. IMPROVING INFORMATION TO MEDICARE BENEFICIARIES.

       (a) Clarification of Requirement To Provide Explanation of 
     Medicare Benefits.--Section 1804 of the Social Security Act 
     (42 U.S.C. 1395b-2) is amended by adding at the end the 
     following new subsection:
       ``(c)(1) The Secretary shall provide a statement which 
     explains the benefits provided under this title with respect 
     to each item or service for which payment may be made under 
     this title which is furnished to an individual, without 
     regard to whether or not a deductible or coinsurance may be 
     imposed against the individual with respect to such item or 
     service.
       ``(2) Each explanation of benefits provided under paragraph 
     (1) shall include--
       ``(A) a statement which indicates that because errors do 
     occur and because medicare fraud, waste and abuse is a 
     significant problem, beneficiaries should carefully check the 
     statement for accuracy and report any errors or questionable 
     charges by calling the toll-free phone number described in 
     subparagraph (C);
       ``(B) a statement of the beneficiary's right to request an 
     itemized bill (as provided in section 1128A(n)); and
       ``(C) a toll-free telephone number for reporting errors, 
     questionable charges or other acts that would constitute 
     medicare fraud, waste, or abuse, which may be the same number 
     as described in subsection (b).''.
       (b) Request for Itemized Bill for Medicare Items and 
     Services.--
       (1) In general.--Section 1128A of the Social Security Act 
     (42 U.S.C. 1320a-7a) is amended by adding at the end the 
     following new subsection:
       ``(m) Written Request for Itemized Bill.--
       ``(1) In general.--A beneficiary may submit a written 
     request for an itemized bill for medical or other items or 
     services provided to such beneficiary by any person 
     (including an organization, agency, or other entity) that 
     receives payment under title XVIII for providing such items 
     or services to such beneficiary.
       ``(2) 30-day period to receive bill.--
       ``(A) In general.--Not later than 30 days after the date on 
     which a request under paragraph (1) has been received, a 
     person described in such paragraph shall furnish an itemized 
     bill describing each medical or other item or service 
     provided to the beneficiary requesting the itemized bill.
       ``(B) Penalty.--Whoever knowingly fails to furnish an 
     itemized bill in accordance with subparagraph (A) shall be 
     subject to a civil fine of not more than $100 for each such 
     failure.
       ``(3) Review of itemized bill.--
       ``(A) In general.--Not later than 90 days after the receipt 
     of an itemized bill furnished under paragraph (1), a 
     beneficiary may submit a written request for a review of the 
     itemized bill to the appropriate fiscal intermediary or 
     carrier with a contract under section 1816 or 1842.
       ``(B) Specific allegations.--A request for a review of the 
     itemized bill shall identify--
       ``(i) specific medical or other items or services that the 
     beneficiary believes were not provided as claimed, or
       ``(ii) any other billing irregularity (including duplicate 
     billing).
       ``(4) Findings of fiscal intermediary or carrier.--Each 
     fiscal intermediary or carrier with a contract under section 
     1816 or 1842 shall, with respect to each written request 
     submitted to the fiscal intermediary or carrier under 
     paragraph (3), determine whether the itemized bill identifies 
     specific medical or other items or services that were not 
     provided as claimed or any other billing irregularity 
     (including duplicate billing) that has resulted in 
     unnecessary payments under the title XVIII.
       ``(5) Recovery of amounts.--The Secretary shall require 
     fiscal intermediaries and carriers to take all appropriate 
     measures to recover amounts unnecessarily paid under title 
     XVIII with respect to a bill described in paragraph (4).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to medical or other items or 
     services provided on or after January 1, 1998.

     SEC. 5223. PROHIBITING UNNECESSARY AND WASTEFUL MEDICARE 
                   PAYMENTS FOR CERTAIN ITEMS.

       Notwithstanding any other provision of law, including any 
     regulation or payment policy, the following categories of 
     charges shall not be reimbursable under title XVIII of the 
     Social Security Act:
       (1) Entertainment costs, including the costs of tickets to 
     sporting and other entertainment events.
       (2) Gifts or donations.
       (3) Personal use of motor vehicles.
       (4) Costs for fines and penalties resulting from violations 
     of Federal, State, or local laws.
       (5) Tuition or other education fees for spouses or 
     dependents of providers of services, their employees, or 
     contractors.

     SEC. 5224. REDUCING EXCESSIVE BILLINGS AND UTILIZATION FOR 
                   CERTAIN ITEMS.

       Section 1834(a)(15) of the Social Security Act (42 U.S.C. 
     1395m(a)(15)) is amended by striking ``Secretary may'' both 
     places it appears and inserting ``Secretary shall''.

     SEC. 5225. IMPROVED CARRIER AUTHORITY TO REDUCE EXCESSIVE 
                   MEDICARE PAYMENTS.

       Section 1834(i) of the Social Security Act (42 U.S.C. 
     1395m(i)) is amended by adding at the end the following new 
     paragraph:
       ``(3) Grossley excessive payment amounts.--Notwithstanding 
     paragraph (1), the Secretary may apply the provisions of 
     section 1842(b)(8) to payments under this subsection.''.

     SEC. 5226. ITEMIZATION OF SURGICAL DRESSING BILLS SUBMITTED 
                   BY HOME HEALTH AGENCIES.

       Section 1834(i)(2) (42 U.S.C. 1395m(i)(2)) is amended to 
     read as follows:
       ``(2) Exception.--Paragraph (1) shall not apply to surgical 
     dressings that are furnished as an incident to a physician's 
     professional service.''.

            CHAPTER 3--CLARIFICATIONS AND TECHNICAL CHANGES

     SEC. 5231. OTHER FRAUD AND ABUSE RELATED PROVISIONS.

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

[[Page S6608]]

       (3) Sanction for failure to report.--The amendment made by 
     subsection (d) shall apply to failures occurring on or after 
     the date of the enactment of this Act.
       (4) Clarification.--The amendments made by subsection 
     (e)(2) shall take effect on the date of the enactment of this 
     Act.
                Subtitle E--Prospective Payment Systems

                CHAPTER 1--PROVISIONS RELATING TO PART A

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

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

[[Page S6609]]

       ``(8) Limitation on review.--There shall be no 
     administrative or judicial review under section 1869, 1878, 
     or otherwise of the establishment of--
       ``(A) case mix groups, of the methodology for the 
     classification of patients within such groups, and of the 
     appropriate weighting factors thereof under paragraph (2),
       ``(B) the prospective payment rates under paragraph (3),
       ``(C) outlier and special payments under paragraph (4),
       ``(D) area wage adjustments under paragraph (6), and
       ``(E) additional adjustments under paragraph (7).''.
       (b) Conforming Amendments.--Section 1886(b) (42 U.S.C. 
     1395ww(b)) is amended--
       (1) in paragraph (1), by inserting ``and other than a 
     rehabilitation facility described in subsection (j)(1)'' 
     after ``subsection (d)(1)(B)'', and
       (2) in paragraph (3)(B)(i), by inserting ``and subsection 
     (j)'' after ``For purposes of subsection (d)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to cost reporting periods beginning on or after 
     October 1, 2000, except that the Secretary of Health and 
     Human Services may require the submission of data under 
     section 1886(j)(2)(D) of the Social Security Act (as added by 
     subsection (a)) on and after the date of the enactment of 
     this section.

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

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

                CHAPTER 2--PROVISIONS RELATING TO PART B

   Subchapter A--Payment for Hospital Outpatient Department Services

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

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

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

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

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

       (a) In General.--Section 1833 (42 U.S.C. 1395l) is amended 
     by adding at the end the following:
       ``(t) Prospective Payment System for Hospital Outpatient 
     Department Services.--
       ``(1) In general.--With respect to hospital outpatient 
     services designated by the Secretary (in this section 
     referred to as `covered OPD services') and furnished during a 
     year beginning with 1999, the amount of payment under this 
     part shall be determined under a prospective payment system 
     established by the Secretary in accordance with this 
     subsection.
       ``(2) System requirements.--Under the payment system--
       ``(A) the Secretary shall develop a classification system 
     for covered OPD services;
       ``(B) the Secretary may establish groups of covered OPD 
     services, within the classification system described in 
     subparagraph (A), so that services classified within each 
     group are comparable clinically and with respect to the use 
     of resources;
       ``(C) the Secretary shall, using data on claims from 1997 
     and using data from the most recent available cost reports, 
     establish relative payment weights for covered OPD services 
     (and any groups of such services described in subparagraph 
     (B)) based on median hospital costs and shall determine 
     projections of the frequency of utilization of each such 
     service (or group of services) in 1999;
       ``(D) the Secretary shall determine a wage adjustment 
     factor to adjust the portion of payment and coinsurance 
     attributable to labor-related costs for relative differences 
     in labor and labor-related costs across geographic regions in 
     a budget neutral manner;
       ``(E) the Secretary shall establish other adjustments as 
     determined to be necessary to ensure equitable payments, such 
     as outlier adjustments or adjustments for certain classes of 
     hospitals; and
       ``(F) the Secretary shall develop a method for controlling 
     unnecessary increases in the volume of covered OPD services.
       ``(3) Calculation of base amounts.--
       ``(A) Aggregate amounts that would be payable if 
     deductibles were disregarded.--The Secretary shall estimate 
     the total amounts that would be payable from the Trust Fund 
     under this part for covered OPD services in 1999, determined 
     without regard to this subsection, as though the deductible 
     under section 1833(b) did not apply, and as though the 
     coinsurance described in section 1866(a)(2)(A)(ii) (as in 
     effect before the date of the enactment of this subsection) 
     continued to apply.
       ``(B) Unadjusted copayment amount.--
       ``(i) In general.--For purposes of this subsection, subject 
     to clause (ii), the `unadjusted copayment amount' applicable 
     to a covered OPD service (or group of such services) is 20 
     percent of the national median of the charges for the service 
     (or services within the group) furnished during 1997, updated 
     to 1999 using the Secretary's estimate of charge growth 
     during the period.
       ``(ii) Adjustments when fully phased in.--If the pre-
     deductible payment percentage for a covered OPD service (or 
     group of such services) furnished in a year would be equal to 
     or exceed 80 percent, then the unadjusted copayment amount 
     shall be 25 percent of amount determined under subparagraph 
     (D)(i).
       ``(iii) Rules for new services.--The Secretary shall 
     establish rules for establishment of an unadjusted copayment 
     amount for a covered OPD service not furnished during 1997, 
     based upon its classification within a group of such 
     services.
       ``(C) Calculation of conversion factors.--
       ``(i) For 1999.--

       ``(I) In general.--The Secretary shall establish a 1999 
     conversion factor for determining the medicare pre-deductible 
     OPD fee payment amounts for each covered OPD service (or 
     group of such services) furnished in 1999. Such conversion 
     factor shall be established--

       ``(aa) on the basis of the weights and frequencies 
     described in paragraph (2)(C), and
       ``(bb) in such manner that the sum of the products 
     determined under subclause (II) for each service or group 
     equals the total project amount described in subparagraph 
     (A).

       ``(II) Product.--The Secretary shall determine for each 
     service or group the product of the medicare pre-deductible 
     OPD fee payment amount (taking into account appropriate 
     adjustments described in paragraphs (2)(D) and (2)(E)) and 
     the frequencies for such service or group.

       ``(ii) Subsequent years.--Subject to paragraph (8)(B), the 
     Secretary shall establish a conversion factor for covered OPD 
     services furnished in subsequent years in an amount equal to 
     the conversion factor established under this subparagraph and 
     applicable to such services furnished in the previous year 
     increased by the OPD payment increase factor specified under 
     clause (iii) for the year involved.
       ``(iii) OPD payment increase factor.--For purposes of this 
     subparagraph, the `OPD payment increase factor' for services 
     furnished in a year is equal to the sum of--

       ``(I) the market basket percentage increase applicable 
     under section 1886(b)(3)(B)(iii) to hospital discharges 
     occurring during the fiscal year ending in such year, plus
       ``(II) in the case of a covered OPD service (or group of 
     such services) furnished in a year in which the pre-
     deductible payment percentage would not exceed 80 percent, 
     3.5 percentage points.

     In applying the previous sentence for years beginning with 
     2000, the Secretary may substitute for the market basket 
     percentage increase under subclause (I) an annual percentage 
     increase that is computed and applied with respect to covered 
     OPD services furnished in a year in the same manner as the 
     market basket percentage increase is determined and applied 
     to inpatient hospital services for discharges occurring in a 
     fiscal year.
       ``(D) Pre-deductible payment percentage.--The pre-
     deductible payment percentage for a covered OPD service (or 
     group of such services) furnished in a year is equal to the 
     ratio of--
       ``(i) the conversion factor established under subparagraph 
     (C) for the year, multiplied by the weighting factor 
     established under paragraph (2)(C) for the service (or 
     group), to
       ``(ii) the sum of the amount determined under clause (i) 
     and the unadjusted copayment amount determined under 
     subparagraph (B) for such service or group.
       ``(E) Calculation of medicare opd fee schedule amounts.--
     The Secretary shall compute a medicare OPD fee schedule 
     amount for each covered OPD service (or group of such 
     services) furnished in a year, in an amount equal to the 
     product of--
       ``(i) the conversion factor computed under subparagraph (C) 
     for the year, and
       ``(ii) the relative payment weight (determined under 
     paragraph (2)(C)) for the service or group.
       ``(4) Medicare payment amount.--The amount of payment made 
     from the Trust Fund under this part for a covered OPD service 
     (and such services classified within a group) furnished in a 
     year is determined as follows:
       ``(A) Fee schedule and copayment amount.--Add (i) the 
     medicare OPD fee schedule amount (computed under paragraph 
     (3)(E)) for the service or group and year, and (ii) the

[[Page S6610]]

     unadjusted copayment amount (determined under paragraph 
     (3)(B)) for the service or group.
       ``(B) Subtract applicable deductible.--Reduce the sum under 
     subparagraph (A) by the amount of the deductible under 
     section 1833(b), to the extent applicable.
       ``(C) Apply payment proportion to remainder.--Multiply the 
     amount determined under subparagraph (B) by the pre-
     deductible payment percentage (as determined under paragraph 
     (3)(D)) for the service or group and year involved.
       ``(D) Labor-related adjustment.--The amount of payment is 
     the product determined under subparagraph (C) with the labor-
     related portion of such product adjusted for relative 
     differences in the cost of labor and other factors determined 
     by the Secretary, as computed under paragraph (2)(D).
       ``(5) Copayment amount.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the copayment amount under this subsection is determined as 
     follows:
       ``(i) Unadjusted copayment.--Compute the amount by which 
     the amount described in paragraph (4)(B) exceeds the amount 
     of payment determined under paragraph (4)(C).
       ``(ii) Labor adjustment.--The copayment amount is the 
     difference determined under clause (i) with the labor-related 
     portion of such difference adjusted for relative differences 
     in the cost of labor and other factors determined by the 
     Secretary, as computed under paragraphs (2)(D). The 
     adjustment under this clause shall be made in a manner that 
     does not result in any change in the aggregate copayments 
     made in any year if the adjustment had not been made.
       ``(B) Election to offer reduced copayment amount.--The 
     Secretary shall establish a procedure under which a hospital, 
     before the beginning of a year (beginning with 1999), may 
     elect to reduce the copayment amount otherwise established 
     under subparagraph (A) for some or all covered OPD services 
     to an amount that is not less than 25 percent of the medicare 
     OPD fee schedule amount (computed under paragraph (3)(E)) for 
     the service involved, adjusted for relative differences in 
     the cost of labor and other factors determined by the 
     Secretary, as computed under subparagraphs (D) and (E) of 
     paragraph (2). Under such procedures, such reduced copayment 
     amount may not be further reduced or increased during the 
     year involved and the hospital may disseminate information on 
     the reduction of copayment amount effected under this 
     subparagraph.
       ``(C) No impact on deductibles.--Nothing in this paragraph 
     shall be construed as affecting a hospital's authority to 
     waive the charging of a deductible under section 1833(b).
       ``(6) Periodic review and adjustments components of 
     prospective payment system.--
       ``(A) Periodic review.--The Secretary may periodically 
     review and revise the groups, the relative payment weights, 
     and the wage and other adjustments described in paragraph (2) 
     to take into account changes in medical practice, changes in 
     technology, the addition of new services, new cost data, and 
     other relevant information and factors.
       ``(B) Budget neutrality adjustment.--If the Secretary makes 
     adjustments under subparagraph (A), then the adjustments for 
     a year may not cause the estimated amount of expenditures 
     under this part for the year to increase or decrease from the 
     estimated amount of expenditures under this part that would 
     have been made if the adjustments had not been made.
       ``(C) Update factor.--If the Secretary determines under 
     methodologies described in subparagraph (2)(F) that the 
     volume of services paid for under this subsection increased 
     beyond amounts established through those methodologies, the 
     Secretary may appropriately adjust the update to the 
     conversion factor otherwise applicable in a subsequent year.
       ``(7) Special rule for ambulance services.--The Secretary 
     shall pay for hospital outpatient services that are ambulance 
     services on the basis described in the matter in subsection 
     (a)(1) preceding subparagraph (A).
       ``(8) Special rules for certain hospitals.--In the case of 
     hospitals described in section 1886(d)(1)(B)(v)--
       ``(A) the system under this subsection shall not apply to 
     covered OPD services furnished before January 1, 2000; and
       ``(B) the Secretary may establish a separate conversion 
     factor for such services in a manner that specifically takes 
     into account the unique costs incurred by such hospitals by 
     virtue of their patient population and service intensity.
       ``(9) Limitation on review.--There shall be no 
     administrative or judicial review under section 1869, 1878, 
     or otherwise of--
       ``(A) the development of the classification system under 
     paragraph (2), including the establishment of groups and 
     relative payment weights for covered OPD services, of wage 
     adjustment factors, other adjustments, and methods described 
     in paragraph (2)(F);
       ``(B) the calculation of base amounts under paragraph (3);
       ``(C) periodic adjustments made under paragraph (6); and
       ``(D) the establishment of a separate conversion factor 
     under paragraph (8)(B).''.
       (b) Coinsurance.--Section 1866(a)(2)(A)(ii) (42 U.S.C. 
     1395cc(a)(2)(A)(ii)) is amended by adding at the end the 
     following: ``In the case of items and services for which 
     payment is made under part B under the prospective payment 
     system established under section 1833(t), clause (ii) of the 
     first sentence shall be applied by substituting for 20 
     percent of the reasonable charge, the applicable copayment 
     amount established under section 1833(t)(5).''.
       (c) Treatment of Reduction in Copayment Amount.--Section 
     1128A(i)(6) (42 U.S.C. 1320a-7a(i)(6)) is amended--
       (1) by striking ``or'' at the end of subparagraph (B),
       (2) by striking the period at the end of subparagraph (C) 
     and inserting ``; or'', and
       (3) by adding at the end the following new subparagraph:
       ``(D) a reduction in the copayment amount for covered OPD 
     services under section 1833(t)(5)(B).''.
       (d) Conforming Amendments.--
       (1) Approved asc procedures performed in hospital 
     outpatient departments.--
       (A)(i) Section 1833(i)(3)(A) (42 U.S.C. 1395l(i)(3)(A)) is 
     amended--
       (I) by inserting ``before January 1, 1999'' after 
     ``furnished'', and
       (II) by striking ``in a cost reporting period''.
       (ii) The amendment made by clause (i) shall apply to 
     services furnished on or after January 1, 1999.
       (B) Section 1833(a)(4) (42 U.S.C. 1395l(a)(4)) is amended 
     by inserting ``or subsection (t)'' before the semicolon.
       (2) Radiology and other diagnostic procedures.--
       (A) Section 1833(n)(1)(A) (42 U.S.C. 1395l(n)(1)(A)) is 
     amended by inserting ``and before January 1, 1999'' after 
     ``October 1, 1988,'' and after ``October 1, 1989,''.
       (B) Section 1833(a)(2)(E) (42 U.S.C. 1395l(a)(2)(E)) is 
     amended by inserting ``or , for services or procedures 
     performed on or after January 1, 1999, subsection (t)'' 
     before the semicolon.
       (3) Other hospital outpatient services.--Section 
     1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is amended--
       (A) in clause (i), by inserting ``furnished before January 
     1, 1999,'' after ``(i)'',
       (B) in clause (ii), by inserting ``before January 1, 
     1999,'' after ``furnished'',
       (C) by redesignating clause (iii) as clause (iv), and
       (D) by inserting after clause (ii), the following new 
     clause:
       ``(iii) if such services are furnished on or after January 
     1, 1999, the amount determined under subsection (t), or''.

                    Subchapter B--Ambulance Services

     SEC. 5321. PAYMENTS FOR AMBULANCE SERVICES.

       (a) Interim Reductions.--
       (1) Payments determined on reasonable cost basis.--Section 
     1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by adding at 
     the end the following new subparagraph:
       ``(V) In determining the reasonable cost of ambulance 
     services (as described in subsection (s)(7)) provided during 
     a fiscal year (beginning with fiscal year 1998 and ending 
     with fiscal year 2002), the Secretary shall not recognize any 
     costs in excess of costs recognized as reasonable for 
     ambulance services provided during the previous fiscal year 
     (after application of this subparagraph), increased by the 
     percentage increase in the consumer price index for all urban 
     consumers (U.S. city average) as estimated by the Secretary 
     for the 12-month period ending with the midpoint of the 
     fiscal year involved reduced in the case of fiscal year 1998 
     by 1.0 percentage point.''.
       (2) Payments determined on reasonable charge basis.--
     Section 1842(b) (42 U.S.C. 1395u(b)) is amended by adding at 
     the end the following new paragraph:
       ``(19) For purposes of section 1833(a)(1), the reasonable 
     charge for ambulance services (as described in section 
     1861(s)(7)) provided during a fiscal year (beginning with 
     fiscal year 1998 and ending with fiscal year 2002) may not 
     exceed the reasonable charge for such services provided 
     during the previous fiscal year (after application of this 
     paragraph), increased by the percentage increase in the 
     consumer price index for all urban consumers (U.S. city 
     average) as estimated by the Secretary for the 12-month 
     period ending with the midpoint of the year involved reduced 
     in the case of fiscal year 1998 by 1.0 percentage point.''.
       (b) Establishment of Prospective Fee Schedule.--
       (1) Payment in accordance with fee schedule.--Section 
     1833(a)(1) (42 U.S.C. 1395l(a)(1)) is amended--
       (A) by striking ``and (P)'' and inserting ``(P)''; and
       (B) by striking the semicolon at the end and inserting the 
     following: ``, and (Q) with respect to ambulance service, the 
     amounts paid shall be 80 percent of the lesser of the actual 
     charge for the services or the amount determined by a fee 
     schedule established by the Secretary under section 
     1834(k);''.
       (2) Establishment of schedule.--Section 1834 (42 U.S.C. 
     1395m) is amended by adding at the end the following new 
     subsection:
       ``(k) Establishment of Fee Schedule for Ambulance 
     Services.--
       ``(1) In general.--The Secretary shall establish a fee 
     schedule for payment for ambulance services under this part 
     through a negotiated rulemaking process described in title 5, 
     United States Code, and in accordance with the requirements 
     of this subsection.
       ``(2) Considerations.--In establishing such fee schedule, 
     the Secretary shall--
       ``(A) establish mechanisms to control increases in 
     expenditures for ambulance services under this part;
       ``(B) establish definitions for ambulance services which 
     link payments to the type of services provided;
       ``(C) consider appropriate regional and operational 
     differences;
       ``(D) consider adjustments to payment rates to account for 
     inflation and other relevant factors; and
       ``(E) phase in the application of the payment rates under 
     the fee schedule in an efficient and fair manner.
       ``(3) Savings.--In establishing such fee schedule, the 
     Secretary shall--
       ``(A) ensure that the aggregate amount of payments made for 
     ambulance services under this part during 1999 does not 
     exceed the aggregate amount of payments which would have

[[Page S6611]]

     been made for such services under this part during such year 
     if the amendments made by section 5321 of the Balanced Budget 
     Act of 1997 had not been made; and
       ``(B) set the payment amounts provided under the fee 
     schedule for services furnished in 2000 and each subsequent 
     year at amounts equal to the payment amounts under the fee 
     schedule for service furnished during the previous year, 
     increased by the percentage increase in the consumer price 
     index for all urban consumers (U.S. city average) for the 12-
     month period ending with June of the previous year reduced 
     (but not below zero) by 1.0 percentage points.
       ``(4) Consultation.--In establishing the fee schedule for 
     ambulance services under this subsection, the Secretary shall 
     consult with various national organizations representing 
     individuals and entities who furnish and regulate ambulance 
     services and share with such organizations relevant data in 
     establishing such schedule.
       ``(5) Limitation on review.--There shall be no 
     administrative or judicial review under section 1869 or 
     otherwise of the amounts established under the fee schedule 
     for ambulance services under this subsection, including 
     matters described in paragraph (2).
       ``(6) Restraint on billing.--The provisions of 
     subparagraphs (A) and (B) of section 1842(b)(18) shall apply 
     to ambulance services for which payment is made under this 
     subsection in the same manner as they apply to services 
     provided by a practitioner described in section 
     1842(b)(18)(C).''.
       (3) Effective date.--The amendments made by this section 
     apply to ambulance services furnished on or after January 1, 
     1999.
       (c) Authorizing Payment for Paramedic Intercept Service 
     Providers in Rural Communities.--In promulgating regulations 
     to carry out section 1861(s)(7) of the Social Security Act 
     (42 U.S.C. 1395x(s)(7)) with respect to the coverage of 
     ambulance service, the Secretary of Health and Human Services 
     may include coverage of advanced life support services (in 
     this subsection referred to as ``ALS intercept services'') 
     provided by a paramedic intercept service provider in a rural 
     area if the following conditions are met:
       (1) The ALS intercept services are provided under a 
     contract with one or more volunteer ambulance services and 
     are medically necessary based on the health condition of the 
     individual being transported.
       (2) The volunteer ambulance service involved--
       (A) is certified as qualified to provide ambulance service 
     for purposes of such section,
       (B) provides only basic life support services at the time 
     of the intercept, and
       (C) is prohibited by State law from billing for any 
     services.
       (3) The entity supplying the ALS intercept services--
       (A) is certified as qualified to provide such services 
     under the medicare program under title XVIII of the Social 
     Security Act, and
       (B) bills all recipients who receive ALS intercept services 
     from the entity, regardless of whether or not such recipients 
     are medicare beneficiaries.

            CHAPTER 3--PROVISIONS RELATING TO PARTS A AND B

          Subchapter A--Payments to Skilled Nursing Facilities

     SEC. 5331. EXTENSION OF COST LIMITS.

       The last sentence of section 1888(a) (42 U.S.C. 1395yy(a)) 
     is amended by striking ``subsection'' the last place it 
     appears and all that follows and inserting ``subsection, 
     except that the limits effective for cost reporting periods 
     beginning on or after October 1, 1997, shall be based on the 
     limits effective for cost reporting periods beginning on or 
     after October 1, 1996.''.

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

       (a) In General.--Section 1888 (42 U.S.C. 1395yy) is amended 
     by adding at the end the following new subsection:
       ``(e) Prospective Payment.--
       ``(1) Payment provision.--Notwithstanding any other 
     provision of this title, subject to paragraph (7), the amount 
     of the payment for all costs (as defined in paragraph (2)(B)) 
     of covered skilled nursing facility services (as defined in 
     paragraph (2)(A)) for each day of such services furnished--
       ``(A) in a cost reporting period during the transition 
     period (as defined in paragraph (2)(E)), is equal to the sum 
     of--
       ``(i) the non-Federal percentage of the facility-specific 
     per diem rate (computed under paragraph (3)), and
       ``(ii) the Federal percentage of the adjusted Federal per 
     diem rate (determined under paragraph (4)) applicable to the 
     facility; and
       ``(B) after the transition period is equal to the adjusted 
     Federal per diem rate applicable to the facility.
       ``(2) Definitions.--For purposes of this subsection:
       ``(A) Covered skilled nursing facility services.--
       ``(i) In general.--The term `covered skilled nursing 
     facility services'--

       ``(I) means post-hospital extended care services as defined 
     in section 1861(i) for which benefits are provided under part 
     A; and
       ``(II) includes all items and services (other than services 
     described in clause (ii)) for which payment may be made under 
     part B and which are furnished to an individual who is a 
     resident of a skilled nursing facility during the period in 
     which the individual is provided covered post-hospital 
     extended care services.

       ``(ii) Services excluded.--Services described in this 
     clause are physicians' services, services described by 
     clauses (i) through (iii) of section 1861(s)(2)(K), certified 
     nurse-midwife services, qualified psychologist services, 
     services of a certified registered nurse anesthetist, items 
     and services described in subparagraphs in (F) and (O) of 
     section 1861(s)(2), and, only with respect to services 
     furnished during 1998, the transportation costs of 
     electrocardiogram equipment for electrocardiogram tests 
     services (HCPCS Code R0076). Services described in this 
     clause do not include any physical, occupational, or speech-
     language therapy services regardless of whether or not the 
     services are furnished by, or under the supervision of, a 
     physician or other health care professional.
       ``(B) All costs.--The term `all costs' means routine 
     service costs, ancillary costs, and capital-related costs of 
     covered skilled nursing facility services, but does not 
     include costs associated with approved educational 
     activities.
       ``(C) Non-federal percentage; federal percentage.--For--
       ``(i) the first cost reporting period (as defined in 
     subparagraph (D)) of a facility, the `non-Federal percentage' 
     is 75 percent and the `Federal percentage' is 25 percent;
       ``(ii) the next cost reporting period of such facility, the 
     `non-Federal percentage' is 50 percent and the `Federal 
     percentage' is 50 percent; and
       ``(iii) the subsequent cost reporting period of such 
     facility, the `non-Federal percentage' is 25 percent and the 
     `Federal percentage' is 75 percent.
       ``(D) First cost reporting period.--The term `first cost 
     reporting period' means, with respect to a skilled nursing 
     facility, the first cost reporting period of the facility 
     beginning on or after July 1, 1998.
       ``(E) Transition period.--
       ``(i) In general.--The term `transition period' means, with 
     respect to a skilled nursing facility, the 3 cost reporting 
     periods of the facility beginning with the first cost 
     reporting period.
       ``(ii) Treatment of new skilled nursing facilities.--In the 
     case of a skilled nursing facility that does not have a 
     settled cost report for a cost reporting period before July 
     1, 1998, payment for such services shall be made under this 
     subsection as if all services were furnished after the 
     transition period.
       ``(3) Determination of facility specific per diem rates.--
     The Secretary shall determine a facility-specific per diem 
     rate for each skilled nursing facility for a cost reporting 
     period as follows:
       ``(A) Determining base payments.--The Secretary shall 
     determine, on a per diem basis, the total of--
       ``(i) the allowable costs of extended care services for the 
     facility for cost reporting periods beginning in 1995 with 
     appropriate adjustments (as determined by the Secretary) to 
     non-settled cost reports, and
       ``(ii) an estimate of the amounts that would be payable 
     under part B (disregarding any applicable deductibles, 
     coinsurance and copayments) for covered skilled nursing 
     facility services described in paragraph (2)(A)(i)(II) 
     furnished during such period to an individual who is a 
     resident of the facility, regardless of whether or not the 
     payment was made to the facility or to another entity.
       ``(B) Update to cost reporting periods through 1998.--The 
     Secretary shall update the amount determined under 
     subparagraph (A), for each cost reporting period after the 
     cost reporting period described in subparagraph (A)(i) and up 
     to the first cost reporting period by a factor equal to the 
     skilled nursing facility market basket percentage increase.
       ``(C) Updating to applicable cost reporting period.--The 
     Secretary shall further update such amount for each cost 
     reporting period beginning with the first cost reporting 
     period and up to and including the cost reporting period 
     involved by a factor equal to the skilled nursing facility 
     market basket percentage increase.
       ``(D) Certain demonstration projects.--In the case of a 
     facility participating in the Nursing Home Case-Mix and 
     Quality Demonstration (RUGS-III), the Secretary shall 
     determine the facility specific per diem rate for any year 
     after 1997 by computing the base period payments by using the 
     RUGS-III rate received by the facility for 1997, increased by 
     a factor equal to the skilled nursing facility market basket 
     percentage increase.
       ``(4) Federal per diem rate.--
       ``(A) Determination of historical per diem for 
     facilities.--For each skilled nursing facility that received 
     payments for post-hospital extended care services during a 
     cost reporting period beginning in fiscal year 1995 and that 
     was subject to (and not exempted from) the per diem limits 
     referred to in paragraph (1) or (2) of subsection (a) (and 
     facilities described in subsection (d)), the Secretary shall 
     estimate, on a per diem basis for such cost reporting period, 
     the total of--
       ``(i) subject to subparagraph (I), the allowable costs of 
     extended care services for the facility for cost reporting 
     periods beginning in 1995 with appropriate adjustments (as 
     determined by the Secretary) to non-settled cost reports, and
       ``(ii) an estimate of the amounts that would be payable 
     under part B (disregarding any applicable deductibles, 
     coinsurance and copayments) for covered skilled nursing 
     facility services described in paragraph (2)(A)(i)(II) 
     furnished during such period to an individual who is a 
     resident of the facility, regardless of whether or not the 
     payment was made to the facility or to another entity.
       ``(B) Update to cost reporting periods through 1998.--The 
     Secretary shall update the amount determined under 
     subparagraph (A), for each cost reporting period after the 
     cost reporting period described in subparagraph (A)(i) and up 
     to the first cost reporting period by a factor equal to the 
     skilled nursing facility market basket percentage increase 
     reduced (on an annualized basis) by 1 percentage point.
       ``(C) Computation of standardized per diem rate.--The 
     Secretary shall standardize

[[Page S6612]]

     the amount updated under subparagraph (B) for each facility 
     by--
       ``(i) adjusting for variations among facility by area in 
     the average facility wage level per diem, and
       ``(ii) adjusting for variations in case mix per diem among 
     facilities.
       ``(D) Computation of weighted average per diem rate.--The 
     Secretary shall compute a weighted average per diem rate by 
     computing an average of the standardized amounts computed 
     under subparagraph (C), weighted for each facility by the 
     number of days of extended care services furnished during the 
     cost reporting period referred to in subparagraph (A). The 
     Secretary may compute and apply such average separately for 
     facilities located in urban and rural areas (as defined in 
     section 1886(d)(2)(D)).
       ``(E) Updating.--
       ``(i) Fiscal year 1999.--For fiscal year 1999, the 
     Secretary shall compute for each skilled nursing facility an 
     unadjusted Federal per diem rate equal to the weighted 
     average per diem rate computed under subparagraph (D) and 
     applicable to the facility increased by skilled nursing 
     facility market basket percentage change for the fiscal year 
     involved.
       ``(ii) Subsequent fiscal years.--For each subsequent fiscal 
     year the Secretary shall compute for each skilled nursing 
     facility an unadjusted Federal per diem rate equal to the 
     Federal per diem rate computed under this subparagraph for 
     the previous fiscal year and applicable to the facility 
     increased by the skilled nursing facility market basket 
     percentage change for the fiscal year involved.
       ``(F) Adjustment for case mix creep.--Insofar as the 
     Secretary determines that such adjustments under subparagraph 
     (G)(i) for a previous fiscal year (or estimates that such 
     adjustments for a future fiscal year) did (or are likely to) 
     result in a change in aggregate payments under this 
     subsection during the fiscal year that are a result of 
     changes in the coding or classification of residents that do 
     not reflect real changes in case mix, the Secretary may 
     adjust unadjusted Federal per diem rates for subsequent years 
     so as to discount the effect of such coding or classification 
     changes.
       ``(G) Application to specific facilities.--The Secretary 
     shall compute for each skilled nursing facility for each 
     fiscal year (beginning with fiscal year 1998) an adjusted 
     Federal per diem rate equal to the unadjusted Federal per 
     diem rate determined under subparagraph (E), as adjusted 
     under subparagraph (F), and as further adjusted as follows:
       ``(i) Adjustment for case mix.--The Secretary shall provide 
     for an appropriate adjustment to account for case mix. Such 
     adjustment shall be based on a resident classification 
     system, established by the Secretary, that accounts for the 
     relative resource utilization of different patient types. The 
     case mix adjustment shall be based on resident assessment 
     data and other data that the Secretary considers appropriate.
       ``(ii) Adjustment for geographic variations in labor 
     costs.--The Secretary shall adjust the portion of such per 
     diem rate attributable to wages and wage-related costs for 
     the area in which the facility is located compared to the 
     national average of such costs using an appropriate wage 
     index as determined by the Secretary. Such adjustment shall 
     be done in a manner that does not result in aggregate 
     payments under this subsection that are greater or less than 
     those that would otherwise be made if such adjustment had not 
     been made.
       ``(H) Publication of information on per diem rates.--The 
     Secretary shall provide for publication in the Federal 
     Register, before the July 1 preceding each fiscal year 
     (beginning with fiscal year 1999), of--
       ``(i) the unadjusted Federal per diem rates to be applied 
     to days of covered skilled nursing facility services 
     furnished during the fiscal year,
       ``(ii) the case mix classification system to be applied 
     under subparagraph (G)(i) with respect to such services 
     during the fiscal year, and
       ``(iii) the factors to be applied in making the area wage 
     adjustment under subparagraph (G)(ii) with respect to such 
     services.
       ``(I) Exclusion of exception payments from determination of 
     historical per diem.--In determining allowable costs under 
     subparagraph (A)(i), the Secretary shall not take into 
     account any payments described in subsection (c).
       ``(5) Skilled nursing facility market basket index and 
     percentage.--For purposes of this subsection:
       ``(A) Skilled nursing facility market basket index.--The 
     Secretary shall establish a skilled nursing facility market 
     basket index that reflects changes over time in the prices of 
     an appropriate mix of goods and services included in covered 
     skilled nursing facility services.
       ``(B) Skilled nursing facility market basket percentage.--
     The term `skilled nursing facility market basket percentage' 
     means, for a fiscal year or other annual period and as 
     calculated by the Secretary, the percentage change in the 
     skilled nursing facility market basket index (established 
     under subparagraph (A)) from the midpoint of the prior fiscal 
     year (or period) to the midpoint of the fiscal year (or other 
     period) involved.
       ``(6) Submission of resident assessment data.--A skilled 
     nursing facility shall provide the Secretary, in a manner and 
     within the timeframes prescribed by the Secretary, the 
     resident assessment data necessary to develop and implement 
     the rates under this subsection. For purposes of meeting such 
     requirement, a skilled nursing facility may submit the 
     resident assessment data required under section 1819(b)(3), 
     using the standard instrument designated by the State under 
     section 1819(e)(5).
       ``(7) Transition for medicare swing bed hospitals.--
       ``(A) In general.--The Secretary shall determine an 
     appropriate manner in which to apply this subsection to the 
     facilities described in subparagraph (B), taking into account 
     the purposes of this subsection, and shall provide that at 
     the end of the transition period (as defined in paragraph 
     (2)(E)) such facilities shall be paid only under this 
     subsection. Payment shall not be made under this subsection 
     to such facilities for cost reporting periods beginning 
     before such date (not earlier than July 1, 1999) as the 
     Secretary specifies.
       ``(B) Facilities described.--The facilities described in 
     this subparagraph are facilities that have in effect an 
     agreement described in section 1883, for which payment is 
     made for the furnishing of extended care services on a 
     reasonable cost basis under section 1814(l) (as in effect on 
     and after such date).
       ``(8) Limitation on review.--There shall be no 
     administrative or judicial review under section 1869, 1878, 
     or otherwise of--
       ``(A) the establishment of Federal per diem rates under 
     paragraph (4), including the computation of the standardized 
     per diem rates under paragraph (4)(C), adjustments and 
     corrections for case mix under paragraphs (4)(F) and 
     (4)(G)(i), and adjustments for variations in labor-related 
     costs under paragraph (4)(G)(ii); and
       ``(B) the establishment of transitional amounts under 
     paragraph (7).''.
       (b) Consolidated Billing.--
       (1) For snf services.--Section 1862(a) (42 U.S.C. 1395y(a)) 
     is amended--
       (A) by striking ``or'' at the end of paragraph (15),
       (B) by striking the period at the end of paragraph (16) and 
     inserting ``; or'', and
       (C) by inserting after paragraph (16) the following new 
     paragraph:
       ``(17) which are covered skilled nursing facility services 
     described in section 1888(e)(2)(A)(i)(II) and which are 
     furnished to an individual who is a resident of a skilled 
     nursing facility by an entity other than the skilled nursing 
     facility, unless the services are furnished under 
     arrangements (as defined in section 1861(w)(1)) with the 
     entity made by the skilled nursing facility, or such services 
     are furnished by a physician described in section 
     1861(r)(1).''.
       (2) Requiring payment for all part b items and services to 
     be made to facility.--The first sentence of section 
     1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended--
       (A) by striking ``and (D)'' and inserting ``(D)''; and
       (B) by striking the period at the end and inserting the 
     following: ``, and (E) in the case of an item or service 
     (other than services described in section 1888(e)(2)(A)(ii)) 
     furnished to an individual who (at the time the item or 
     service is furnished) is a resident of a skilled nursing 
     facility, payment shall be made to the facility (without 
     regard to whether or not the item or service was furnished by 
     the facility, by others under arrangement with them made by 
     the facility, under any other contracting or consulting 
     arrangement, or otherwise).''.
       (3) Payment rules.--Section 1888(e) (42 U.S.C. 1395yy(e)), 
     as added by subsection (a), is amended by adding at the end 
     the following:
       ``(9) Payment for certain services.--
       ``(A) In general.--In the case of an item or service 
     furnished by a skilled nursing facility (or by others under 
     arrangement with them made by a skilled nursing facility or 
     under any other contracting or consulting arrangement or 
     otherwise) for which payment would otherwise (but for this 
     paragraph) be made under part B in an amount determined in 
     accordance with section 1833(a)(2)(B), the amount of the 
     payment under such part shall be based on the part B 
     methodology applicable to the item or service, except that 
     for items and services that would be included in a facility's 
     cost report if not for this section, the facility may 
     continue to use a cost report for reimbursement purposes 
     until the prospective payment system established under this 
     section is implemented.
       ``(B) Therapy and pathology services.--Payment for physical 
     therapy, occupational therapy, respiratory therapy, and 
     speech language pathology services shall reflect new salary 
     equivalency guidelines calculated pursuant to section 
     1861(v)(5) when finalized through the regulatory process.
       ``(10) Required coding.--No payment may be made under part 
     B for items and services (other than services described in 
     paragraph (2)(A)(ii)) furnished to an individual who is a 
     resident of a skilled nursing facility unless the claim for 
     such payment includes a code (or codes) under a uniform 
     coding system specified by the Secretary that identifies the 
     items or services delivered.''.
       (4) Conforming amendments.--
       (A) Section 1819(b)(3)(C)(i) (42 U.S.C. 1395i-
     3(b)(3)(C)(i)) is amended by striking ``Such'' and inserting 
     ``Subject to the timeframes prescribed by the Secretary under 
     section 1888(t)(6), such''.
       (B) Section 1832(a)(1) (42 U.S.C. 1395k(a)(1)) is amended 
     by striking ``(2);'' and inserting ``(2) and section 
     1842(b)(6)(E);''.
       (C) Section 1833(a)(2)(B) (42 U.S.C. 1395l(a)(2)(B)) is 
     amended by inserting ``or section 1888(e)(9)'' after 
     ``section 1886''.
       (D) Section 1861(h) (42 U.S.C 1395x(h)) is amended--
       (i) in the opening paragraph, by striking ``paragraphs (3) 
     and (6)'' and inserting ``paragraphs (3), (6), and (7)'', and
       (ii) in paragraph (7), after ``skilled nursing 
     facilities'', by inserting ``, or by others under 
     arrangements with them made by the facility''.
       (E) Section 1866(a)(1)(H) (42 U.S.C. 1395cc(a)(1)(H)) is 
     amended--
       (i) by redesignating clauses (i) and (ii) as subclauses (I) 
     and (II) respectively,
       (ii) by inserting ``(i)'' after ``(H)'', and
       (iii) by adding after clause (i), as so redesignated, the 
     following new clause:
       ``(ii) in the case of skilled nursing facilities which 
     provide covered skilled nursing facility services--

[[Page S6613]]

       ``(I) that are furnished to an individual who is a resident 
     of the skilled nursing facility, and
       ``(II) for which the individual is entitled to have payment 
     made under this title,
     to have items and services (other than services described in 
     section 1888(e)(2)(A)(ii)) furnished by the skilled nursing 
     facility or otherwise under arrangements (as defined in 
     section 1861(w)(1)) made by the skilled nursing facility,''.
       (c) Medical Review Process.--In order to ensure that 
     medicare beneficiaries are furnished appropriate services in 
     skilled nursing facilities, the Secretary of Health and Human 
     Services shall establish and implement a thorough medical 
     review process to examine the effects of the amendments made 
     by this section on the quality of covered skilled nursing 
     facility services furnished to medicare beneficiaries. In 
     developing such a medical review process, the Secretary shall 
     place a particular emphasis on the quality of non-routine 
     covered services and physicians' services for which payment 
     is made under title XVIII of the Social Security Act for 
     which payment is made under section 1848 of such Act.
       (d) Effective Date.--The amendments made by this section 
     are effective for cost reporting periods beginning on or 
     after July 1, 1998; except that the amendments made by 
     subsection (b) shall apply to items and services furnished on 
     or after July 1, 1998.

            Subchapter B--Home Health Services and Benefits

               PART I--PAYMENTS FOR HOME HEALTH SERVICES

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

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

     SEC. 5342. INTERIM PAYMENTS FOR HOME HEALTH SERVICES.

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

     SEC. 5343. PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES.

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


             ``prospective payment for home health services

       ``Sec. 1895. (a) In General.--Notwithstanding section 
     1861(v), the Secretary shall provide, for cost reporting 
     periods beginning on or after October 1, 1999, for payments 
     for home health services in accordance with a prospective 
     payment system established by the Secretary under this 
     section.
       ``(b) System of Prospective Payment for Home Health 
     Services.--
       ``(1) In general.--The Secretary shall establish under this 
     subsection a prospective payment system for payment for all 
     costs of home health services. Under the system under this 
     subsection all services covered and paid on a reasonable cost 
     basis under the medicare home health benefit as of the date 
     of the enactment of the this section, including medical 
     supplies, shall be paid for on the basis of a prospective 
     payment amount determined under this subsection and 
     applicable to the services involved. In implementing the 
     system, the Secretary may provide for a transition (of not 
     longer than 4 years) during which a portion of such payment 
     is based on agency-specific costs, but only if such 
     transition does not result in aggregate payments under this 
     title that exceed the aggregate payments that would be made 
     if such a transition did not occur.
       ``(2) Unit of payment.--In defining a prospective payment 
     amount under the system under this subsection, the Secretary 
     shall consider an appropriate unit of service and the number, 
     type, and duration of visits provided within that unit, 
     potential changes in the mix of services provided within that 
     unit and their cost, and a general system design that 
     provides for continued access to quality services.
       ``(3) Payment basis.--
       ``(A) Initial basis.--
       ``(i) In general.--Under such system the Secretary shall 
     provide for computation of a standard prospective payment 
     amount (or amounts). Such amount (or amounts) shall initially 
     be based on the most current audited cost report data 
     available to the Secretary and shall be computed in a manner 
     so that the total amounts payable under the system for fiscal 
     year 2000 shall be equal to the total amount that would have 
     been made if the system had not been in effect but if the 
     reduction in limits described in clause (ii) had been in 
     effect. Such amount shall be standardized in a manner that 
     eliminates the effect of variations in relative case mix and 
     wage levels among different home health agencies in a budget 
     neutral manner consistent with the case mix and wage level 
     adjustments provided under paragraph (4)(A). Under the 
     system, the Secretary may recognize regional differences or 
     differences based upon whether or not the services or agency 
     are in an urbanized area.
       ``(ii) Reduction.--The reduction described in this clause 
     is a reduction by 15 percent in the cost limits and per 
     beneficiary limits described in section 1861(v)(1)(L), as 
     those limits are in effect on September 30, 1999.
       ``(B) Annual update.--
       ``(i) In general.--The standard prospective payment amount 
     (or amounts) shall be adjusted for each fiscal year 
     (beginning with fiscal year 2001) in a prospective manner 
     specified by the Secretary by the home health market basket 
     percentage increase applicable to the fiscal year involved.
       ``(ii) Home health market basket percentage increase.--For 
     purposes of this subsection, the term `home health market 
     basket percentage increase' means, with respect to a fiscal 
     year, a percentage (estimated by the Secretary before the 
     beginning of the fiscal year) determined and applied with 
     respect to the mix of goods and services included in home 
     health services in the same manner as the market basket 
     percentage increase under section 1886(b)(3)(B)(iii) is 
     determined and applied to the mix of goods and services 
     comprising inpatient hospital services for the fiscal year.
       ``(C) Adjustment for outliers.--The Secretary shall reduce 
     the standard prospective payment amount (or amounts) under 
     this paragraph applicable to home health services furnished 
     during a period by such proportion as will result in an 
     aggregate reduction in payments for the period equal to the 
     aggregate increase in payments resulting from the application 
     of paragraph (5) (relating to outliers).
       ``(4) Payment computation.--
       ``(A) In general.--The payment amount for a unit of home 
     health services shall be the applicable standard prospective 
     payment amount adjusted as follows:
       ``(i) Case mix adjustment.--The amount shall be adjusted by 
     an appropriate case mix adjustment factor (established under 
     subparagraph (B)).
       ``(ii) Area wage adjustment.--The portion of such amount 
     that the Secretary estimates to be attributable to wages and 
     wage-related costs shall be adjusted for geographic 
     differences in such costs by an area wage adjustment factor

[[Page S6614]]

     (established under subparagraph (C)) for the area in which 
     the services are furnished or such other area as the 
     Secretary may specify.
       ``(B) Establishment of case mix adjustment factors.--The 
     Secretary shall establish appropriate case mix adjustment 
     factors for home health services in a manner that explains a 
     significant amount of the variation in cost among different 
     units of services.
       ``(C) Establishment of area wage adjustment factors.--The 
     Secretary shall establish area wage adjustment factors that 
     reflect the relative level of wages and wage-related costs 
     applicable to the furnishing of home health services in a 
     geographic area compared to the national average applicable 
     level. Such factors may be the factors used by the Secretary 
     for purposes of section 1886(d)(3)(E).
       ``(5) Outliers.--The Secretary may provide for an addition 
     or adjustment to the payment amount otherwise made in the 
     case of outliers because of unusual variations in the type or 
     amount of medically necessary care. The total amount of the 
     additional payments or payment adjustments made under this 
     paragraph with respect to a fiscal year may not exceed 5 
     percent of the total payments projected or estimated to be 
     made based on the prospective payment system under this 
     subsection in that year.
       ``(6) Proration of prospective payment amounts.--If a 
     beneficiary elects to transfer to, or receive services from, 
     another home health agency within the period covered by the 
     prospective payment amount, the payment shall be prorated 
     between the home health agencies involved.
       ``(c) Requirements for Payment Information.--With respect 
     to home health services furnished on or after October 1, 
     1998, no claim for such a service may be paid under this 
     title unless--
       ``(1) the claim has the unique identifier for the physician 
     who prescribed the services or made the certification 
     described in section 1814(a)(2) or 1835(a)(2)(A); and
       ``(2) in the case of a service visit described in paragraph 
     (1), (2), (3), or (4) of section 1861(m), the claim has 
     information (coded in an appropriate manner) on the length of 
     time of the service visit, as measured in 15 minute 
     increments.
       ``(d) Limitation on Review.--There shall be no 
     administrative or judicial review under section 1869, 1878, 
     or otherwise of--
       ``(1) the establishment of a transition period under 
     subsection (b)(1);
       ``(2) the definition and application of payment units under 
     subsection (b)(2);
       ``(3) the computation of initial standard prospective 
     payment amounts under subsection (b)(3)(A) (including the 
     reduction described in clause (ii) of such subsection);
       ``(4) the adjustment for outliers under subsection 
     (b)(3)(C);
       ``(5) case mix and area wage adjustments under subsection 
     (b)(4);
       ``(6) any adjustments for outliers under subsection (b)(5); 
     and
       ``(7) the amounts or types of exceptions or adjustments 
     under subsection (b)(7).''.
       (b) Elimination of Periodic Interim Payments for Home 
     Health Agencies.--Section 1815(e)(2) (42 U.S.C. 1395g(e)(2)) 
     is amended--
       (1) by inserting ``and'' at the end of subparagraph (C),
       (2) by striking subparagraph (D), and
       (3) by redesignating subparagraph (E) as subparagraph (D).
       (c) Conforming Amendments.--
       (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
     1395f(b)) is amended in the matter preceding paragraph (1) by 
     striking ``and 1886'' and inserting ``1886, and 1895''.
       (2) Treatment of items and services paid under part b.--
       (A) Payments under part b.--Section 1833(a)(2) (42 U.S.C. 
     1395l(a)(2)) is amended--
       (i) by amending subparagraph (A) to read as follows:
       ``(A) with respect to home health services (other than a 
     covered osteoporosis drug) (as defined in section 1861(kk)), 
     the amount determined under the prospective payment system 
     under section 1895;'';
       (ii) by striking ``and'' at the end of subparagraph (E);
       (iii) by adding ``and'' at the end of subparagraph (F); and
       (iv) by adding at the end the following new subparagraph:
       ``(G) with respect to items and services described in 
     section 1861(s)(10)(A), the lesser of--
       ``(i) the reasonable cost of such services, as determined 
     under section 1861(v), or
       ``(ii) the customary charges with respect to such services,
     or, if such services are furnished by a public provider of 
     services, or by another provider which demonstrates to the 
     satisfaction of the Secretary that a significant portion of 
     its patients are low-income (and requests that payment be 
     made under this provision), free of charge or at nominal 
     charges to the public, the amount determined in accordance 
     with section 1814(b)(2);''.
       (B) Requiring payment for all items and services to be made 
     to agency.--
       (i) In general.--The first sentence of section 1842(b)(6) 
     (42 U.S.C. 1395u(b)(6)) (as amended by section 5332(b)(2)) is 
     amended--

       (I) by striking ``and (E)'' and inserting ``(E)''; and
       (II) by striking the period at the end and inserting the 
     following: ``, and (F) in the case of home health services 
     furnished to an individual who (at the time the item or 
     service is furnished) is under a plan of care of a home 
     health agency, payment shall be made to the agency (without 
     regard to whether or not the item or service was furnished by 
     the agency, by others under arrangement with them made by the 
     agency, or when any other contracting or consulting 
     arrangement, or otherwise).''.

       (ii) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
     1395k(a)(1)) (as amended by section 5332(b)(4)(B)) is amended 
     by striking ``section 1842(b)(6)(E);'' and inserting 
     ``subparagraphs (E) and (F) of section 1842(b)(6);''.
       (C) Exclusions from coverage.--Section 1862(a) (42 U.S.C. 
     1395y(a)), as amended by section 5332(b)(1), is amended--
       (i) by striking ``or'' at the end of paragraph (16);
       (ii) by striking the period at the end of paragraph (17) 
     and inserting ``or''; and
       (iii) by inserting after paragraph (17) the following:
       ``(18) where such expenses are for home health services 
     furnished to an individual who is under a plan of care of the 
     home health agency if the claim for payment for such services 
     is not submitted by the agency.''.
       (d) Effective Date.--Except as otherwise provided, the 
     amendments made by this section shall apply to cost reporting 
     periods beginning on or after October 1, 1999.
       (e) Contingency.--If the Secretary of Health and Human 
     Services for any reason does not establish and implement the 
     prospective payment system for home health services described 
     in section 1895(b) of the Social Security Act (as added by 
     subsection (a)) for cost reporting periods described in 
     subsection (d), for such cost reporting periods the Secretary 
     shall provide for a reduction by 15 percent in the cost 
     limits and per beneficiary limits described in section 
     1861(v)(1)(L) of such Act, as those limits would otherwise be 
     in effect on September 30, 1999.

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

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

                     PART II--HOME HEALTH BENEFITS

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

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

[[Page S6615]]

     such services have been furnished to the individual for a 
     total of 100 visits during a home health spell of illness.''.
       (b) Post-Institutional Home Health Services Defined.--
     Section 1861 (42 U.S.C. 1395x), as amended by sections 
     5102(a) and 5103(a), is amended by adding at the end the 
     following:

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

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

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

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

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

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

     SEC. 5364. STUDY ON DEFINITION OF HOMEBOUND.

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

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

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

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

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

                  CHAPTER 1--PAYMENT OF PPS HOSPITALS

     SEC. 5401. PPS HOSPITAL PAYMENT UPDATE.

       (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
     1395ww(b)(3)(B)(i)) is amended--
       (1) in subclause (XII)--
       (A) by inserting ``and the period beginning on October 1, 
     1997, and ending on December 31, 1997,'' after ``fiscal year 
     1997,''; and
       (B) by striking ``and'' at the end; and
       (2) by striking subclause (XIII) and inserting the 
     following:
       ``(XIII) for calendar year 1998 for hospitals in all areas, 
     the market basket percentage increase minus 2.5 percentage 
     points,
       ``(XIV) for calendar year 1999 for hospitals in all areas, 
     the market basket percentage increase minus 1.3 percentage 
     points,
       ``(XV) for calendar years 2000 through 2002 for hospitals 
     in all areas, the market basket percentage increase minus 1.0 
     percentage points, and
       ``(XVI) for calendar year 2003 and each subsequent calendar 
     year for hospitals in all areas, the market basket percentage 
     increase.''.
       (b) Rule of Construction.--Section 1886 (42 U.S.C. 1395ww) 
     is amended by adding at the end the following new subsection:
       ``(j) PPS Calendar Year Payments.--Notwithstanding any 
     other provision of this title, any updates or payment amounts 
     determined under this section shall on and after December 31, 
     1998, take effect and be applied on a calendar year basis. 
     With respect to any cost reporting periods that relate to any 
     such updates or payment amounts, the Secretary shall revise 
     such cost reporting periods to ensure that on and after 
     December 31, 1998, such cost reporting periods relate to 
     updates and payment amounts made under this section on a 
     calendar year basis in the same manner as such cost reporting 
     periods applied to updates and payment amounts under this 
     section on the day before the date of enactment of this 
     subsection.''.

     SEC. 5402. CAPITAL PAYMENTS FOR PPS HOSPITALS.

       (a) Maintaining Savings From Temporary Reduction in PPS 
     Capital Rates.--Section 1886(g)(1)(A) (42 U.S.C. 
     1395ww(g)(1)(A)) is amended by adding at the end the 
     following: ``In addition to the reduction described in the 
     preceding sentence, for discharges occurring on or after 
     October 1, 1997, the Secretary shall apply the budget 
     neutrality adjustment factor used to determine the Federal 
     capital payment rate in effect on September 30, 1995 (as 
     described in section 412.352 of title 42 of the Code of 
     Federal Regulations), to (i) the unadjusted standard Federal 
     capital payment rate (as described in section 412.308(c) of 
     that title, as in effect on September 30, 1997), and (ii) the 
     unadjusted hospital-specific rate (as described in section 
     412.328(e)(1) of that title, as in effect on September 30, 
     1997).''.
       (b) System Exception Payments for Transitional Capital.--
       (1) In general.--Section 1886(g)(l) (42 U.S.C. 
     1395ww(g)(1)) is amended--
       (A) by redesignating subparagraph (C) as subparagraph (F), 
     and
       (B) by inserting after subparagraph (B) the following:
       ``(C) The exceptions under the system provided by the 
     Secretary under subparagraph (B)(iii) shall include the 
     provision of exception payments under the special exceptions 
     process provided under section 412.348(g) of title 42, Code 
     of Federal Regulations (as in effect on September 1, 1995), 
     except that the Secretary shall revise such process, 
     effective for discharges occurring after September 30, 1997, 
     as follows:
       ``(i) Eligible hospital requirements, as described in 
     section 412.348(g)(1) of title 42, Code of Federal 
     Regulations, shall apply except that subparagraph (ii) shall 
     be revised to require that hospitals located in an urban area 
     with at least 300 beds shall be eligible under such process 
     and

[[Page S6616]]

     that such a hospital shall be eligible without regard to its 
     disproportionate patient percentage under subsection 
     (d)(5)(F) or whether it qualifies for additional payment 
     amounts under such subsection.
       ``(ii) Project size requirements, as described in section 
     412.348(g)(5) of title 42, Code of Federal Regulations, shall 
     apply except that subparagraph (ii) shall be revised to 
     require that the project costs of a hospital are at least 150 
     percent of its operating cost during the first 12 month cost 
     reporting period beginning on or after October 1, 1991.
       ``(iii) The minimum payment level for qualifying hospitals 
     shall be 85 percent.
       ``(iv) A hospital shall be considered to meet the 
     requirement that it complete the project involved no later 
     than the end of the last cost reporting period of the 
     hospital beginning before October l, 2001, if--

       ``(I) the hospital has obtained a certificate of need for 
     the project approved by the State or a local planning 
     authority by September 1, 1995; and
       ``(II) by September 1, 1995, the hospital has expended on 
     the project at least $750,000 or 10 percent of the estimated 
     cost of the project.

       ``(v) Offsetting amounts, as described in section 
     412.348(g)(8)(ii) of title 42, Code of Federal Regulations, 
     shall apply except that subparagraph (B) of such section 
     shall be revised to require that the additional payment that 
     would otherwise be payable for the cost reporting period 
     shall be reduced by the amount (if any) by which the 
     hospital's current year medicare capital payments (excluding, 
     if applicable, 75 percent of the hospital's capital-related 
     disproportionate share payments) exceeds its medicare capital 
     costs for such year.
       ``(D)(i) The Secretary shall reduce the Federal capital and 
     hospital rates up to $50,000,000 for a calendar year to 
     ensure that the application of subparagraph (C) does not 
     result in an increase in the total amount that would have 
     been paid under this subsection in the fiscal year if such 
     subparagraph did not apply.
       ``(ii) Payments made pursuant to the application of 
     subparagraph (C) shall not be considered for purposes of 
     calculating total estimated payments under section 
     412.348(h), title 42, Code of Federal Regulations.
       ``(E) The Secretary shall provide for publication in the 
     Federal Register each year (beginning with 1999) of a 
     description of the distributional impact of the application 
     of subparagraph (C) on hospitals which receive, and do not 
     receive, an exception payment under such subparagraph.''.
       (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
     U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
     provide'' and inserting ``shall provide (in accordance with 
     subparagraph (C))''.

               CHAPTER 2--PAYMENT OF PPS EXEMPT HOSPITALS

     SEC. 5421. PAYMENT UPDATE.

       (a) In General.--Section 1886(b)(3)(B)(ii) (42 U.S.C. 
     1395ww(b)(3)(B)(ii)) is amended--
       (1) by striking ``and'' at the end of subclause (V);
       (2) by redesignating subclause (VI) as subclause (VIII); 
     and
       (3) by inserting after subclause (V), the following 
     subclauses:

       ``(VI) for fiscal years 1998 through 2001, is 0 percent;
       ``(VII) for fiscal year 2002, is the market basket 
     percentage increase minus 3.0 percentage points, and''.

       (b) No Effect of Payment Reduction on Exceptions and 
     Adjustments.--Section 1886(b)(4)(A)(ii) (42 U.S.C. 
     1395ww(b)(4)(A)(ii)) is amended by adding at the end the 
     following new sentence: ``In making such reductions, the 
     Secretary shall treat the applicable update factor described 
     in paragraph (3)(B)(vi) for a fiscal year as being equal to 
     the market basket percentage for that year.''.

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

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

     SEC. 5423. CAP ON TEFRA LIMITS.

       Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended--
       (1) in subparagraph (A) by striking ``subparagraphs (C), 
     (D), and (E)'' and inserting ``subparagraph (C) and 
     succeeding subparagraphs'', and
       (2) by adding at the end the following:
       ``(F)(i) Except as provided in clause (ii), in the case of 
     a hospital or unit that is within a class of hospital 
     described in clause (iii), for cost reporting periods 
     beginning on or after October 1, 1997, and before October 1, 
     2002, such target amount may not be greater than the 75th 
     percentile of the target amounts for such hospitals within 
     such class for cost reporting periods beginning during that 
     fiscal year (determined without regard to clause (ii)).
       ``(ii) In the case of a hospital or unit--
       ``(I) that is within a class of hospital described in 
     clause (iii); and
       ``(II) whose operating costs of inpatient hospital services 
     recognized under this title for the most recent cost 
     reporting period for which information is available are less 
     than the target amount for the hospital or unit under clause 
     (i) (determined without regard to this clause) for its cost 
     reporting period beginning on or after October 1, 1997, and 
     before October 1, 1998,
     clause (i) shall be applied for cost reporting periods 
     beginning on or after October 1, 1997, and before October 1, 
     2002, by substituting for the dollar limit on the target 
     amounts established under such clause for such period a 
     dollar limit that is equal to the greater of 90 percent of 
     such dollar limit or the operating costs of the hospital or 
     unit determined under subclause (II).
       ``(iii) For purposes of this subparagraph, each of the 
     following shall be treated as a separate class of hospital:
       ``(I) Hospitals described in clause (i) of subsection 
     (d)(1)(B) and psychiatric units described in the matter 
     following clause (v) of such subsection.
       ``(II) Hospitals described in clause (ii) of such 
     subsection and rehabilitation units described in the matter 
     following clause (v) of such subsection.
       ``(III) Hospitals described in clause (iv) of such 
     subsection.''.

     SEC. 5424. CHANGE IN BONUS AND RELIEF PAYMENTS.

       (a) Change in Bonus Payment.--Section 1886(b)(1)(A) (42 
     U.S.C. 1395ww(b)(1)(A)) is amended by striking all that 
     follows ``plus--'' and inserting the following:
       ``(i) in the case of a hospital with a target amount that 
     is less than 135 percent of the median of the target amounts 
     for hospitals in the same class of hospital, the lesser of 40 
     percent of the amount by which the target amount exceeds the 
     amount of the operating costs or 4 percent of the target 
     amount;
       ``(ii) in the case of a hospital with a target amount that 
     equals or exceeds 135 of such median but is less than 150 
     percent of such median, the lesser of 30 percent of the 
     amount by which the target amount exceeds the amount of the 
     operating costs or 3 percent of the target amount; and
       ``(iii) in the case of a hospital with a target amount that 
     equals or exceeds 150 of such median, the lesser of 20 
     percent of the amount by which the target amount exceeds the 
     amount of the operating costs or 2 percent of the target 
     amount; or''.
       (b) Change in Relief Payments.--Section 1886(b)(1) (42 
     U.S.C. 1395ww(b)(1)) is amended--
       (1) in subparagraph (B)--
       (A) by striking ``greater than the target amount'' and 
     inserting ``greater than 110 percent of the target amount'',
       (B) by striking ``exceed the target amount'' and inserting 
     ``exceed 110 percent of the target amount'',
       (C) by striking ``10 percent'' and inserting ``20 
     percent'', and
       (D) by redesignating such subparagraph as subparagraph (C); 
     and
       (2) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) are greater than the target amount but do not exceed 
     110 percent of the target amount, the amount of the payment 
     with respect to those operating costs payable under part A on 
     a per discharge basis shall equal the target amount; or''.

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

       Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) is amended--
       (1) in subparagraph (A), in the matter preceding clause 
     (i), by striking ``and (E)'' and inserting ``(E), (F), and 
     (G)''; and
       (2) by adding at the end the following new subparagraphs:
       ``(F) In the case of a rehabilitation hospital (or unit 
     thereof) (as described in clause (ii) of subsection 
     (d)(1)(B)), for cost reporting periods beginning on or after 
     October 1, 1997--
       ``(i) in the case of a hospital which first receives 
     payments under this section before October 1, 1997, the 
     target amount determined under subparagraph (A) for such 
     hospital or unit for a cost reporting period beginning during 
     a fiscal year shall not be less than 50 percent of the 
     national mean of the target amounts determined under such 
     subparagraph for all such hospitals for cost reporting 
     periods beginning during such fiscal year (determined without 
     regard to this subparagraph); and
       ``(ii) in the case of a hospital which first receives 
     payments under this section on or after October 1, 1997, such 
     target amount may not be greater than 110 percent of the 
     national mean of the target amounts for such hospitals (and 
     units thereof) for cost reporting periods beginning during 
     fiscal year 1991.
       ``(G) In the case of a hospital which has an average 
     inpatient length of stay of greater than 25 days (as 
     described in clause (iv) of subsection (d)(1)(B)), for cost 
     reporting periods beginning on or after October 1, 1997--
       ``(i) in the case of a hospital which first receives 
     payments under this section as a hospital that is not a 
     subsection (d) hospital or a subsection (d) Puerto Rico 
     hospital before October 1, 1997, the target amount determined 
     under subparagraph (A) for such hospital for a cost reporting 
     period beginning during a fiscal year shall not be less than 
     50 percent of the national mean of the target amounts 
     determined under such subparagraph for all such hospitals for 
     cost reporting periods beginning during such fiscal year 
     (determined without regard to this subparagraph); and
       ``(ii) in the case of any other hospital which first 
     receives payment under this section on or after October 1, 
     1997, such target amount may not be greater than 110 percent 
     of such national mean of the target amounts for such 
     hospitals for cost reporting periods beginning during fiscal 
     year 1991.
       ``(H) In the case of a psychiatric hospital (as defined in 
     section 1861(f)), for cost reporting periods beginning on or 
     after October 1, 1997--
       ``(i) in the case of a hospital which first receives 
     payments under this section before October 1, 1997, the 
     target amount determined under

[[Page S6617]]

     subparagraph (A) for such hospital for a cost reporting 
     period beginning during a fiscal year shall not be less than 
     50 percent of the national mean of the target amounts 
     determined under such subparagraph for all such hospitals for 
     cost reporting periods beginning during such fiscal year 
     (determined without regard to this subparagraph); and
       ``(ii) in the case of any other hospital which first 
     receives payment under this section on or after October 1, 
     1997, such target amount may not be greater than 110 percent 
     of such national mean of the target amounts for such 
     hospitals for cost reporting periods beginning during fiscal 
     year 1991.''.

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

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

     SEC. 5426A. REBASING.

       Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by 
     section 5423, is amended by adding at the end the following:
       ``(G)(i) In the case of a hospital (or unit described in 
     the matter following clause (v) of subsection (d)(1)(B)) that 
     received payment under this subsection for inpatient hospital 
     services furnished before January 1, 1990, that is within a 
     class of hospital described in clause (iii), and that elects 
     (in a form and manner determined by the Secretary) this 
     subparagraph to apply to the hospital, the target amount for 
     the hospital's 12-month cost reporting period beginning 
     during fiscal year 1998 is equal to the average described in 
     clause (ii).
       ``(ii) The average described in this clause for a hospital 
     or unit shall be determined by the Secretary as follows:
       ``(I) The Secretary shall determine the allowable operating 
     costs for inpatient hospital services for the hospital or 
     unit for each of the 5 cost reporting periods for which the 
     Secretary has the most recent settled cost reports as of the 
     date of the enactment of this subparagraph.
       ``(II) The Secretary shall increase the amount determined 
     under subclause (I) for each cost reporting period by the 
     applicable percentage increase under subparagraph (B)(ii) for 
     each subsequent cost reporting period up to the cost 
     reporting period described in clause (i).
       ``(III) The Secretary shall identify among such 5 cost 
     reporting periods the cost reporting periods for which the 
     amount determined under subclause (II) is the highest, and 
     the lowest.
       ``(IV) The Secretary shall compute the averages of the 
     amounts determined under subclause (II) for the 3 cost 
     reporting periods not identified under subclause (III).
       ``(iii) For purposes of this subparagraph, each of the 
     following shall be treated as a separate class of hospital:
       ``(I) Hospitals described in clause (i) of subsection 
     (d)(1)(B) and psychiatric units described in the matter 
     following clause (v) of such subsection.
       ``(II) Hospitals described in clause (ii) of such 
     subsection and rehabilitation units described in the matter 
     following clause (v) of such subsection.
       ``(III) Hospitals described in clause (iii) of such 
     subsection.
       ``(IV) Hospitals described in clause (iv) of such 
     subsection.
       ``(V) Hospitals described in clause (v) of such 
     subsection.''.

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

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

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

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

     SEC. 5429. CERTAIN CANCER HOSPITALS.

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

             CHAPTER 3--GRADUATE MEDICAL EDUCATION PAYMENTS

                 Subchapter A--Direct Medical Education

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

       Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
     adding after subparagraph (E) the following:
       ``(F) Limitation on number of residents in allopathic and 
     osteopathic medicine.--Except as provided in subparagraph 
     (H), such rules shall provide that for purposes of a cost 
     reporting period beginning on or after October 1, 1997, the 
     total number of full-time equivalent residents before 
     application of weighting factors (as determined under this 
     paragraph) with respect to a hospital's approved medical 
     residency training program in the fields of allopathic 
     medicine and osteopathic medicine may not exceed the number 
     of full-time equivalent residents with respect to such 
     programs for the hospital's most recent cost reporting period 
     ending on or before December 31, 1996.
       ``(G) Counting interns and residents for 1998 and 
     subsequent years.--
       ``(i) In general.--For cost reporting periods beginning on 
     or after October 1, 1997, subject to the limit described in 
     subparagraph (F) and except as provided in subparagraph (H), 
     the total number of full-time equivalent residents for 
     determining a hospital's graduate medical education payment 
     shall equal the average of the full-time equivalent resident 
     counts for the cost reporting period and the preceding two 
     cost reporting periods.
       ``(ii) Adjustment for short periods.--If any cost reporting 
     period beginning on or after October 1, 1997, is not equal to 
     twelve months, the Secretary shall make appropriate 
     modifications to ensure that the average full-time equivalent 
     resident counts pursuant to clause (ii) are based on the 
     equivalent of full twelve-month cost reporting periods.
       ``(iii) Transition rule for 1998.--In the case of a 
     hospital's first cost reporting period beginning on or after 
     October 1, 1997, clause (i) shall be applied by using the 
     average for such period and the preceding cost reporting 
     period.
       ``(H) Special rules for new facilities.--
       ``(i) In general.--If a hospital is an applicable facility 
     under clause (iii) for any year with respect to any approved 
     medical residency training program described in subsection 
     (h)--

       ``(I) subject to the applicable annual limit under clause 
     (ii), the Secretary may provide an additional amount of full-
     time equivalent residents which may be taken into account 
     with respect to such program under subparagraph (F) for cost 
     reporting periods beginning during such year, and
       ``(II) the averaging rules under subparagraph (G) shall not 
     apply for such year.

       ``(ii) Applicable annual limit.--The total of additional 
     full-time equivalent residents which the Secretary may 
     authorize under clause (i) for all applicable facilities for 
     any year shall not exceed the amount which would result in 
     the number of full-time equivalent residents with respect to 
     approved medical residency training programs in the fields of 
     allopathic and osteopathic medicine for all hospitals 
     exceeding such number for the preceding year. In allocating 
     such additional residents, the Secretary shall give special 
     consideration to facilities that meet the needs of 
     underserved rural areas.
       ``(iii) Applicable facility.--For purposes of this 
     subparagraph, a hospital shall be treated as an applicable 
     facility with respect to an approved medical residency 
     training program only during the first 5 years during which 
     such program is in existence. A hospital shall not be

[[Page S6618]]

     treated as such a facility if the 5-year period described in 
     the preceding sentence ended on or before December 31, 1996.
       ``(iv) Coordination with limit.--For purposes of applying 
     subparagraph (F), the number of full-time equivalent 
     residents of an applicable facility with respect to any 
     approved medical residency training program in the fields of 
     allopathic and osteopathic medicine for the facility's most 
     recent cost reporting period ending on or before December 31, 
     1996, shall be increased by the number of such residents 
     allocated to such facility under clause (i).''.

     SEC. 5442. PERMITTING PAYMENT TO NONHOSPITAL PROVIDERS.

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

     SEC. 5443. MEDICARE SPECIAL REIMBURSEMENT RULE FOR PRIMARY 
                   CARE COMBINED RESIDENCY PROGRAMS.

       (a) In General.--Section 1886(h)(5)(G) of the Social 
     Security Act (42 U.S.C. 1395ww(h)(5)(G)) is amended--
       (1) in clause (i), by striking ``and (iii)'' and inserting 
     ``, (iii), and (iv)''; and
       (2) by adding at the end the following:
       ``(iv) Special rule for primary care combined residency 
     programs.--(I) In the case of a resident enrolled in a 
     combined medical residency training program in which all of 
     the individual programs (that are combined) are for training 
     a primary care resident (as defined in subparagraph (H)), the 
     period of board eligibility shall be the minimum number of 
     years of formal training required to satisfy the requirements 
     for initial board eligibility in the longest of the 
     individual programs plus one additional year.
       ``(II) A resident enrolled in a combined medical residency 
     training program that includes an obstetrics and gynecology 
     program qualifies for the period of board eligibility under 
     subclause (I) if the other programs such resident combines 
     with such obstetrics and gynecology program are for training 
     a primary care resident.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to combined medical residency training programs in 
     effect on or after January 1, 1998.

                Subchapter B--Indirect Medical Education

     SEC. 5446. INDIRECT GRADUATE MEDICAL EDUCATION PAYMENTS.

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

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

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

       (a) Payments to Hospitals for Direct Costs of Graduate 
     Medical Education.--Section 1886(h)(3) (42 U.S.C. 
     1395ww(h)(3)) is amended by adding after subparagraph (C) the 
     following:
       ``(D) Payment for medicare choice enrollees.--
       ``(i) In general.--For portions of cost reporting periods 
     occurring on or after January 1, 1998, the Secretary shall 
     provide for an additional payment amount under this 
     subsection for services furnished to individuals who are 
     enrolled under a risk-sharing contract with an eligible 
     organization under section 1876 and who are entitled to part 
     A or with a Medicare Choice organization under part C. The 
     amount of such a payment shall equal the applicable 
     percentage of the product of--

       ``(I) the aggregate approved amount (as defined in 
     subparagraph (B)) for that period; and
       ``(II) the fraction of the total number of inpatient-bed 
     days (as established by the Secretary) during the period 
     which are attributable to such enrolled individuals.

       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage is--

       ``(I) 25 percent in 1998,
       ``(II) 50 percent in 1999,
       ``(III) 75 percent in 2000, and
       ``(IV) 100 percent in 2001 and subsequent years.

       ``(iii) Special rule for hospitals under reimbursement 
     system.--The Secretary shall establish rules for the 
     application of this subparagraph to a hospital reimbursed 
     under a reimbursement system authorized under section 
     1814(b)(3) in the same manner as it would apply to the 
     hospital if it were not reimbursed under such section.''.
       (b) Payment to Hospitals of Indirect Medical Education 
     Costs.--Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by 
     adding at the end the following:
       ``(11) Additional payments for managed care savings.--
       ``(A) In general.--For portions of cost reporting periods 
     occurring on or after January 1, 1998, the Secretary shall 
     provide for an additional payment amount for each applicable 
     discharge of any subsection (d) hospital (or any

[[Page S6619]]

     hospital reimbursed under a reimbursement system authorized 
     under section 1814(b)(3)) that has an approved medical 
     residency training program.
       ``(B) Applicable discharge.--For purposes of this 
     paragraph, the term `applicable discharge' means the 
     discharge of any individual who is enrolled under a risk-
     sharing contract with an eligible organization under section 
     1876 and who is entitled to benefits under part A or any 
     individual who is enrolled with a Medicare Choice 
     organization under part C.
       ``(C) Determination of amount.--The amount of the payment 
     under this paragraph with respect to any applicable discharge 
     shall be equal to the applicable percentage (as defined in 
     subsection (h)(3)(D)(ii)) of the estimated average per 
     discharge amount that would otherwise have been paid under 
     paragraph (1)(A) if the individuals had not been enrolled as 
     described in subparagraph (B).''.

     SEC. 5452. DEMONSTRATION PROJECT ON USE OF CONSORTIA.

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

                   CHAPTER 4--OTHER HOSPITAL PAYMENTS

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

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

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

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

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

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

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

       (a) Indirect Medical Education.--Section 
     1886(d)(5)(B)(i)(I) (42 U.S.C. 1395ww(d)(5)(B)(i)(I)) is 
     amended by inserting ``, for cases qualifying for additional 
     payment under subparagraph (A)(i),'' before ``the amount paid 
     to the hospital under subparagraph (A)''.

[[Page S6620]]

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

     SEC. 5465. TREATMENT OF TRANSFER CASES.

       (a) Transfers to PPS Exempt Hospitals and Skilled Nursing 
     Facilities.--Section 1886(d)(5)(I) (42 U.S.C. 
     1395ww(d)(5)(I)) is amended by adding at the end the 
     following new clause:
        ``(iii) In carrying out this subparagraph, the Secretary 
     shall treat the term `transfer case' as including the case of 
     an individual who, immediately upon discharge from, and 
     pursuant to the discharge planning process (as defined in 
     section 1861(ee)) of, a subsection (d) hospital--
       ``(I) is admitted as an inpatient to a hospital or hospital 
     unit that is not a subsection (d) hospital for the receipt of 
     inpatient hospital services; or
       ``(II) is admitted to a skilled nursing facility or 
     facility described in section 1861(y)(1) for the receipt of 
     extended care services.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply with respect to discharges occurring on or after 
     October 1, 1997.

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

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

     SEC. 5467. FLOOR ON AREA WAGE INDEX.

       (a) In General.--For purposes of section 1886(d)(3)(E) of 
     the Social Security Act (42 U.S.C. 1395ww(d)(3)(E)) for 
     discharges occurring on or after October 1, 1997, the area 
     wage index applicable under such section to any hospital 
     which is not located in a rural area (as defined in section 
     1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)) may not 
     be less than the average of the area wage indices applicable 
     under such section to hospitals located in rural areas in the 
     State in which the hospital is located.
       (b) Implementation.--The Secretary of Health and Human 
     Services shall adjust the area wage indices referred to in 
     subsection (a) for hospitals not described in such subsection 
     in a manner which assures that the aggregate payments made 
     under section 1886(d) of the Social Security Act (42 U.S.C. 
     1395ww(d)) in a fiscal year for the operating costs of 
     inpatient hospital services are not greater or less than 
     those which would have been made in the year if this section 
     did not apply.
       (c) Exclusion of Certain Wages.--In the case of a hospital 
     that is owned by a municipality and that was reclassified as 
     an urban hospital under section 1886(d)(10) of the Social 
     Security Act for fiscal year 1996, in calculating the 
     hospital's average hourly wage for purposes of geographic 
     reclassification under such section for fiscal year 1998, the 
     Secretary of Health and Human Services shall exclude the 
     general service wages and hours of personnel associated with 
     a skilled nursing facility that is owned by the hospital of 
     the same municipality and that is physically separated from 
     the hospital to the extent that such wages and hours of such 
     personnel are not shared with the hospital and are separately 
     documented. A hospital that applied for and was denied 
     reclassification as an urban hospital for fiscal year 1998, 
     but that would have received reclassification had the 
     exclusion required by this section been applied to it, shall 
     be reclassified as an urban hospital for fiscal year 1998.

     SEC. 5468. INCREASE BASE PAYMENT RATE TO PUERTO RICO 
                   HOSPITALS.

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

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

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

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

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

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

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

             ``Religious Nonmedical Health Care Institution

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


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

       ``Sec. 1821. (a) In General.--Subject to subsections (c) 
     and (d), payment under this part may be made for inpatient 
     hospital services or post-hospital extended care services 
     furnished an individual in a religious nonmedical health care 
     institution only if--

[[Page S6621]]

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

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

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

                CHAPTER 5--PAYMENTS FOR HOSPICE SERVICES

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

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

     SEC. 5482. HOSPICE CARE BENEFITS PERIODS.

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

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

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

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

       Section 1861(dd)(2) (42 U.S.C. 1395x(dd)(2)) is amended--
       (1) in subparagraph (A)(ii)(I), by striking ``(F),''; and

[[Page S6622]]

       (2) in subparagraph (B)(i), by inserting ``or, in the case 
     of a physician described in subclause (I), under contract 
     with'' after ``employed by''.

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

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

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

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

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

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

     SEC. 5488. EFFECTIVE DATE.

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

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

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

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

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

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

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

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

     SEC. 5504. PAYMENT RULES FOR ANESTHESIA SERVICES.

       (a) In General.--Section 1848(d)(1) (42 U.S.C. 1395w-
     4(d)(1)), as amended by section 5501, is amended--
       (A) in subparagraph (B), striking ``The single'' and 
     inserting ``Except as provided in subparagraph (C), the 
     single'';
       (B) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (C) by inserting after subparagraph (B) the following new 
     subparagraph:

[[Page S6623]]

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

     SEC. 5505. IMPLEMENTATION OF RESOURCE-BASED METHODOLOGIES.

       (a) Adjustments to Relative Value Units for 1998.--Section 
     1848(c)(2) (42 U.S.C. 1395w-4(c)(2)) is amended by adding at 
     the end the following new subparagraph:
       ``(G) Adjustments in relative value units for 1998.--
       ``(i) In general.--The Secretary shall--

       ``(I) reduce the practice expense relative value units 
     applied to any services described in clause (ii) furnished in 
     1998 to a number equal to 110 percent of the number of work 
     relative value units, and
       ``(II) increase the practice expense relative value units 
     for office visit procedure codes during 1998 by a uniform 
     percentage which the Secretary estimates will result in an 
     aggregate increase in payments for such services equal to the 
     aggregate decrease in payments by reason of subclause (I).

       ``(ii) Services covered.--For purposes of clause (i), the 
     services described in this clause are physicians' services 
     that are not described in clause (iii) and for which--

       ``(I) there are work relative value units, and
       ``(II) the number of practice expense relative value units 
     (determined for 1998) exceeds 110 percent of the number of 
     work relative value units (determined for such year).

       ``(iii) Excluded services.--For purposes of clause (ii), 
     the services described in this clause are services which the 
     Secretary determines at least 75 percent of which are 
     provided under this title in an office setting.''.
       (b) Delay of Implementation to 1999; Phasein of 
     Implementation.--Section 1848(c)(2) (42 U.S.C. 1395w-
     4(c)(2)), as amended by subsection (a), is amended--
       (1) in subparagraph (C)(ii)--
       (A) by striking ``1998'' each place it appears and 
     inserting ``1999'', and
       (B) by inserting ``, to the extent provided under 
     subparagraph (H),'' after ``based'' in the matter following 
     subclause (II), and
       (2) by adding at the end the following new subparagraph:
       ``(H) 3-year additional phasein of resource-based practice 
     expense units.--Notwithstanding subparagraph (C)(ii), the 
     Secretary shall implement the resource-based practice expense 
     unit methodology described in such subparagraph ratably over 
     the 3-year period beginning with 1999 such that such 
     methodology is fully implemented for 2001 and succeeding 
     years.''.
       (c) Review by Comptroller General.--The Comptroller General 
     of the United States shall review and evaluate the proposed 
     rule on resource-based methodology for practice expenses 
     issued by the Health Care Financing Administration. The 
     Comptroller General shall, within 6 months of the date of the 
     enactment of this Act, report to the Committee on Ways and 
     Means of the House of Representatives and the Committee on 
     Finance of the Senate the results of its evaluation, 
     including an analysis of--
       (1) the adequacy of the data used in preparing the rule,
       (2) categories of allowable costs,
       (3) methods for allocating direct and indirect expenses,
       (4) the potential impact of the rule on beneficiary access 
     to services, and
       (5) any other matters related to the appropriateness of 
     resource-based methodology for practice expenses.
     The Comptroller General shall consult with representatives of 
     physicians' organizations with respect to matters of both 
     data and methodology.
       (d) Consultation.--
       (1) In general.--The Secretary of Health and Human Services 
     shall assemble a group of physicians with expertise in both 
     surgical and nonsurgical areas (including primary care 
     physicians and academics), accounting experts, and the chair 
     of the Prospective Payment Review Commission (or its 
     successor) to solicit their individual views on whether 
     sufficient data exist to allow the Health Care Financing 
     Administration to proceed with implementation of the rule 
     described in subsection (c). After hearing the views of 
     individual members of the group, the Secretary shall 
     determine whether sufficient data exists to proceed with 
     practice expense relative value determination and shall 
     report on such views of the individual members to the 
     committees described in subsection (c), including any 
     recommendations for modifying such rule.
       (2) Action.--If the Secretary determines under paragraph 
     (1) that insufficient data exists or that the rule described 
     in subsection (c) needs to be revised, the Secretary shall 
     provide for additional data collection and such other actions 
     to correct any deficiencies.
       (e) Application of Resource-Based Methodology to 
     Malpractice Relative Value Units.--Section 1848(c)(2)(C)(iii) 
     (42 U.S.C. 1395w-4(c)(2)(C)(iii)) is amended--
       (1) by inserting ``for years before 1999'' before 
     ``equal'', and
       (2) by striking the period at the end and inserting a comma 
     and by adding at the end the following flush matter:
     ``and for years beginning with 1999 based on the malpractice 
     expense resources involved in furnishing the service''.
       (f) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning on and after January 1, 1998.
       (2) Malpractice.--The amendments made by subsection (e) 
     shall apply to years beginning on and after January 1, 1999.

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

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

[[Page S6624]]

     SEC. 5507. INCREASED MEDICARE REIMBURSEMENT FOR PHYSICIAN 
                   ASSISTANTS.

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

                  CHAPTER 2--OTHER PAYMENT PROVISIONS

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

       (a) Change in Update.--Section 1833(h)(2)(A)(ii) (42 U.S.C. 
     1395l(h)(2)(A)(ii)) is amended by striking ``and'' at the end 
     of subclause (III), by striking the period at the end of 
     subclause (IV) and inserting ``, and'', and by adding at the 
     end the following:

       ``(V) the annual adjustment in the fee schedules determined 
     under clause (i) for each of the years 1998 through 2002 
     shall be reduced (but not below zero) by 2.0 percentage 
     points.''.

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

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

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

     SEC. 5523. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

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

[[Page S6625]]

       (b) Reduction in Increase for Parenteral and Enteral 
     Nutrients, Supplies, and Equipment.--The reasonable charge 
     under part B of title XVIII of the Social Security Act for 
     parenteral and enteral nutrients, supplies, and equipment 
     furnished during each of the years 1998 through 2002, shall 
     not exceed the reasonable charge for such items furnished 
     during the previous year (after application of this 
     subsection), increased by the percentage increase in the 
     consumer price index for all urban consumers (United States 
     city average) for the 12-month period ending with June of the 
     previous year reduced (but not below zero) by 2.0 percentage 
     points.

     SEC. 5524. OXYGEN AND OXYGEN EQUIPMENT.

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

     SEC. 5525. UPDATES FOR AMBULATORY SURGICAL SERVICES.

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

     SEC. 5526. REIMBURSEMENT FOR DRUGS AND BIOLOGICALS.

       (a) In General.--Section 1842 (42 U.S.C. 1395u) is amended 
     by inserting after subsection (n) the following new 
     subsection:
       ``(o)(1) If a physician's, supplier's, or any other 
     person's bill or request for payment for services includes a 
     charge for a drug or biological for which payment may be made 
     under this part and the drug or biological is not paid on a 
     cost or prospective payment basis as otherwise provided in 
     this part, the amount payable for the drug or biological is 
     equal to 95 percent of the average wholesale price, as 
     specified by the Secretary.
       ``(2)(A) In the case of a drug or biological for which 
     payment was under this part on May 1, 1997, the amount 
     determined under paragraph (1) for any drug or biological 
     shall not exceed--
       ``(i) in the case of 1998, the amount of the payment under 
     this part on May 1, 1997, and
       ``(ii) in the case of 1999 and each succeeding year, the 
     amount determined under this subparagraph for the previous 
     year, increased by the percentage increase in the consumer 
     price index for all urban consumers (U.S. city average) for 
     the 12-month period ending with June of the previous year.
       ``(B) In the case of a drug or biological not described in 
     subparagraph (A), the amount determined under paragraph (1) 
     for any year following the first year for which payment is 
     made under this part for such drug or biological shall not 
     exceed the amount payable under this part (after application 
     of this subparagraph) for the previous year, increased by the 
     percentage increase in the consumer price index for all urban 
     consumers (U.S. city average) for the 12-month period ending 
     with June of the previous year.
       ``(3) If payment for a drug or biological is made to a 
     licensed pharmacy approved to dispense drugs or biologicals 
     under this part, the Secretary shall pay a dispensing fee 
     (less the applicable deductible and insurance amounts) to the 
     pharmacy, as the Secretary determines appropriate.
       ``(4) The Secretary shall conduct such studies or surveys 
     as are necessary to determine the average wholesale price 
     (and such other price as the Secretary determines 
     appropriate) of any drug or biological for purposes of 
     paragraph (1). The Secretary shall, not later than 6 months 
     after the date of the enactment of this subsection, report to 
     the appropriate committees of Congress the results of the 
     studies and surveys conducted under this paragraph.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to drugs and biologicals furnished on or after January 
     1, 1998.

            CHAPTER 3--PART B PREMIUM AND RELATED PROVISIONS

     SEC. 5541. PART B PREMIUM.

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

     SEC. 5542. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

       (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended 
     by adding at the end the following:
       ``(h)(1) Notwithstanding the previous subsections of this 
     section, in the case of an individual whose modified adjusted 
     gross income for a taxable year ending with or within a 
     calendar year (as initially determined by the Secretary in 
     accordance with paragraph (3)) exceeds the threshold amount 
     described in paragraph (5)(B), the Secretary shall increase 
     the amount of the monthly premium for months in the calendar 
     year by an amount equal to the difference between--
       ``(A) 200 percent of the monthly actuarial rate for 
     enrollees age 65 and over as determined under subsection 
     (a)(1) for that calendar year; and
       ``(B) the total of the monthly premiums paid by the 
     individual under this section (determined without regard to 
     subsection (b)) during such calendar year.
       ``(2) In the case of an individual described in paragraph 
     (1) whose modified adjusted gross income exceeds the 
     threshold amount by less than

[[Page S6626]]

     $50,000, the amount of the increase in the monthly premium 
     applicable under paragraph (1) shall be an amount which bears 
     the same ratio to the amount of the increase described in 
     paragraph (1) (determined without regard to this paragraph) 
     as such excess bears to $50,000.
       ``(3) The Secretary shall make an initial determination of 
     the amount of an individual's modified adjusted gross income 
     for a taxable year ending with or within a calendar year for 
     purposes of this subsection as follows:
       ``(A) Not later than September 1 of the year preceding the 
     year, the Secretary shall provide notice to each individual 
     whom the Secretary finds (on the basis of the individual's 
     actual modified adjusted gross income for the most recent 
     taxable year for which such information is available or other 
     information provided to the Secretary by the Secretary of the 
     Treasury) will be subject to an increase under this 
     subsection that the individual will be subject to such an 
     increase, and shall include in such notice the Secretary's 
     estimate of the individual's modified adjusted gross income 
     for the year.
       ``(B) If, during the 30-day period beginning on the date 
     notice is provided to an individual under subparagraph (A), 
     the individual provides the Secretary with information on the 
     individual's anticipated modified adjusted gross income for 
     the year, the amount initially determined by the Secretary 
     under this paragraph with respect to the individual shall be 
     based on the information provided by the individual.
       ``(C) If an individual does not provide the Secretary with 
     information under subparagraph (B), the amount initially 
     determined by the Secretary under this paragraph with respect 
     to the individual shall be the amount included in the notice 
     provided to the individual under subparagraph (A).
       ``(4)(A) If the Secretary determines (on the basis of final 
     information provided by the Secretary of the Treasury) that 
     the amount of an individual's actual modified adjusted gross 
     income for a taxable year ending with or within a calendar 
     year is less than or greater than the amount initially 
     determined by the Secretary under paragraph (3), the 
     Secretary shall increase or decrease the amount of the 
     individual's monthly premium under this section (as the case 
     may be) for months during the following calendar year by an 
     amount equal to \1/12\ of the difference between--
       ``(i) the total amount of all monthly premiums paid by the 
     individual under this section during the previous calendar 
     year; and
       ``(ii) the total amount of all such premiums which would 
     have been paid by the individual during the previous calendar 
     year if the amount of the individual's modified adjusted 
     gross income initially determined under paragraph (3) were 
     equal to the actual amount of the individual's modified 
     adjusted gross income determined under this paragraph.
       ``(B)(i) In the case of an individual for whom the amount 
     initially determined by the Secretary under paragraph (3) is 
     based on information provided by the individual under 
     subparagraph (B) of such paragraph, if the Secretary 
     determines under subparagraph (A) that the amount of the 
     individual's actual modified adjusted gross income for a 
     taxable year is greater than the amount initially determined 
     under paragraph (3), the Secretary shall increase the amount 
     otherwise determined for the year under subparagraph (A) by 
     interest in an amount equal to the sum of the amounts 
     determined under clause (ii) for each of the months described 
     in clause (ii).
       ``(ii) Interest shall be computed for any month in an 
     amount determined by applying the underpayment rate 
     established under section 6621 of the Internal Revenue Code 
     of 1986 (compounded daily) to any portion of the difference 
     between the amount initially determined under paragraph (3) 
     and the amount determined under subparagraph (A) for the 
     period beginning on the first day of the month beginning 
     after the individual provided information to the Secretary 
     under subparagraph (B) of paragraph (3) and ending 30 days 
     before the first month for which the individual's monthly 
     premium is increased under this paragraph.
       ``(iii) Interest shall not be imposed under this 
     subparagraph if the amount of the individual's modified 
     adjusted gross income provided by the individual under 
     subparagraph (B) of paragraph (3) was not less than the 
     individual's modified adjusted gross income determined on the 
     basis of information shown on the return of tax imposed by 
     chapter 1 of the Internal Revenue Code of 1986 for the 
     taxable year involved.
       ``(C) In the case of an individual who is not enrolled 
     under this part for any calendar year for which the 
     individual's monthly premium under this section for months 
     during the year would be increased pursuant to subparagraph 
     (A) if the individual were enrolled under this part for the 
     year, the Secretary may take such steps as the Secretary 
     considers appropriate to recover from the individual the 
     total amount by which the individual's monthly premium for 
     months during the year would have been increased under 
     subparagraph (A) if the individual were enrolled under this 
     part for the year.
       ``(D) In the case of a deceased individual for whom the 
     amount of the monthly premium under this section for months 
     in a year would have been decreased pursuant to subparagraph 
     (A) if the individual were not deceased, the Secretary shall 
     make a payment to the individual's surviving spouse (or, in 
     the case of an individual who does not have a surviving 
     spouse, to the individual's estate) in an amount equal to the 
     difference between--
       ``(i) the total amount by which the individual's premium 
     would have been decreased for all months during the year 
     pursuant to subparagraph (A); and
       ``(ii) the amount (if any) by which the individual's 
     premium was decreased for months during the year pursuant to 
     subparagraph (A).
       ``(5) In this subsection, the following definitions apply:
       ``(A) The term `modified adjusted gross income' means 
     adjusted gross income (as defined in section 62 of the 
     Internal Revenue Code of 1986)--
       ``(i) determined without regard to sections 135, 911, 931, 
     and 933 of such Code, and
       ``(ii) increased by the amount of interest received or 
     accrued by the taxpayer during the taxable year which is 
     exempt from tax under such Code.
       ``(B) The term `threshold amount' means--
       ``(i) except as otherwise provided in this paragraph, 
     $50,000,
       ``(ii) $75,000, in the case of a joint return (as defined 
     in section 7701(a)(38) of such Code), and
       ``(iii) zero in the case of a taxpayer who--
       ``(I) is married at the close of the taxable year but does 
     not file a joint return (as so defined) for such year, and
       ``(II) does not live apart from his spouse at all times 
     during the taxable year.
       ``(6)(A) The Secretary shall transfer amounts received 
     pursuant to this subsection to the Federal Hospital Insurance 
     Trust Fund.
       ``(B) In applying section 1844(a), amounts attributable to 
     clause (i) shall not be counted in determining the dollar 
     amount of the premium per enrollee under paragraph (1)(A) or 
     (1)(B).''.
       (b) Conforming Amendments.--(1) Section 1839 (42 U.S.C. 
     1395r) is amended--
       (A) in subsection (a)(2), by inserting ``or section 
     subsection (h)'' after ``subsections (b) and (e)'';
       (B) in subsection (a)(3) of section 1839(a), by inserting 
     ``or subsection (h)'' after ``subsection (e)'';
       (C) in subsection (b), inserting ``(and as increased under 
     subsection (h))'' after ``subsection (a) or (e)''; and
       (D) in subsection (f), by striking ``if an individual'' and 
     inserting the following: ``if an individual (other than an 
     individual subject to an increase in the monthly premium 
     under this section pursuant to subsection (h))''.
       (2) Section 1840(c) (42 U.S.C. 1395r(c)) is amended by 
     inserting ``or an individual determines that the estimate of 
     modified adjusted gross income used in determining whether 
     the individual is subject to an increase in the monthly 
     premium under section 1839 pursuant to subsection (h) of such 
     section (or in determining the amount of such increase) is 
     too low and results in a portion of the premium not being 
     deducted,'' before ``he may''.
       (c) Reporting Requirements for Secretary of the Treasury.--
       (1) In general.--Subsection (l) of section 6103 of the 
     Internal Revenue Code of 1986 (relating to confidentiality 
     and disclosure of returns and return information) is amended 
     by adding at the end the following new paragraph:
       ``(16) Disclosure of return information to carry out 
     income-related reduction in medicare part b premium.--
       ``(A) In general.--The Secretary may, upon written request 
     from the Secretary of Health and Human Services, disclose to 
     officers and employees of the Health Care Financing 
     Administration return information with respect to a taxpayer 
     who is required to pay a monthly premium under section 1839 
     of the Social Security Act. Such return information shall be 
     limited to--
       ``(i) taxpayer identity information with respect to such 
     taxpayer,
       ``(ii) the filing status of such taxpayer,
       ``(iii) the adjusted gross income of such taxpayer,
       ``(iv) the amounts excluded from such taxpayer's gross 
     income under sections 135 and 911,
       ``(v) the interest received or accrued during the taxable 
     year which is exempt from the tax imposed by chapter 1 to the 
     extent such information is available, and
       ``(vi) the amounts excluded from such taxpayer's gross 
     income by sections 931 and 933 to the extent such information 
     is available.
       ``(B) Restriction on use of disclosed information.--Return 
     information disclosed under subparagraph (A) may be used by 
     officers and employees of the Health Care Financing 
     Administration only for the purposes of, and to the extent 
     necessary in, establishing the appropriate monthly premium 
     under section 1839 of the Social Security Act.''.
       (2) Conforming amendment.--Paragraphs (3)(A) and (4) of 
     section 6103(p) of such Code are each amended by striking 
     ``or (15)'' each place it appears and inserting ``(15), or 
     (16)''.
       (d) Effective Date.--
       (1) In general.--The amendments made by subsections (a) and 
     (b) shall apply to the monthly premium under section 1839 of 
     the Social Security Act for months beginning with January 
     1998.
       (2) Information for prior years.--The Secretary of Health 
     and Human Services may request information under section 
     6013(l)(16) of the Social Security Act (as added by 
     subsection (c)) for taxable years beginning after December 
     31, 1994.

     SEC. 5543. DEMONSTRATION PROJECT ON INCOME-RELATED PART B 
                   DEDUCTIBLE.

       (a) Establishment of Project.--
       (1) In general.--Notwithstanding any other provision of 
     law, the Secretary of Health and Human Services (in this 
     section referred to as the ``Secretary'') shall conduct a 
     demonstration project (in this section referred to as the 
     ``project'') in which individuals otherwise responsible for 
     an income-related premium by reason of section 1839(h) of the 
     Social Security Act (42 U.S.C. 1395r(h)) (as added by section 
     5542 of this Act) would instead be responsible for an income-
     related deductible using the same income limits and 
     administrative procedures provided for in such section 
     1839(h).
       (2) Sites.--The Secretary shall conduct the project in a 
     representative number of sites and

[[Page S6627]]

     shall include a sufficient number of individuals in the 
     project to ensure that the project produces statistically 
     satisfactory findings.
       (3) Participation.--
       (A) In general.--Participation in the project shall be on a 
     voluntary basis.
       (B) Medigap.--No individual shall be eligible to 
     participate in the project if such individual is covered 
     under a medicare supplemental policy under section 1882 of 
     the Social Security Act (42 U.S.C. 1395ss).
       (4) Consultation.--In conducting the project, the Secretary 
     shall consult with appropriate organizations and experts.
       (5) Duration.--The project shall be conducted for a period 
     not to exceed 5 years.
       (b) Waiver Authority.--The Secretary shall waive compliance 
     with the requirements of titles XI, XVIII, and XIX of the 
     Social Security Act (42 U.S.C. 1301 et seq., 1395 et seq., 
     1396 et seq.) to such extent and for such period as the 
     Secretary determines is necessary to conduct the project.
       (c) Reports to Congress.--
       (1) In general.--Not later than 2 and 5 years after the 
     date of enactment of this Act, and biannually thereafter, the 
     Secretary shall submit to Congress a report regarding the 
     project.
       (2) Contents of report.--The reports in paragraph (1) shall 
     include the following:
       (A) A description of the demonstration projects conducted 
     under this section.
       (B) A description of the utilization and health care status 
     of individuals participating in the project.
       (C) Any other information regarding the project that the 
     Secretary determines to be appropriate.

     SEC. 5544. LOW-INCOME MEDICARE BENEFICIARY BLOCK GRANT 
                   PROGRAM.

       (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as 
     amended by section 5047, is amended by adding at the end the 
     following:


         ``low-income medicare beneficiary block grant program

       ``Sec. 1898. (a) Establishment.--The Secretary shall 
     establish a program to award block grants to States for the 
     payment of medicare cost sharing described in section 
     1905(p)(3)(A)(ii) on behalf of eligible low-income medicare 
     beneficiaries.
       ``(b) Application.--To be eligible to receive a block grant 
     under this section, a State shall prepare and submit to the 
     Secretary an application at such time, in such manner, and 
     containing such information as the Secretary may require.
       ``(c) Payments.--
       ``(1) Amount of grant.--From amounts appropriated under 
     subsection (d) for a fiscal year, the Secretary shall award a 
     grant to each State with an application approved under 
     subsection (b), in an amount that bears the same ratio to 
     such amounts as the total number of eligible low-income 
     medicare beneficiaries in the State bears to the total number 
     of eligible low-income medicare beneficiaries in all States.
       ``(2) 100 percent fmap.--Notwithstanding section 1905(b), 
     the Federal medical assistance percentage for any State that 
     receives a grant under this section shall be 100 percent.
       ``(d) Appropriations.--
       ``(1) In general.--The Secretary is authorized to transfer 
     from the Federal Supplementary Medical Insurance Trust Fund 
     under section 1841 for the purpose of carrying out this 
     section, an amount equal to $200,000,000 in fiscal year 1998, 
     $250,000,000 in fiscal year 1999, $300,000,000 in fiscal year 
     2000, $350,000,000 in fiscal year 2001, and $400,000,000 in 
     fiscal year 2002, to remain available without fiscal year 
     limitation.
       ``(2) State entitlement.--This section constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts provided in accordance with the 
     provisions of this section.
       ``(e) Definitions.--In this section:
       ``(1) Eligible low-income medicare beneficiary.--The term 
     `eligible low-income medicare beneficiary' means an 
     individual who is described in section 1902(a)(10)(E)(iii) 
     but whose family income is greater than or equal to 120 
     percent of the poverty line and does not exceed 150 percent 
     of the poverty line for a family of the size involved.
       ``(2) State.--The term `State' means each of the 50 States, 
     the District of Columbia, Puerto Rico, Guam, the Virgin 
     Islands, American Samoa, and the Northern Mariana Islands.''.
            Subtitle H--Provisions Relating to Parts A and B

                 CHAPTER 1--SECONDARY PAYOR PROVISIONS

     SEC. 5601. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

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

     SEC. 5602. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

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

                      CHAPTER 2--OTHER PROVISIONS

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

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

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

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

     SEC. 5613. FACILITATING THE USE OF PRIVATE CONTRACTS UNDER 
                   THE MEDICARE PROGRAM.

       (a) In General.--Title XVIII of the Social Security Act (42 
     U.S.C. 1395 et seq.) is amended by inserting after section 
     1804 of such Act (42 U.S.C. 1395b-2) the following:

[[Page S6628]]

        ``CLARIFICATION OF PRIVATE CONTRACTS FOR HEALTH SERVICES

       ``Sec. 1805. (a) In General.--Nothing in this title shall 
     prohibit a physician or another health care professional who 
     does not provide items or services under the program under 
     this title from entering into a private contract with a 
     medicare beneficiary for health services for which no claim 
     for payment is to be submitted under this title.
       ``(b) Limitation on Actual Charge Not Applicable.--Section 
     1848(g) shall not apply with respect to a health service 
     provided to a medicare beneficiary under a contract described 
     in subsection (a).
       ``(c) Definition of Medicare Beneficiary.--In this section, 
     the term `medicare beneficiary' means an individual who is 
     entitled to benefits under part A or enrolled under part B.
       ``(d) Report.--Not later than October 1, 2001, the 
     Administrator of the Health Care Financing Administration 
     shall submit a report to Congress on the effect on the 
     program under this title of private contracts entered into 
     under this section. Such report shall include--
       ``(1) analyses regarding--
       ``(A) the fiscal impact of such contracts on total Federal 
     expenditures under this title and on out-of-pocket 
     expenditures by medicare beneficiaries for health services 
     under this title; and
       ``(B) the quality of the health services provided under 
     such contracts; and
       ``(2) recommendations as to whether medicare beneficiaries 
     should continue to be able to enter private contracts under 
     this section and if so, what legislative changes, if any 
     should be made to improve such contracts.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply with respect to contracts entered into on and 
     after October 1, 1997.
                  Subtitle I--Miscellaneous Provisions

     SEC. 5651. INCLUSION OF STANLY COUNTY, N.C. IN A LARGE URBAN 
                   AREA UNDER MEDICARE PROGRAM.

       (a) In General.--For purposes of section 1886(d) of the 
     Social Security Act (42 U.S.C. 1395ww(d)), the large urban 
     area of Charlotte-Gastonia-Rock Hill-North Carolina-South 
     Carolina may be deemed to include Stanly County, North 
     Carolina.
       (b) Effective Date.--This section shall apply with respect 
     to discharges occurring on or after October 1, 1997.

     SEC. 5652. MEDICARE ANTI-DUPLICATION PROVISION.

       (a) In section 1395ss(d)(3)(A)(v) of title 42, United 
     States Code, insert ``(a)'' before ``For'', and after the 
     first sentence insert:
       ``(b) For purposes of this subparagraph, a health insurance 
     policy (which may be a contract with a health maintenance 
     organization) is not considered to `duplicate' health 
     benefits under this title or title XIX or under another 
     health insurance policy if it--
       ``(1) provides comprehensive health care benefits that 
     replace the benefits provided by another health insurance 
     policy,
       ``(2) is being provided to an individual entitled to 
     benefits under part A or enrolled under part B on the basis 
     of section 226(b), and
       ``(3) coordinates against items and services available or 
     paid for under this title or title XIX, provided that 
     payments under this title or title XIX shall not be treated 
     as payments under such policy in determining annual or 
     lifetime benefit limits.''.
       (b) In section 1395ss(d)(3)(A)(v) of title 42, United 
     States Code, insert ``(c)'' before ``For purposes of this 
     clause''.
    DIVISION 2--MEDICAID AND CHILDREN'S HEALTH INSURANCE INITIATIVES
                          Subtitle I--Medicaid

                      CHAPTER 1--MEDICAID SAVINGS

                   Subchapter A--Managed Care Reforms

     SEC. 5701. STATE OPTION FOR MANDATORY MANAGED CARE.

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

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

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

             ``Part B--Provisions Relating to Managed Care

     ``SEC. 1941. BENEFICIARY CHOICE; ENROLLMENT.

       ``(a) State Options for Enrollment of Beneficiaries in 
     Managed Care Arrangements.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this part and notwithstanding paragraphs (1), (10)(B), and 
     (23)(A) of section 1902(a), a State may require an individual 
     who is eligible for medical assistance under the State plan 
     under this title and who is not a special needs individual 
     (as defined in subsection (e)) to enroll with a managed care 
     entity (as defined in section 1950(a)(1)) as a condition of 
     receiving such assistance (and, with respect to assistance 
     furnished by or under arrangements with such entity, to 
     receive such assistance through the entity), if the following 
     provisions are met:
       ``(A) Entity meets requirements.--The entity meets the 
     applicable requirements of this part.
       ``(B) Contract with state.--The entity enters into a 
     contract with the State to provide services for the benefit 
     of individuals eligible for benefits under this title under 
     which prepaid payments to such entity are made on an 
     actuarially sound basis. Such contract shall specify benefits 
     the provision (or arrangement) for which the entity is 
     responsible.
       ``(C) Choice of coverage.--
       ``(i) In general.--The State permits an individual to 
     choose a managed care entity from managed care organizations 
     and primary care case managers who meet the requirements of 
     this part but not less than from--

       ``(I) 2 medicaid managed care organizations,
       ``(II) a medicaid managed care organization and a primary 
     care case manager, or
       ``(III) a primary care case manager as long as an 
     individual may choose between 2 primary care case managers.

       ``(ii) State option.--At the option of the State, a State 
     shall be considered to meet the requirements of clause (i) in 
     the case of an individual residing in a rural area, if the 
     State--

       ``(I) requires the individual to enroll with a medicaid 
     managed care organization or a primary care case manager if 
     such organization or entity permits the individual to receive 
     such assistance through not less than 2 physicians or case 
     managers (to the extent that at least 2 physicians or case 
     managers are available to provide such assistance in the 
     area), and
       ``(II) permits the individual to obtain such assistance 
     from any other provider in appropriate circumstances (as 
     established by the State under regulations of the Secretary).

       ``(iii) Religious choice.--The State, in permitting an 
     individual to choose a managed care entity under clause (i) 
     shall permit the individual to have access to appropriate 
     religiously-affiliated long-term care facilities that are not 
     pervasively sectarian and that provide comparable non-
     sectarian medical care. With respect to such access, the 
     State shall permit an individual to select a facility that is 
     not a part of the network of the managed care entity if such 
     network does not provide access to appropriate faith-based 
     facilities. Such facility that provides care under this 
     clause shall accept the terms and conditions offered by the 
     managed care entity to other providers in the network. No 
     facility may be compelled to admit an individual if the 
     medical director of that facility believes that the facility 
     cannot provide the specific nursing care and services an 
     enrollee requires.
       ``(D) Changes in enrollment.--The State--
       ``(i) provides the individual with the opportunity to 
     change enrollment among managed care entities once annually 
     and notifies the individual of such opportunity not later 
     than 60 days prior to the first date on which the individual 
     may change enrollment, and
       ``(ii) permits individuals to terminate their enrollment as 
     provided under paragraph (2).
       ``(E) Enrollment priorities.--The State establishes a 
     method for establishing enrollment priorities in the case of 
     a managed care entity that does not have sufficient capacity 
     to enroll all such individuals seeking enrollment under which 
     individuals already enrolled with the entity are given 
     priority in continuing enrollment with the entity.
       ``(F) Default enrollment process.--The State establishes a 
     default enrollment process which meets the requirements 
     described in paragraph (3) and under which any such 
     individual who does not enroll with a managed care entity 
     during the enrollment period specified by the State shall be 
     enrolled by the State with such an entity in accordance with 
     such process.
       ``(G) Sanctions.--The State establishes the sanctions 
     provided for in section 1949.
       ``(H) Indian enrollment.--No individual who is an Indian 
     (as defined in section 4 of the Indian Health Care 
     Improvement Act of 1976) is required to enroll in any entity 
     that is not one of the following (and only if such entity is 
     participating under the plan):
       ``(i) The Indian Health Service.
       ``(ii) An Indian health program operated by an Indian tribe 
     or tribal organization pursuant to a contract, grant, 
     cooperative agreement, or compact with the Indian Health 
     Service pursuant to the Indian Self-Determination Act (25 
     U.S.C. 450 et seq.).
       ``(iii) An urban Indian health program operated by an urban 
     Indian organization pursuant to a grant or contract with the 
     Indian Health Service pursuant to title V of the Indian 
     Health Care Improvement Act (25 U.S.C. 1601 et seq.).
       ``(2) Termination of enrollment.--
       ``(A) In general.--The State, enrollment broker, and 
     managed care entity (if any) shall permit an individual 
     eligible for medical assistance under the State plan under 
     this title who is enrolled with the entity to terminate such 
     enrollment for cause at any time, and without cause during 
     the 90-day period beginning on the date the individual 
     receives notice of enrollment and at least every 12 months 
     thereafter, and shall notify each such individual of the 
     opportunity to terminate enrollment under these conditions.
       ``(B) Fraudulent inducement or coercion as grounds for 
     cause.--For purposes of subparagraph (A), an individual 
     terminating enrollment with a managed care entity on the 
     grounds that the enrollment was based on fraudulent 
     inducement or was obtained through coercion or pursuant to 
     the imposition against the managed care entity of the 
     sanction described in section 1949(b)(3) shall be considered 
     to terminate such enrollment for cause.
       ``(C) Notice of termination.--
       ``(i) Notice to state.--

       ``(I) By individuals.--Each individual terminating 
     enrollment with a managed care entity under subparagraph (A) 
     shall do so by providing notice of the termination to an 
     office of the State agency administering the State plan under 
     this title, the State or local welfare agency, or an office 
     of a managed care entity.
       ``(II) By organizations.--Any managed care entity which 
     receives notice of an individual's termination of enrollment 
     with such entity through receipt of such notice at an office 
     of a managed care entity shall provide timely notice of the 
     termination to the State agency administering the State plan 
     under this title.

       ``(ii) Notice to plan.--The State agency administering the 
     State plan under this title or the State or local welfare 
     agency which receives notice of an individual's termination 
     of enrollment with a managed care entity under clause (i) 
     shall provide timely notice of the termination to such 
     entity.

[[Page S6629]]

       ``(3) Default enrollment process requirements.--The 
     requirements of a default enrollment process established by a 
     State under paragraph (1)(F) are as follows:
       ``(A) The process shall provide that the State may not 
     enroll individuals with a managed care entity which is not in 
     compliance with the applicable requirements of this part.
       ``(B) The process shall provide (consistent with 
     subparagraph (A)) for enrollment of such an individual with a 
     medicaid managed care organization--
       ``(i) that maintains existing provider-individual 
     relationships or that has entered into contracts with 
     providers (such as Federally qualified health centers, rural 
     health clinics, hospitals that qualify for disproportionate 
     share hospital payments under section 1886(d)(5)(F), and 
     hospitals described in section 1886(d)(1)(B)(iii)) that have 
     traditionally served beneficiaries under this title, and
       ``(ii) if there is no provider described in clause (i), in 
     a manner that provides for an equitable distribution of 
     individuals among all qualified managed care entities 
     available to enroll individuals through such default 
     enrollment process, consistent with the enrollment capacities 
     of such entities.
       ``(C) The process shall permit and assist an individual 
     enrolled with an entity under such process to change such 
     enrollment to another managed care entity during a period (of 
     at least 90 days) after the effective date of the enrollment.
       ``(D) The process may provide for consideration of factors 
     such as quality, geographic proximity, continuity of 
     providers, and capacity of the plan when conducting such 
     process.
       ``(b) Reenrollment of Individuals Who Regain Eligibility.--
       ``(1) In general.--If an individual eligible for medical 
     assistance under a State plan under this title and enrolled 
     with a managed care entity with a contract under subsection 
     (a)(1)(B) ceases to be eligible for such assistance for a 
     period of not greater than 2 months, the State may provide 
     for the automatic reenrollment of the individual with the 
     entity as of the first day of the month in which the 
     individual is again eligible for such assistance, and may 
     consider factors such as quality, geographic proximity, 
     continuity of providers, and capacity of the plan when 
     conducting such reenrollment.
       ``(2) Conditions.--Paragraph (1) shall only apply if--
       ``(A) the month for which the individual is to be 
     reenrolled occurs during the enrollment period covered by the 
     individual's original enrollment with the managed care 
     entity,
       ``(B) the managed care entity continues to have a contract 
     with the State agency under subsection (a)(1)(B) as of the 
     first day of such month, and
       ``(C) the managed care entity complies with the applicable 
     requirements of this part.
       ``(3) Notice of reenrollment.--The State shall provide 
     timely notice to a managed care entity of any reenrollment of 
     an individual under this subsection.
       ``(c) State Option of Minimum Enrollment Period.--
       ``(1) In general.--In the case of an individual who is 
     enrolled with a managed care entity under this part and who 
     would (but for this subsection) lose eligibility for benefits 
     under this title before the end of the minimum enrollment 
     period (defined in paragraph (2)), the State plan under this 
     title may provide, notwithstanding any other provision of 
     this title, that the individual shall be deemed to continue 
     to be eligible for such benefits until the end of such 
     minimum period, but, except for benefits furnished under 
     section 1902(a)(23)(B), only with respect to such benefits 
     provided to the individual as an enrollee of such entity.
       ``(2) Minimum enrollment period defined.--For purposes of 
     paragraph (1), the term `minimum enrollment period' means, 
     with respect to an individual's enrollment with an entity 
     under a State plan, a period, established by the State, of 
     not more than 6 months beginning on the date the individual's 
     enrollment with the entity becomes effective, except that a 
     State may extend such period for up to a total of 12 months 
     in the case of an individual's enrollment with a managed care 
     entity (as defined in section 1950(a)(1)) so long as such 
     extension is done uniformly for all individuals enrolled with 
     all such entities.
       ``(d) Other Enrollment-Related Provisions.--
       ``(1) Nondiscrimination.--A managed care entity may not 
     discriminate on the basis of health status or anticipated 
     need for services in the enrollment, reenrollment, or 
     disenrollment of individuals eligible to receive medical 
     assistance under a State plan under this title or by 
     discouraging enrollment (except as permitted by this section) 
     by eligible individuals.
       ``(2) Provision of information.--
       ``(A) In general.--Each State, enrollment broker, or 
     managed care organization shall provide all enrollment 
     notices and informational and instructional materials in a 
     manner and form which may be easily understood by enrollees 
     of the entity who are eligible for medical assistance under 
     the State plan under this title, including enrollees and 
     potential enrollees who are blind, deaf, disabled, or cannot 
     read or understand the English language.
       ``(B) Information to health care providers, enrollees, and 
     potential enrollees.--Each medicaid managed care organization 
     shall--
       ``(i) upon request, make the information described in 
     section 1945(c)(1) available to enrollees and potential 
     enrollees in the organization's service area, and
       ``(ii) provide to enrollees and potential enrollees 
     information regarding all items and services that are 
     available to enrollees under the contract between the State 
     and the organization that are covered either directly or 
     through a method of referral and prior authorization.
       ``(3) Provision of comparative information.--
       ``(A) By state.--A State that requires individuals to 
     enroll with managed care entities under this part shall 
     annually provide to all enrollees and potential enrollees a 
     list identifying the managed care entities that are (or will 
     be) available and information described in subparagraph (C) 
     concerning such entities. Such information shall be presented 
     in a comparative, chart-like form.
       ``(B) By entity.--Upon the enrollment, or renewal of 
     enrollment, of an individual with a managed care entity under 
     this part, the entity shall provide such individual with the 
     information described in subparagraph (C) concerning such 
     entity and other entities available in the area, presented in 
     a comparative, chart-like form.
       ``(C) Required information.--Information under this 
     subparagraph, with respect to a managed care entity for a 
     year, shall include the following:
       ``(i) Benefits.--The benefits covered by the entity, 
     including--

       ``(I) covered items and services beyond those provided 
     under a traditional fee-for-service program;
       ``(II) any beneficiary cost sharing; and
       ``(III) any maximum limitations on out-of-pocket expenses.

       ``(ii) Premiums.--The net monthly premium, if any, under 
     the entity.
       ``(iii) Service area.--The service area of the entity.
       ``(iv) Quality and performance.--To the extent available, 
     quality and performance indicators for the benefits under the 
     entity (and how they compare to such indicators under the 
     traditional fee-for-service programs in the area involved), 
     including--

       ``(I) disenrollment rates for enrollees electing to receive 
     benefits through the entity for the previous 2 years 
     (excluding disenrollment due to death or moving outside the 
     service area of the entity);
       ``(II) information on enrollee satisfaction;
       ``(III) information on health process and outcomes;
       ``(IV) grievance procedures;
       ``(V) the extent to which an enrollee may select the health 
     care provider of their choice, including health care 
     providers within the network of the entity and out-of-network 
     health care providers (if the entity covers out-of-network 
     items and services); and
       ``(VI) an indication of enrollee exposure to balance 
     billing and the restrictions on coverage of items and 
     services provided to such enrollee by an out-of-network 
     health care provider.

       ``(v) Supplemental benefits options.--Whether the entity 
     offers optional supplemental benefits and the terms and 
     conditions (including premiums) for such coverage.
       ``(vi) Physician compensation.--An overall summary 
     description as to the method of compensation of participating 
     physicians.
       ``(e) Special Needs Individuals Described.--In this part, 
     the term `special needs individual' means any of the 
     following individuals:
       ``(1) Special needs child.--An individual who is under 19 
     years of age who--
       ``(A) is eligible for supplemental security income under 
     title XVI;
       ``(B) is described under section 501(a)(1)(D);
       ``(C) is a child described in section 1902(e)(3); or
       ``(D) is not described in any preceding subparagraph but is 
     in foster care or otherwise in an out-of-home placement.
       ``(2) Medicare beneficiaries.--A qualified medicare 
     beneficiary (as defined in section 1905(p)(1)) or an 
     individual otherwise eligible for benefits under title XVIII.
       ``(f) Rule of Construction.--Nothing in this part shall be 
     construed as allowing a managed care entity that has entered 
     into a contract with the State under this part to restrict 
     the choice of an individual in receiving services described 
     in section 1905(a)(4)(C).

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

       ``(a) Access to Services.--
       ``(1) In general.--Each managed care entity shall provide 
     or arrange for the provision of all medically necessary 
     medical assistance under this title which is specified in the 
     contract entered into between such entity and the State under 
     section 1941(a)(1)(B) for enrollees who are eligible for 
     medical assistance under the State plan under this title.
       ``(2) Primary-care-provider-to-enrollee ratio and maximum 
     travel time.--Each such entity shall assure adequate access 
     to primary care services by meeting standards, established by 
     the Secretary, relating to the maximum ratio of enrollees 
     under this title to full-time-equivalent primary care 
     providers available to serve such enrollees and to maximum 
     travel time for such enrollees to access such providers. The 
     Secretary may permit such a maximum ratio to vary depending 
     on the area and population served. Such standards shall be 
     based on standards commonly applied in the commercial market, 
     commonly used in accreditation of managed care organizations, 
     and standards used in the approval of waiver applications 
     under section 1115, and shall be consistent with the 
     requirements of section 1876(c)(4)(A) and part C of title 
     XVIII.
       ``(b) Referral to specialty care for enrollees requiring 
     treatment by specialists.--
       ``(1) In general.--In the case of an enrollee under a 
     managed care entity and who has a condition or disease of 
     sufficient seriousness and complexity to require treatment by 
     a specialist, the entity shall make or provide for a referral 
     to a specialist who is available and accessible to provide 
     the treatment for such condition or disease.

[[Page S6630]]

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

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

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

     ``SEC. 1944. OTHER BENEFICIARY PROTECTIONS.

       ``(a) Protecting Enrollees Against the Insolvency of 
     Managed Care Entities and Against the Failure of the State to 
     Pay Such Entities.--Each managed care entity shall provide 
     that an individual eligible for medical assistance under the 
     State plan under this title who is enrolled with the entity 
     may not be held liable--
       ``(1) for the debts of the managed care entity, in the 
     event of the entity's insolvency,
       ``(2) for services provided to the individual--
       ``(A) in the event of the entity failing to receive payment 
     from the State for such services; or
       ``(B) in the event of a health care provider with a 
     contractual or other arrangement with the entity failing to 
     receive payment from the State or the managed care entity for 
     such services, or
       ``(3) for the debts of any health care provider with a 
     contractual or other arrangement with the entity to provide 
     services to the individual, in the event of the insolvency of 
     the health care provider.
       ``(b) Protection of Beneficiaries Against Balance Billing 
     Through Subcontractors.--
       ``(1) In general.--Any contract between a managed care 
     entity that has an agreement with a State under this title 
     and another entity under which the other entity (or any other 
     entity pursuant to the contract) provides directly or 
     indirectly for the provision of services to beneficiaries 
     under the agreement with the State

[[Page S6631]]

     shall include such provisions as the Secretary may require in 
     order to assure that the other entity complies with balance 
     billing limitations and other requirements of this title 
     (such as limitation on withholding of services) as they would 
     apply to the managed care entity if such entity provided such 
     services directly and not through a contract with another 
     entity.
       ``(2) Application of sanctions for violations.--The 
     provisions of section 1128A(b)(2)(B) and 1128B(d)(1) shall 
     apply with respect to entities contracting directly or 
     indirectly with a managed care entity (with a contract with a 
     State under this title) for the provision of services to 
     beneficiaries under such a contract in the same manner as 
     such provisions would apply to the managed care entity if it 
     provided such services directly and not through a contract 
     with another entity.

     ``SEC. 1945. ASSURING QUALITY CARE.

       ``(a) External Independent Review of Managed Care Entity 
     Activities.--
       ``(1) Review of medicaid managed care organization 
     contract.--
       ``(A) In general.--Except as provided in paragraph (2), 
     each medicaid managed care organization shall be subject to 
     an annual external independent review of the quality outcomes 
     and timeliness of, and access to, the items and services 
     specified in such organization's contract with the State 
     under section 1941(a)(1)(B). Such review shall specifically 
     evaluate the extent to which the medicaid managed care 
     organization provides such services in a timely manner.
       ``(B) Contents of review.--An external independent review 
     conducted under this subsection shall include--
       ``(i) a review of the entity's medical care, through 
     sampling of medical records or other appropriate methods, for 
     indications of quality of care and inappropriate utilization 
     (including overutilization) and treatment,
       ``(ii) a review of enrollee inpatient and ambulatory data, 
     through sampling of medical records or other appropriate 
     methods, to determine trends in quality and appropriateness 
     of care,
       ``(iii) notification of the entity and the State when the 
     review under this paragraph indicates inappropriate care, 
     treatment, or utilization of services (including 
     overutilization), and
       ``(iv) other activities as prescribed by the Secretary or 
     the State.
       ``(C) Use of protocols.--An external independent review 
     conducted under this subsection on and after January 1, 1999, 
     shall use protocols that have been developed, tested, and 
     validated by the Secretary and that are at least as rigorous 
     as those used by the National Committee on Quality Assurance 
     as of the date of the enactment of this section.
       ``(D) Availability of results.--The results of each 
     external independent review conducted under this paragraph 
     shall be available to participating health care providers, 
     enrollees, and potential enrollees of the medicaid managed 
     care organization, except that the results may not be made 
     available in a manner that discloses the identity of any 
     individual patient.
       ``(2) Deemed compliance.--
       ``(A) Medicare organizations.--The requirements of 
     paragraph (1) shall not apply with respect to a medicaid 
     managed care organization if the organization is an eligible 
     organization with a contract in effect under section 1876 or 
     under part C of title XVIII.
       ``(B) Private accreditation.--
       ``(i) In general.--The requirements of paragraph (1) shall 
     not apply with respect to a medicaid managed care 
     organization if--

       ``(I) the organization is accredited by an organization 
     meeting the requirements described in subparagraph (C)), and
       ``(II) the standards and process under which the 
     organization is accredited meet such requirements as are 
     established under clause (ii), without regard to whether or 
     not the time requirement of such clause is satisfied.

       ``(ii) Standards and process.--Not later than 180 days 
     after the date of the enactment of this section, the 
     Secretary shall specify requirements for the standards and 
     process under which a medicaid managed care organization is 
     accredited by an organization meeting the requirements of 
     subparagraph (B).
       ``(C) Accrediting organization.--An accrediting 
     organization meets the requirements of this subparagraph if 
     the organization--
       ``(i) is a private, nonprofit organization,
       ``(ii) exists for the primary purpose of accrediting 
     managed care organizations or health care providers, and
       ``(iii) is independent of health care providers or 
     associations of health care providers.
       ``(3) Review of primary care case manager contract.--Each 
     primary care case manager shall be subject to an annual 
     external independent review of the quality and timeliness of, 
     and access to, the items and services specified in the 
     contract entered into between the State and the primary care 
     case manager under section 1941(a)(1)(B).
       ``(4) Use of validation surveys.--The Secretary shall 
     conduct surveys each year to validate external reviews of the 
     number of managed care entities in the year. In conducting 
     such surveys the Secretary shall use the same protocols as 
     were used in preparing the external reviews. If an external 
     review finds that an individual managed care entity meets 
     applicable requirements, but the Secretary determines that 
     the entity does not meet such requirements, the Secretary's 
     determination as to the entity's noncompliance with such 
     requirements is binding and supersedes that of the previous 
     survey.
       ``(b) Federal Monitoring Responsibilities.--The Secretary 
     shall review the external independent reviews conducted 
     pursuant to subsection (a) and shall monitor the 
     effectiveness of the State's monitoring of managed care 
     entities and any followup activities required under this 
     part. If the Secretary determines that a State's monitoring 
     and followup activities are not adequate to ensure that the 
     requirements of such section are met, the Secretary shall 
     undertake appropriate followup activities to ensure that the 
     State improves its monitoring and followup activities.
       ``(c) Providing Information on Services.--
       ``(1) Requirements for medicaid managed care 
     organizations.--Each medicaid managed care organization shall 
     provide to the State complete and timely information 
     concerning the following:
       ``(A) The services that the organization provides to (or 
     arranges to be provided to) individuals eligible for medical 
     assistance under the State plan under this title.
       ``(B) The identity, locations, qualifications, and 
     availability of participating health care providers.
       ``(C) The rights and responsibilities of enrollees.
       ``(D) The services provided by the organization which are 
     subject to prior authorization by the organization as a 
     condition of coverage (in accordance with subsection (d)).
       ``(E) The procedures available to an enrollee and a health 
     care provider to appeal the failure of the organization to 
     cover a service.
       ``(F) The performance of the organization in serving 
     individuals eligible for medical assistance under the State 
     plan under this title.
     Such information shall be provided in a form consistent with 
     the reporting of similar information by eligible 
     organizations under section 1876 or under part C of title 
     XVIII.
       ``(2) Requirements for primary care case managers.--Each 
     primary care case manager shall--
       ``(A) provide to the State (at least at such frequency as 
     the Secretary may require), complete and timely information 
     concerning the services that the primary care case manager 
     provides to (or arranges to be provided to) individuals 
     eligible for medical assistance under the State plan under 
     this title,
       ``(B) make available to enrollees and potential enrollees 
     information concerning services available to the enrollee for 
     which prior authorization by the primary care case manager is 
     required,
       ``(C) provide enrollees and potential enrollees information 
     regarding all items and services that are available to 
     enrollees under the contract between the State and the 
     primary care case manager that are covered either directly or 
     through a method of referral and prior authorization, and
       ``(D) provide assurances that such entities and their 
     professional personnel are licensed as required by State law 
     and qualified to provide case management services, through 
     methods such as ongoing monitoring of compliance with 
     applicable requirements and providing information and 
     technical assistance.
       ``(3) Requirements for both medicaid managed care 
     organizations and primary care case managers.--Each managed 
     care entity shall provide the State with aggregate encounter 
     data for all items and services, including early and periodic 
     screening, diagnostic, and treatment services under section 
     1905(r) furnished to individuals under 21 years of age. Any 
     such data provided may be audited by the State.
       ``(d) Conditions for Prior Authorization.--Subject to 
     section 1943, a managed care entity may require the approval 
     of medical assistance for nonemergency services before the 
     assistance is furnished to an enrollee only if the system 
     providing for such approval provides that such decisions are 
     made in a timely manner, depending upon the urgency of the 
     situation.
       ``(e) Patient Encounter Data.--Each medicaid managed care 
     organization shall maintain sufficient patient encounter data 
     to identify the health care provider who delivers services to 
     patients and to otherwise enable the State plan to meet the 
     requirements of section 1902(a)(27) and shall submit such 
     data to the State or the Secretary upon request. The medicaid 
     managed care organization shall incorporate such information 
     in the maintenance of patient encounter data with respect to 
     such health care provider.
       ``(f) Incentives for High Quality Managed Care Entities.--
     The Secretary and the State may establish a program to 
     reward, through public recognition, incentive payments, or 
     enrollment of additional individuals (or combinations of such 
     rewards), managed care entities that provide the highest 
     quality care to individuals eligible for medical assistance 
     under the State plan under this title who are enrolled with 
     such entities. For purposes of section 1903(a)(7), proper 
     expenses incurred by a State in carrying out such a program 
     shall be considered to be expenses necessary for the proper 
     and efficient administration of the State plan under this 
     title.
       ``(g) Quality assurance standards.--Any contract between a 
     State and a managed care entity shall provide--
       ``(1) that the State agency will develop and implement a 
     State specific quality assessment and improvement strategy, 
     consistent with standards that the Secretary, in consultation 
     with the States, shall establish and monitor (but that shall 
     not preempt any State standards that are more stringent than 
     the standards established under this paragraph), and that 
     includes--
       ``(A) standards for access to care so that covered services 
     are available within reasonable timeframes and in a manner 
     that ensures continuity of care and adequate primary care and 
     specialized services capacity; and
       ``(B) procedures for monitoring and evaluating the quality 
     and appropriateness of care and services to beneficiaries 
     that reflect the full spectrum of populations enrolled in the 
     plan and that include--

[[Page S6632]]

       ``(i) requirements for provision of quality assurance data 
     to the State using the data and information set that the 
     Secretary, in consultation with the States, shall specify 
     with respect to entities contracting under section 1876 or 
     under part C of title XVIII or alternative data requirements 
     approved by the Secretary;
       ``(ii) if necessary, an annual examination of the scope and 
     content of the quality improvement strategy; and
       ``(iii) other aspects of care and service directly related 
     to the improvement of quality of care (including grievance 
     procedures and marketing and information standards),
       ``(2) that entities entering into such agreements under 
     which payment is made on a prepaid capitated or other risk 
     basis shall be required--
       ``(A) to submit to the State agency information that 
     demonstrates significant improvement in the care delivered to 
     members;
       ``(B) to maintain an internal quality assurance program 
     consistent with paragraph (1), and meeting standards that the 
     Secretary, in consultation with the States, shall establish 
     in regulations; and
       ``(C) to provide effective procedures for hearing and 
     resolving grievances between the entity and members enrolled 
     with the entity under this section, and
       ``(3) that provision is made, consistent with State law or 
     with regulations under State law, with respect to the 
     solvency of those entities, financial reporting by those 
     entities, and avoidance of waste, fraud, and abuse.
       ``(h) Annual Report on Non-Health Expenditures.--Each 
     medicaid managed care organization shall annually provide to 
     enrollees a statement disclosing the proportion of the 
     premiums and other revenues received by the organization that 
     are expended for non-health care items and services.

     ``SEC. 1946. PROTECTIONS FOR PROVIDERS.

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

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

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

     ``SEC. 1948. FRAUD AND ABUSE.

       ``(a) Provisions Applicable to Managed Care Entities.--
       ``(1) Prohibiting affiliations with individuals debarred by 
     Federal agencies.--
       ``(A) In general.--A managed care entity may not 
     knowingly--
       ``(i) have a person described in subparagraph (C) as a 
     director, officer, partner, or person with beneficial 
     ownership of more than 5 percent of the entity's equity, or
       ``(ii) have an employment, consulting, or other agreement 
     with a person described in such subparagraph for the 
     provision of items and services that are significant and 
     material to the entity's obligations under its contract with 
     the State.
       ``(B) Effect of noncompliance.--If a State finds that a 
     managed care entity is not in compliance with clause (i) or 
     (ii) of subparagraph (A), the State--
       ``(i) shall notify the Secretary of such noncompliance,
       ``(ii) may continue an existing agreement with the entity 
     unless the Secretary (in consultation with the Inspector 
     General of the Department of Health and Human Services) 
     directs otherwise, and
       ``(iii) may not renew or otherwise extend the duration of 
     an existing agreement with the entity unless the Secretary 
     (in consultation with the Inspector General of the Department 
     of Health and Human Services) provides to the State and to 
     the Congress a written statement describing compelling 
     reasons that exist for renewing or extending the agreement.
       ``(C) Persons described.--A person is described in this 
     subparagraph if such person--
       ``(i) is debarred, suspended, or otherwise excluded from 
     participating in procurement activities under any Federal 
     procurement or nonprocurement program or activity, as 
     provided for in the Federal Acquisition Streamlining Act of 
     1994 (Public Law 103-355; 108 Stat. 3243), or
       ``(ii) is an affiliate (as defined in such Act) of a person 
     described in clause (i).
       ``(2) Restrictions on marketing.--
       ``(A) Distribution of materials.--
       ``(i) In general.--A managed care entity may not distribute 
     directly or through any agent or independent contractor 
     marketing materials within any State--

       ``(I) without the prior approval of the State, and
       ``(II) that contain false or materially misleading 
     information.

       ``(ii) Consultation in review of market materials.--In the 
     process of reviewing and approving such materials, the State 
     shall provide for consultation with a medical care advisory 
     committee.
       ``(iii) Prohibition.--The State may not enter into or renew 
     a contract with a managed care entity for the provision of 
     services to individuals enrolled under the State plan under 
     this title if the State determines that the entity 
     distributed directly or through any agent or independent 
     contractor marketing materials in violation of clause (i).
       ``(B) Service market.--A managed care entity shall 
     distribute marketing materials to the entire service area of 
     such entity.
       ``(C) Prohibition of tie-ins.--A managed care entity, or 
     any agency of such entity, may not seek to influence an 
     individual's enrollment with the entity in conjunction with 
     the sale of any other insurance.
       ``(D) Prohibiting marketing fraud.--Each managed care 
     entity shall comply with such procedures and conditions as 
     the Secretary prescribes in order to ensure that, before an 
     individual is enrolled with the entity, the individual is 
     provided accurate oral and written and sufficient information 
     to make an informed decision whether or not to enroll.
       ``(E) Prohibition of cold call marketing.--Each managed 
     care entity shall not, directly or indirectly, conduct door-
     to-door, telephonic, or other `cold call' marketing of 
     enrollment under this title.
       ``(b) Provisions Applicable Only to Medicaid Managed Care 
     Organizations.--
       ``(1) State conflict-of-interest safeguards in medicaid 
     risk contracting.--A medicaid managed care organization may 
     not enter into a contract with any State under section 
     1941(a)(1)(B) unless the State has in effect conflict-of-
     interest safeguards with respect to officers and employees of 
     the State with responsibilities relating to contracts with 
     such organizations or to the default enrollment process 
     described in section 1941(a)(1)(F) that are at least as 
     effective as the Federal safeguards provided under section 27 
     of the Office of Federal Procurement Policy Act (41 U.S.C. 
     423), against conflicts of interest that apply with respect 
     to Federal procurement officials with comparable 
     responsibilities with respect to such contracts.
       ``(2) Requiring disclosure of financial information.--In 
     addition to any requirements applicable under paragraph (27) 
     or (35) of section 1902(a), a medicaid managed care 
     organization shall--
       ``(A) report to the State such financial information as the 
     State may require to demonstrate that--
       ``(i) the organization has the ability to bear the risk of 
     potential financial losses and otherwise has a fiscally sound 
     operation;
       ``(ii) the organization uses the funds paid to it by the 
     State for activities consistent with the requirements of this 
     title and the contract between the State and organization; 
     and
       ``(iii) the organization does not place an individual 
     physician, physician group, or other health care provider at 
     substantial risk for services not provided by such physician, 
     group, or health care provider, by providing adequate 
     protection to limit the liability of such physician,

[[Page S6633]]

     group, or health care provider, through measures such as stop 
     loss insurance or appropriate risk corridors,
       ``(B) agree that the Secretary and the State (or any person 
     or organization designated by either) shall have the right to 
     audit and inspect any books and records of the organization 
     (and of any subcontractor) relating to the information 
     reported pursuant to subparagraph (A) and any information 
     required to be furnished under section paragraphs (27) or 
     (35) of section 1902(a),
       ``(C) make available to the Secretary and the State a 
     description of each transaction described in subparagraphs 
     (A) through (C) of section 1318(a)(3) of the Public Health 
     Service Act between the organization and a party in interest 
     (as defined in section 1318(b) of such Act),
       ``(D) agree to make available to its enrollees upon 
     reasonable request--
       ``(i) the information reported pursuant to subparagraph 
     (A); and
       ``(ii) the information required to be disclosed under 
     sections 1124 and 1126,
       ``(E) comply with subsections (a) and (c) of section 1318 
     of the Public Health Service Act (relating to disclosure of 
     certain financial information) and with the requirement of 
     section 1301(c)(8) of such Act (relating to liability 
     arrangements to protect members), and
       ``(F) notify the State of loans and other special financial 
     arrangements which are made between the organization and 
     subcontractors, affiliates, and related parties.
     Each State is required to conduct audits on the books and 
     records of at least 1 percent of the number of medicaid 
     managed care organizations operating in the State.
       ``(3) Adequate provision against risk of insolvency.--
       ``(A) Establishment of standards.--The Secretary shall 
     establish standards, including appropriate equity standards, 
     under which each medicaid managed care organization shall 
     make adequate provision against the risk of insolvency.
       ``(B) Consideration of other standards.--In establishing 
     the standards described in subparagraph (A), the Secretary 
     shall consider solvency standards applicable to eligible 
     organizations with a risk-sharing contract under section 1876 
     or under part C of title XVIII.
       ``(C) Model contract on solvency.--At the earliest 
     practicable time after the date of the enactment of this 
     section, the Secretary shall issue guidelines concerning 
     solvency standards for risk contracting entities and 
     subcontractors of such risk contracting entities. Such 
     guidelines shall take into account characteristics that may 
     differ among risk contracting entities, including whether 
     such an entity is at risk for inpatient hospital services.
       ``(4) Requiring report on net earnings and additional 
     benefits.--Each medicaid managed care organization shall 
     submit a report to the State not later than 12 months after 
     the close of a contract year containing the most recent 
     audited financial statement of the organization's net 
     earnings and consistent with generally accepted accounting 
     principles.
       ``(c) Disclosure of Ownership and Related Information.--
     Each medicaid managed care organization shall provide for 
     disclosure of information in accordance with section 1124.
       ``(d) Disclosure of Transaction Information.--
       ``(1) In general.--Each medicaid managed care organization 
     which is not a qualified health maintenance organization (as 
     defined in section 1310(d) of the Public Health Service Act) 
     shall report to the State and, upon request, to the 
     Secretary, the Inspector General of the Department of Health 
     and Human Services, and the Comptroller General, a 
     description of transactions between the organization and a 
     party in interest (as defined in section 1318(b) of such 
     Act), including the following transactions:
       ``(A) Any sale or exchange, or leasing of any property 
     between the organization and such a party.
       ``(B) Any furnishing for consideration of goods, services 
     (including management services), or facilities between the 
     organization and such a party, but not including salaries 
     paid to employees for services provided in the normal course 
     of their employment.
       ``(C) Any lending of money or other extension of credit 
     between the organization and such a party.
     The State or Secretary may require that information reported 
     respecting an organization which controls, or is controlled 
     by, or is under common control with, another entity be in the 
     form of a consolidated financial statement for the 
     organization and such entity.
       ``(2) Disclosure to enrollees.--Each such organization 
     shall make the information reported pursuant to paragraph (1) 
     available to its enrollees upon reasonable request.
       ``(e) Contract Oversight.--
       ``(1) In general.--The Secretary must provide prior review 
     and approval for contracts under this part with a medicaid 
     managed care organization providing for expenditures under 
     this title in excess of $1,000,000.
       ``(2) Inspector general review.--As part of such approval 
     process, the Inspector General in the Department of Health 
     and Human Services, effective October 1, 1997, shall make a 
     determination (to the extent practicable) as to whether 
     persons with an ownership interest (as defined in section 
     1124(a)(3)) or an officer, director, agent, or managing 
     employee (as defined in section 1126(b)) of the organization 
     are or have been described in subsection (a)(1)(C) based on a 
     ground relating to fraud, theft, embezzlement, breach of 
     fiduciary responsibility, or other financial misconduct or 
     obstruction of an investigation.
       ``(f) Limitation on Availability of FFP for Use of 
     Enrollment Brokers.--Amounts expended by a State for the use 
     of an enrollment broker in marketing managed care entities to 
     eligible individuals under this title shall be considered, 
     for purposes of section 1903(a)(7), to be necessary for the 
     proper and efficient administration of the State plan but 
     only if the following conditions are met with respect to the 
     broker:
       ``(1) The broker is independent of any such entity and of 
     any health care providers (whether or not any such provider 
     participates in the State plan under this title) that provide 
     coverage of services in the same State in which the broker is 
     conducting enrollment activities.
       ``(2) No person who is an owner, employee, consultant, or 
     has a contract with the broker either has any direct or 
     indirect financial interest with such an entity or health 
     care provider or has been excluded from participation in the 
     program under this title or title XVIII or debarred by any 
     Federal agency, or subject to a civil money penalty under 
     this Act.
       ``(g) Use of Unique Physician Identifier for Participating 
     Physicians.--Each medicaid managed care organization shall 
     require each physician providing services to enrollees 
     eligible for medical assistance under the State plan under 
     this title to have a unique identifier in accordance with the 
     system established under section 1173(b).
       ``(h) Secretarial Recovery of FFP for Capitation Payments 
     for Insolvent Managed Care Entities.--The Secretary shall 
     provide for the recovery and offset against any amount owed a 
     State under section 1903(a)(1) in an amount equal to the 
     amounts paid to the State for medical assistance provided 
     under such section, for expenditures for capitation payments 
     to a managed care entity that becomes insolvent or for 
     services contracted for with, but not provided by, such 
     organization.

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

       ``(a) Use of Intermediate Sanctions by the State To Enforce 
     Requirements.--
       ``(1) In general.--Each State shall establish intermediate 
     sanctions, which may include any of the types described in 
     subsection (b) other than the termination of a contract with 
     a managed care entity, which the State may impose against a 
     managed care entity with a contract under section 
     1941(a)(1)(B) if the entity--
       ``(A) fails substantially to provide medically necessary 
     items and services that are required (under law or under such 
     entity's contract with the State) to be provided to an 
     enrollee covered under the contract,
       ``(B) imposes premiums or charges on enrollees in excess of 
     the premiums or charges permitted under this title,
       ``(C) acts to discriminate among enrollees on the basis of 
     their health status or requirements for health care services, 
     including expulsion or refusal to reenroll an individual, 
     except as permitted by this part, or engaging in any practice 
     that would reasonably be expected to have the effect of 
     denying or discouraging enrollment with the entity by 
     eligible individuals whose medical condition or history 
     indicates a need for substantial future medical services,
       ``(D) misrepresents or falsifies information that is 
     furnished--
       ``(i) to the Secretary or the State under this part; or
       ``(ii) to an enrollee, potential enrollee, or a health care 
     provider under such sections, or
       ``(E) fails to comply with the requirements of section 
     1876(i)(8) (or comparable requirements under part C of title 
     XVIII) or this part.
       ``(2) Rule of Construction.--For purposes of paragraph 
     (1)(A), the term `medically necessary' shall not be construed 
     as requiring an abortion be performed for any individual, 
     except if necessary to save the life of the mother or if a 
     pregnancy is the result of an act of rape or incest.
       ``(b) Intermediate Sanctions.--The sanctions described in 
     this subsection are as follows:
       ``(1) Civil money penalties as follows:
       ``(A) Except as provided in subparagraph (B), (C), or (D), 
     not more than $25,000 for each determination under subsection 
     (a).
       ``(B) With respect to a determination under paragraph (3) 
     or (4)(A) of subsection (a), not more than $100,000 for each 
     such determination.
       ``(C) With respect to a determination under subsection 
     (a)(2), double the excess amount charged in violation of such 
     subsection (and the excess amount charged shall be deducted 
     from the penalty and returned to the individual concerned).
       ``(D) Subject to subparagraph (B), with respect to a 
     determination under subsection (a)(3), $15,000 for each 
     individual not enrolled as a result of a practice described 
     in such subsection.
       ``(2) The appointment of temporary management--
       ``(A) to oversee the operation of the medicaid-only managed 
     care entity upon a finding by the State that there is 
     continued egregious behavior by the plan, or
       ``(B) to assure the health of the entity's enrollees, if 
     there is a need for temporary management while--
       ``(i) there is an orderly termination or reorganization of 
     the managed care entity; or
       ``(ii) improvements are made to remedy the violations found 
     under subsection (a),
     except that temporary management under this paragraph may not 
     be terminated until the State has determined that the managed 
     care entity has the capability to ensure that the violations 
     shall not recur.
       ``(3) Permitting individuals enrolled with the managed care 
     entity to terminate enrollment without cause, and notifying 
     such individuals of such right to terminate enrollment.
       ``(4) Suspension or default of all enrollment of 
     individuals under this title after the date the Secretary or 
     the State notifies the entity of a determination of a 
     violation of any requirement of this part.
       ``(5) Suspension of payment to the entity under this title 
     for individuals enrolled after the

[[Page S6634]]

     date the Secretary or State notifies the entity of such a 
     determination and until the Secretary or State is satisfied 
     that the basis for such determination has been corrected and 
     is not likely to recur.
       ``(c) Treatment of Chronic Substandard Entities.--In the 
     case of a managed care entity which has repeatedly failed to 
     meet the requirements of sections 1942 through 1946, the 
     State shall (regardless of what other sanctions are provided) 
     impose the sanctions described in paragraphs (2) and (3) of 
     subsection (b).
       ``(d) Authority To Terminate Contract.--In the case of a 
     managed care entity which has failed to meet the requirements 
     of this part, the State shall have the authority to terminate 
     its contract with such entity under section 1941(a)(1)(B) and 
     to enroll such entity's enrollees with other managed care 
     entities (or to permit such enrollees to receive medical 
     assistance under the State plan under this title other than 
     through a managed care entity).
       ``(e) Availability of Sanctions to the Secretary.--
       ``(1) Intermediate sanctions.--In addition to the sanctions 
     described in paragraph (2) and any other sanctions available 
     under law, the Secretary may provide for any of the sanctions 
     described in subsection (b) if the Secretary determines that 
     a managed care entity with a contract under section 
     1941(a)(1)(B) fails to meet any of the requirements of this 
     part.
       ``(2) Denial of payments to the state.--The Secretary may 
     deny payments to the State for medical assistance furnished 
     under the contract under section 1941(a)(1)(B) for 
     individuals enrolled after the date the Secretary notifies a 
     managed care entity of a determination under subsection (a) 
     and until the Secretary is satisfied that the basis for such 
     determination has been corrected and is not likely to recur.
       ``(f) Due Process for Managed Care Entities.--
       ``(1) Availability of hearing prior to termination of 
     contract.--A State may not terminate a contract with a 
     managed care entity under section 1941(a)(1)(B) unless the 
     entity is provided with a hearing prior to the termination.
       ``(2) Notice to enrollees of termination hearing.--A State 
     shall notify all individuals enrolled with a managed care 
     entity which is the subject of a hearing to terminate the 
     entity's contract with the State of the hearing and that the 
     enrollees may immediately disenroll with the entity without 
     cause.
       ``(3) Other protections for managed care entities against 
     sanctions imposed by state.--Before imposing any sanction 
     against a managed care entity other than termination of the 
     entity's contract, the State shall provide the entity with 
     notice and such other due process protections as the State 
     may provide, except that a State may not provide a managed 
     care entity with a pre-termination hearing before imposing 
     the sanction described in subsection (b)(2).
       ``(4) Imposition of civil monetary penalties by 
     secretary.--The provisions of section 1128A (other than 
     subsections (a) and (b)) shall apply with respect to a civil 
     money penalty imposed by the Secretary under subsection 
     (b)(1) in the same manner as such provisions apply to a 
     penalty or proceeding under section 1128A.

     ``SEC. 1950. DEFINITIONS; MISCELLANEOUS PROVISIONS.

       ``(a) Definitions.--For purposes of this title:
       ``(1) Managed care entity.--The term `managed care entity' 
     means--
       ``(A) a medicaid managed care organization; or
       ``(B) a primary care case manager.
       ``(2) Medicaid managed care organization.--The term 
     `medicaid managed care organization' means a health 
     maintenance organization, an eligible organization with a 
     contract under section 1876 or under part C of title XVIII, a 
     provider sponsored network, or any other organization which 
     is organized under the laws of a State, has made adequate 
     provision (as determined under standards established for 
     purposes of eligible organizations under section 1876 or 
     under part C of title XVIII, and through its capitalization 
     or otherwise) against the risk of insolvency, and provides or 
     arranges for the provision of one or more items and services 
     to individuals eligible for medical assistance under the 
     State plan under this title in accordance with a contract 
     with the State under section 1941(a)(1)(B).
       ``(3) Primary care case manager.--
       ``(A) In general.--The term `primary care case manager' has 
     the meaning given such term in section 1905(t)(2).''.
       (b) Studies and Reports.--
       (1) Report on public health services.--
       (A) In general.--Not later than January 1, 1998, the 
     Secretary of Health and Human Services (in this subsection 
     referred to as the ``Secretary'') shall report to the 
     Committee on Finance of the Senate and the Committee on 
     Commerce of the House of Representatives on the effect of 
     managed care entities (as defined in section 1950(a)(1) of 
     the Social Security Act) on the delivery of and payment for 
     the services traditionally provided through providers 
     described in section 1941(a)(2)(B)(i) of such Act.
       (B) Contents of report.--The report referred to in 
     subparagraph (A) shall include--
       (i) information on the extent to which enrollees with 
     eligible managed care entities seek services at local health 
     departments, public hospitals, and other facilities that 
     provide care without regard to a patient's ability to pay;
       (ii) information on the extent to which the facilities 
     described in clause (i) provide services to enrollees with 
     eligible managed care entities without receiving payment;
       (iii) information on the effectiveness of systems 
     implemented by facilities described in clause (i) for 
     educating such enrollees on services that are available 
     through eligible managed care entities with which such 
     enrollees are enrolled;
       (iv) to the extent possible, identification of the types of 
     services most frequently sought by such enrollees at such 
     facilities; and
       (v) recommendations about how to ensure the timely delivery 
     of the services traditionally provided through providers 
     described in section 1941(a)(2)(B)(i) of the Social Security 
     Act to enrollees of managed care entities and how to ensure 
     that local health departments, public hospitals, and other 
     facilities are adequately compensated for the provision of 
     such services to such enrollees.
       (2) Report on payments to hospitals.--
       (A) In general.--Not later than October 1 of each year, 
     beginning with October 1, 1998, the Secretary and the 
     Comptroller General shall analyze and submit a report to the 
     Committee on Finance of the Senate and the Committee on 
     Commerce of the House of Representatives on rates paid for 
     hospital services under managed care entities under contracts 
     under section 1941(a)(1)(B) of the Social Security Act.
       (B) Contents of report.--The information in the report 
     described in subparagraph (A) shall--
       (i) be organized by State, type of hospital, type of 
     service; and
       (ii) include a comparison of rates paid for hospital 
     services under managed care entities with rates paid for 
     hospital services furnished to individuals who are entitled 
     to benefits under a State plan under title XIX of the Social 
     Security Act and are not enrolled with such entities.
       (3) Reports by states.--Each State shall transmit to the 
     Secretary, at such time and in such manner as the Secretary 
     determines appropriate, the information on hospital rates 
     submitted to such State under section 1947(b)(2) of the 
     Social Security Act.
       (4) Independent study and report on quality assurance and 
     accreditation standards.--The Institute of Medicine of the 
     National Academy of Sciences shall conduct a study and 
     analysis of the quality assurance programs and accreditation 
     standards applicable to managed care entities operating in 
     the private sector or to such entities that operate under 
     contracts under the medicare program under title XVIII of the 
     Social Security Act to determine if such programs and 
     standards include consideration of the accessibility and 
     quality of the health care items and services delivered under 
     such contracts to low-income individuals.
       (c) Conforming Amendments.--
       (1) Repeal of current requirements.--
       (A) In general.--Except as provided in subparagraph (B), 
     section 1903(m) (42 U.S.C. 1396b(m)) is repealed on the date 
     of the enactment of this Act.
       (B) Existing contracts.--In the case of any contract under 
     section 1903(m) of such Act which is in effect on the day 
     before the date of the enactment of this Act, the provisions 
     of such section shall apply to such contract until the 
     earlier of--
       (i) the day after the date of the expiration of the 
     contract; or
       (ii) the date which is 1 year after the date of the 
     enactment of this Act.
       (2) Federal financial participation.--
       (A) Clarification of application of ffp denial rules to 
     payments made pursuant to managed care entities.--Section 
     1903(i) (42 U.S.C. 1396b(i)) is amended by adding at the end 
     the following new sentence: ``Paragraphs (1)(A), (1)(B), (2), 
     (5), and (12) shall apply with respect to items or services 
     furnished and amounts expended by or through a managed care 
     entity (as defined in section 1950(a)(1)) in the same manner 
     as such paragraphs apply to items or services furnished and 
     amounts expended directly by the State.''.
       (B) FFP for external quality review organizations.--Section 
     1903(a)(3)(C) (42 U.S.C. 1396b(a)(3)(C)) is amended--
       (i) by inserting ``(i)'' after ``(C)'', and
       (ii) by adding at the end the following new clause:
       ``(ii) 75 percent of the sums expended with respect to 
     costs incurred during such quarter (as found necessary by the 
     Secretary for the proper and efficient administration of the 
     State plan) as are attributable to the performance of 
     independent external reviews of managed care entities (as 
     defined in section 1950(a)(1)) by external quality review 
     organizations, but only if such organizations conduct such 
     reviews under protocols approved by the Secretary and only in 
     the case of such organizations that meet standards 
     established by the Secretary relating to the independence of 
     such organizations from agencies responsible for the 
     administration of this title or eligible managed care 
     entities; and''.
       (3) Exclusion of certain individuals and entities from 
     participation in program.--Section 1128(b)(6)(C) (42 U.S.C. 
     1320a-7(b)(6)(C)) is amended--
       (A) in clause (i), by striking ``a health maintenance 
     organization (as defined in section 1903(m))'' and inserting 
     ``a managed care entity, as defined in section 1950(a)(1),''; 
     and
       (B) in clause (ii), by inserting ``section 1115 or'' after 
     ``approved under''.
       (4) State plan requirements.--Section 1902 (42 U.S.C. 
     1396a) is amended--
       (A) in subsection (a)(30)(C), by striking ``section 
     1903(m)'' and inserting ``section 1941(a)(1)(B)''; and
       (B) in subsection (a)(57), by striking ``health maintenance 
     organization (as defined in section 1903(m)(1)(A))'' and 
     inserting ``managed care entity, as defined in section 
     1950(a)(1)'';
       (C) in subsection (e)(2)(A), by striking ``or with an 
     entity described in paragraph (2)(B)(iii), (2)(E), (2)(G), or 
     (6) of section 1903(m) under a contract described in section 
     1903(m)(2)(A)'' and inserting ``or with a managed care 
     entity, as defined in section 1950(a)(1);
       (D) in subsection (p)(2)--

[[Page S6635]]

       (i) by striking ``a health maintenance organization (as 
     defined in section 1903(m))'' and inserting ``a managed care 
     entity, as defined in section 1950(a)(1),'';
       (ii) by striking ``an organization'' and inserting ``an 
     entity''; and
       (iii) by striking ``any organization'' and inserting ``any 
     entity''; and
       (E) in subsection (w)(1), by striking ``sections 
     1903(m)(1)(A) and'' and inserting ``section''.
       (5) Payment to states.--Section 1903(w)(7)(A)(viii) (42 
     U.S.C. 1396b(w)(7)(A)(viii)) is amended to read as follows:
       ``(viii) Services of a managed care entity with a contract 
     under section 1941(a)(1)(B).''.
       (6) Use of enrollment fees and other charges.--Section 1916 
     (42 U.S.C. 1396o) is amended in subsections (a)(2)(D) and 
     (b)(2)(D) by striking ``a health maintenance organization (as 
     defined in section 1903(m))'' and inserting ``a managed care 
     entity, as defined in section 1950(a)(1),'' each place it 
     appears.
       (7) Extension of eligibility for medical assistance.--
     Section 1925(b)(4)(D)(iv) (42 U.S.C. 1396r-6(b)(4)(D)(iv)) is 
     amended to read as follows:
       ``(iv) Enrollment with managed care entity.--Enrollment of 
     the caretaker relative and dependent children with a managed 
     care entity, as defined in section 1950(a)(1), less than 50 
     percent of the membership (enrolled on a prepaid basis) of 
     which consists of individuals who are eligible to receive 
     benefits under this title (other than because of the option 
     offered under this clause). The option of enrollment under 
     this clause is in addition to, and not in lieu of, any 
     enrollment option that the State might offer under 
     subparagraph (A)(i) with respect to receiving services 
     through a managed care entity in accordance with part B.''.
       (8) Payment for covered outpatient drugs.--Section 
     1927(j)(1) (42 U.S.C. 1396r-8(j)(1)) is amended by striking 
     ``***Health Maintenance Organizations, including those 
     organizations that contract under section 1903(m),'' and 
     inserting ``health maintenance organizations and medicaid 
     managed care organizations, as defined in section 
     1950(a)(2),''.
       (9) Application of sanctions for balanced billing through 
     subcontractors.--(A) Section 1128A(b)(2)(B) (42 U.S.C. 1320a-
     7a(b)) is amended by inserting ``, including section 
     1944(b)'' after ``title XIX''.
       (B) Section 1128B(d)(1) (42 U.S.C. 1320a-7b(d)(1)) is 
     amended by inserting ``or, in the case of an individual 
     enrolled with a managed care entity under part B of title 
     XIX, the applicable rates established by the entity under the 
     agreement with the State agency under such part'' after 
     ``established by the State''.
       (10) Repeal of certain restrictions on obstetrical and 
     pediatric providers.--Section 1903(i) (42 U.S.C. 1396b(i)) is 
     amended by striking paragraph (12).
       (11) Demonstration projects to study effect of allowing 
     states to extend medicaid coverage for certain families.--
     Section 4745(a)(5)(A) of the Omnibus Budget Reconciliation 
     Act of 1990 (42 U.S.C. 1396a note) is amended by striking 
     ``(except section 1903(m)'' and inserting ``(except part 
     B)''.
       (12) Conforming amendment for disclosure requirements for 
     managed care entities.--Section 1124(a)(2)(A) (42 U.S.C. 
     1320a-3(a)(2)(A)) is amended by inserting ``managed care 
     entity under title XIX,'' after ``renal dialysis facility,''.
       (13) Elimination of regulatory payment cap.--The Secretary 
     of Health and Human Services may not, under the authority of 
     section 1902(a)(30)(A) of the Social Security Act or any 
     other provision of title XIX of such Act, impose a limit by 
     regulation on the amount of the capitation payments that a 
     State may make to qualified entities under such title, and 
     section 447.361 of title 42, Code of Federal Regulations 
     (relating to upper limits of payment: risk contracts), is 
     hereby nullified.
       (14) Continuation of eligibility.--Section 1902(e)(2) (42 
     U.S.C. 1396a(e)(2)) is amended to read as follows:
       ``(2) For provision providing for extended liability in the 
     case of certain beneficiaries enrolled with managed care 
     entities, see section 1941(c).''.
       (15) Conforming amendments to freedom-of-choice 
     provisions.--Section 1902(a)(23) (42 U.S.C. 1396a(a)(23)) is 
     amended--
       (A) in the matter preceding subparagraph (A), by striking 
     ``subsection (g) and in section 1915'' and inserting 
     ``subsection (g), section 1915, and section 1941,''; and
       (B) in subparagraph (B), by striking ``a health maintenance 
     organization, or a'' and inserting ``or with a managed care 
     entity, as defined in section 1950(a)(1), or''.
       (d) Effective Date; Status of Waivers.--
       (1) Effective date.--Except as provided in paragraph (2), 
     the amendments made by this section shall apply to medical 
     assistance furnished--
       (A) during quarters beginning on or after October 1, 1997; 
     or
       (B) in the case of assistance furnished under a contract 
     described in subsection (c)(1)(B), during quarters beginning 
     after the earlier of--
       (i) the date of the expiration of the contract; or
       (ii) the expiration of the 1-year period which begins on 
     the date of the enactment of this Act.
       (2) Application to waivers.--If any waiver granted to a 
     State under section 1115 or 1915 of the Social Security Act 
     (42 U.S.C. 1315, 1396n), or otherwise, which relates to the 
     provision of medical assistance under a State plan under 
     title XIX of the such Act (42 U.S.C. 1396 et seq.), is in 
     effect or approved by the Secretary of Health and Human 
     Services as of the applicable effective date described in 
     paragraph (1), the amendments made by this section shall not 
     apply with respect to the State before the expiration 
     (determined without regard to any extensions) of the waiver 
     to the extent such amendments are inconsistent with the terms 
     of the waiver.

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

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

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

       (a) Elimination of 75:25 Restriction on Risk Contracts.--
       (1) 75 percent limit on medicare and medicaid enrollment.--
       (A) In general.--Section 1903(m)(2)(A) (42 U.S.C. 
     1396b(m)(2)(A)) is amended by striking clause (ii).
       (B) Conforming amendments.--
       (i) Section 1903(m)(2) (42 U.S.C. 1396b(m)(2)) is amended--

       (I) by striking subparagraphs (C), (D), and (E); and
       (II) in subparagraph (G), by striking ``clauses (i) and 
     (ii)'' and inserting ``clause (i)''.

       (ii) Section 1902(e)(2)(A) (42 U.S.C. 1396a(e)(2)(A)) is 
     amended by striking ``(2)(E),''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply on and after June 20, 1997.
       (b) Elimination of Prohibition on Copayments for Services 
     Furnished by Health Maintenance Organizations.--Section 1916 
     (42 U.S.C. 1396o) is amended--
       (1) in subsection (a)(2)(D), by striking ``or services 
     furnished'' and all that follows through ``enrolled,''; and
       (2) in subsection (b)(2)(D), by striking ``or (at the 
     option'' and all that follows through ``enrolled,''.

[[Page S6636]]

              Subchapter B--Management Flexibility Reforms

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

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

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

       (a) In General.--Section 1902(n) (42 U.S.C. 1396a(n)) is 
     amended--
       (1) by inserting ``(1)'' after ``(n)'', and
       (2) by adding at the end the following:
       ``(2) In carrying out paragraph (1), a State is not 
     required to provide any payment for any expenses incurred 
     relating to payment for a coinsurance or copayment for 
     medicare cost-sharing if the amount of the payment under 
     title XVIII for the service exceeds the payment amount that 
     otherwise would be made under the State plan under this title 
     for such service.
       ``(3) In the case in which a State's payment for medicare 
     cost-sharing for a qualified medicare beneficiary with 
     respect to an item or service is reduced or eliminated 
     through the application of paragraph (1) or (2) of this 
     subsection--
       ``(A) for purposes of applying any limitation under title 
     XVIII on the amount that the beneficiary may be billed or 
     charged for the service, the amount of payment made under 
     title XVIII plus the amount of payment (if any) under the 
     State plan shall be considered to be payment in full for the 
     service,
       ``(B) the beneficiary shall not have any legal liability to 
     make payment to a provider or managed care entity (as defined 
     in section 1950(a)(1)) for the service, and
       ``(C) any lawful sanction that may be imposed upon a 
     provider or managed care entity (as defined in section 
     1950(a)(1)) for excess charges under this title or title 
     XVIII shall apply to the imposition of any charge on the 
     individual in such case.
     This paragraph shall not be construed as preventing payment 
     of any medicare cost-sharing by a medicare supplemental 
     policy or an employer retiree health plan on behalf of an 
     individual.''.
       (b) Limitation in Medicare Provider Agreements.--Section 
     1866(a)(1)(A) (42 U.S.C. 1395cc(a)(1)(A)) is amended--
       (1) by inserting ``(i)'' after ``(A)'', and
       (2) by inserting before the comma at the end the following: 
     ``, and (ii) not to impose any charge that may not be charged 
     under section 1902(n)(3)''.
       (c) Limitation on Nonparticipating Providers.--Section 
     1848(g)(3)(A) (42 U.S.C. 1395w-4(g)(3)(A)) is amended by 
     inserting before the period at the end the following: ``and 
     the provisions of section 1902(n)(3)(A) apply to further 
     limit permissible charges under this section''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to payment for items and services furnished on or 
     after the later of--
       (1) October 1, 1997; or
       (2) the termination date of a provider agreement under the 
     medicare program under title XVIII or under a State plan 
     under title XIX that is in effect on the date of the 
     enactment of this Act.

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

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

       (a) Reduction of Payments.--Section 1923(f) (42 U.S.C. 
     1396r-4(f)) is amended to read as follows:
       ``(f) Limitation on Federal Financial Participation.--
       ``(1) In general.--Beginning with fiscal year 1998, payment 
     under section 1903(a) shall not be made to a State with 
     respect to any payment adjustment made under this section for 
     hospitals in a State for quarters in a fiscal year in excess 
     of the disproportionate share hospital (in this subsection 
     referred to as `DSH') allotment for the State for the fiscal 
     year, as specified in paragraphs (2), (3), (4), and (5).
       ``(2) Determination of state dsh allotments for fiscal year 
     1998.--
       ``(A) In general.--Except as provided in subparagraph (B) 
     and paragraph (4), the DSH allotment for a State for fiscal 
     year 1998 is equal to the State 1995 DSH spending amount.
       ``(B) High dsh states.--In the case of any State that is a 
     high DSH State, the DSH allotment for that State for fiscal 
     year 1998 is equal to the sum of--
       ``(i) the Federal share of payment adjustments made to 
     hospitals in the State under subsection (c) that are 
     attributable to the 1995 DSH allotment for inpatient hospital 
     services provided (based on reporting data specified by the 
     State on HCFA Form 64 as inpatient DSH, and as approved by 
     the Secretary); and
       ``(ii) 70 percent of the Federal share of payment 
     adjustments made to hospitals in the State under subsection 
     (c) that are attributable to the 1995 DSH allotment for 
     payments to institutions for mental diseases and other mental 
     health facilities (based on reporting data specified by the 
     State on HCFA Form 64 as mental health DSH, and as approved 
     by the Secretary).
       ``(3) Determination of state dsh allotments for fiscal 
     years 1999 through 2002.--
       ``(A) Non high dsh states.--
       ``(i) In general.--Except as provided in subparagraph (B) 
     and paragraph (4), the DSH allotment for a State for each of 
     fiscal years 1999 through 2002 is equal to the applicable 
     percentage of the State 1995 DSH spending amount.
       ``(ii) Applicable percentage.--For purposes of clause (i), 
     the applicable percentage with respect to a State described 
     in that clause is--

       ``(I) for fiscal year 1999, 98 percent;
       ``(II) for fiscal year 2000, 95 percent;
       ``(III) for fiscal year 2001, 90 percent; and
       ``(IV) for fiscal year 2002, 85 percent.

       ``(B) High dsh states.--
       ``(i) In general.--In the case of any State that is a high 
     DSH State, the DSH allotment for that State for each of 
     fiscal years 1999 through 2002 is equal to the applicable 
     reduction percentage of the high DSH State modified 1995 
     spending amount for that fiscal year.
       ``(ii) High dsh state modified 1995 spending amount.--

       ``(I) In general.--For purposes of clause (i), the high DSH 
     State modified 1995 spending amount means, with respect to a 
     State and a fiscal year, the sum of--

       ``(aa) the Federal share of payment adjustments made to 
     hospitals in the State under subsection (c) that are 
     attributable to the 1995 DSH allotment for inpatient hospital 
     services provided (based on reporting data specified by the 
     State on HCFA Form 64 as inpatient DSH, and as approved by 
     the Secretary); and
       ``(bb) the applicable mental health percentage for such 
     fiscal year of the Federal share of payment adjustments made 
     to hospitals in the State under subsection (c) that are 
     attributable to the 1995 DSH allotment for payments to 
     institutions for mental diseases and other mental health 
     facilities (based on reporting data specified by the State on 
     HCFA Form 64 as mental health DSH, and as approved by the 
     Secretary).

       ``(II) Applicable mental health percentage.--For purposes 
     of subclause (I)(bb), the applicable mental health percentage 
     for such fiscal year is--

       ``(aa) for fiscal year 1999, 50 percent;
       ``(bb) for fiscal year 2000, 20 percent; and
       ``(cc) for fiscal years 2001 and 2002, 0 percent.
       ``(iii) Applicable reduction percentage.--For purposes of 
     clause (i), the applicable reduction percentage described in 
     that clause is--

       ``(I) for fiscal year 1999, 92 percent;
       ``(II) for fiscal year 2000, 85 percent; and
       ``(III) for fiscal years 2001 and 2002, 80 percent.

       ``(4) Exceptions.--
       ``(A) Certain states without 1995 mental health dsh 
     spending.--In the case of any State with a State 1995 DSH 
     spending amount that exceeds 12 percent of the Federal 
     medical assistance percentage of expenditures made under the 
     State plan under this title for medical assistance during 
     fiscal year 1995 and that, during such fiscal year, did not 
     make any payment adjustments to hospitals in the State under 
     subsection (c) that are attributable to the 1995 DSH 
     allotment for payments to institutions for mental diseases 
     and other mental health facilities (based on reporting data 
     specified by the State on HCFA Form 64 as mental health DSH, 
     and as approved by the Secretary), the DSH allotment for that 
     State for each of fiscal years 1998 through 2002 is equal to 
     the average of the State 1995 DSH spending amount and the 
     State 1996 DSH spending amount.
       ``(B) States with low state 1995 dsh spending amounts.--In 
     the case of any State with a

[[Page S6637]]

     State 1995 DSH spending amount that is less than 3 percent of 
     the Federal medical assistance percentage of expenditures 
     made under the State plan under this title for medical 
     assistance during fiscal year 1995, the DSH allotment for 
     that State for each of fiscal years 1998 through 2002 is 
     equal to the State 1995 DSH spending amount.
       ``(C) States with state 1995 dsh spending amounts above 3 
     percent.--In the case of any State with a State 1995 DSH 
     spending amount that is more than 3 percent of the Federal 
     medical assistance percentage of expenditures made under the 
     State plan under this title for medical assistance during 
     fiscal year 1995, the DSH allotment for that State for each 
     of fiscal years 1999 through 2002 is equal to the greater 
     of--
       ``(i) the amount otherwise determined for such State under 
     paragraph (3); or
       ``(ii) 50 percent of the State 1995 DSH spending amount.
       ``(5) Determination of state dsh allotments for fiscal year 
     2003 and thereafter.--The DSH allotment for any State for 
     fiscal year 2003 and each fiscal year thereafter is equal to 
     the DSH allotment for the State for the preceding fiscal 
     year, increased by the estimated percentage change in the 
     consumer price index for medical services (as determined by 
     the Bureau of Labor Statistics).
       ``(6) Definitions.--
       ``(A) High dsh state.--The term `high DSH State' means a 
     State that, with respect to fiscal year 1997, had a State 
     base allotment under this section that exceeded 12 percent of 
     the Federal medical assistance percentage of expenditures 
     made under the State plan under this title for medical 
     assistance during such fiscal year, as determined using the 
     preliminary State DSH allotment for the State for fiscal year 
     1997, as published in the Federal Register on January 31, 
     1997.
       ``(B) State.--In this subsection, the term `State' means 
     the 50 States and the District of Columbia.''.
       ``(C) State 1995 dsh spending amount.--The term `State 1995 
     DSH spending amount' means, with respect to a State, the 
     Federal medical assistance percentage of payment adjustments 
     made under subsection (c) under the State plan that are 
     attributable to the fiscal year 1995 DSH allotment, as 
     reported by the State not later than January 1, 1997, on HCFA 
     Form 64, and as approved by the Secretary.
       ``(D) State 1996 dsh spending amount.--The term `State 1996 
     DSH spending amount' means, with respect to a State, the 
     Federal share of payment adjustments made under subsection 
     (c) under the State plan during fiscal year 1996 as reported 
     by the State not later than December 31, 1997, on HCFA Form 
     64, and as approved by the Secretary.''.
       (b) Limitation on Payments to Institutions For Mental 
     Diseases.--Section 1923 of the Social Security Act (42 U.S.C. 
     1396r-4) is amended by adding at the end the following:
       ``(h) Limitation on Certain State DSH Expenditures.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, payment under section 1903(a) shall not be made 
     to a State with respect to any payment adjustments made under 
     this section for quarters in a fiscal year to institutions 
     for mental diseases or other mental health facilities, in 
     excess of--
       ``(A) the total State DSH expenditures that are 
     attributable to fiscal year 1995 for payments to institutions 
     for mental diseases and other mental health facilities (based 
     on reporting data specified by the State on HCFA Form 64 as 
     mental health DSH, and as approved by the Secretary); or
       ``(B) the amount of such payment adjustment which is equal 
     to the applicable percentage of the Federal share of payment 
     adjustments made to hospitals in the State under subsection 
     (c) that are attributable to the 1995 DSH allotment for 
     payments to institutions for mental diseases and other mental 
     health facilities (based on reporting data specified by the 
     State on HCFA Form 64 as mental health DSH, and as approved 
     by the Secretary).
       ``(2) Applicable percentage.--
       ``(A) In general.--For purposes of paragraph (1), the 
     applicable percentage with respect to a fiscal year is the 
     lesser of the percentage determined under subparagraph (B) 
     or--
       ``(i) for fiscal year 2001, 50 percent;
       ``(ii) for fiscal year 2002, 40 percent; and
       ``(iii) for fiscal year 2003 and thereafter, 33 percent.
       ``(B) 1995 percentage.--The percentage determined under 
     this subparagraph is the ratio (determined as a percentage) 
     of the Federal share of payment adjustments made to hospitals 
     in the State under subsection (c) that are attributable to 
     the 1995 DSH allotment for payments to institutions for 
     mental diseases and other mental health facilities, to the 
     State 1995 DSH spending amount, as defined under subsection 
     (f)(6)(C).''.
       (c) Targeting Payments.--Section 1923(a)(2) (42 U.S.C. 
     1396r-4(a)(2)) is amended by adding at the end the following:
       ``(D) A State plan under this title shall not be considered 
     to meet the requirements of section 1902(a)(13)(A) (insofar 
     as it requires payments to hospitals to take into account the 
     situation of hospitals that serve a disproportionate number 
     of low-income patients with special needs), as of October 1, 
     1998, unless the State has provided assurances to the 
     Secretary that the State has developed a methodology for 
     prioritizing payments to disproportionate share hospitals, 
     including children's hospitals, on the basis of the 
     proportion of low-income and medicaid patients served by such 
     hospitals. In making such assurances, the State plan shall 
     provide a definition of high-volume disproportionate share 
     hospitals and a detailed description of the specific 
     methodology to be used to provide disproportionate share 
     payments to such hospitals. The State shall provide an annual 
     report to the Secretary describing the disproportionate share 
     payments to such high-volume disproportionate share 
     hospitals.''.
       (d) Effective Date.--The amendments made by this section 
     apply on and after October 1, 1997.

              CHAPTER 2--EXPANSION OF MEDICAID ELIGIBILITY

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

       Section 1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) 
     is amended--
       (1) in subclause (XI), by striking ``or'' at the end;
       (2) in subclause (XII), by adding ``or'' at the end; and
       (3) by adding at the end the following:

       ``(XIII) who are in families whose income is less than 250 
     percent of the income official poverty line (as defined by 
     the Office of Management and Budget, and revised annually in 
     accordance with section 673(2) of the Omnibus Budget 
     Reconciliation Act of 1981) applicable to a family of the 
     size involved, and who but for earnings in excess of the 
     limit established under section 1619(b), would be considered 
     to be receiving supplemental security income (subject, 
     notwithstanding section 1916, to payment of premiums or other 
     charges (set on a sliding scale based on income) that the 
     State may determine);''.

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

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

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

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

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


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

       ``Sec. 1932. (a) State Option.--
       ``(1) In general.--A State may elect to provide medical 
     assistance under this section with respect to PACE program 
     services to PACE program eligible individuals who are 
     eligible for medical assistance under the State plan and who 
     are enrolled in a PACE program under a PACE program 
     agreement. Such individuals need not be eligible for benefits 
     under part A, or enrolled under part B, of title XVIII to be 
     eligible to enroll under this section. In the case of an 
     individual enrolled with a PACE program pursuant to such an 
     election--
       ``(A) the individual shall receive benefits under the plan 
     solely through such program, and
       ``(B) the PACE provider shall receive payment in accordance 
     with the PACE program agreement for provision of such 
     benefits.
       ``(2) PACE program defined.--For purposes of this section 
     and section 1894, the term `PACE program' means a program of 
     all-inclusive care for the elderly that meets the following 
     requirements:
       ``(A) Operation.--The entity operating the program is a 
     PACE provider (as defined in paragraph (3)).
       ``(B) Comprehensive benefits.--The program provides 
     comprehensive health care services to PACE program eligible 
     individuals in accordance with the PACE program agreement and 
     regulations under this section.
       ``(C) Transition.--In the case of an individual who is 
     enrolled under the program under this section and whose 
     enrollment ceases for any reason (including that the 
     individual no longer qualifies as a PACE program eligible 
     individual, the termination of a PACE program agreement, or 
     otherwise), the program provides assistance to the individual 
     in obtaining necessary transitional care through appropriate 
     referrals and making the individual's medical records 
     available to new providers.
       ``(3) PACE provider defined.--
       ``(A) In general.--For purposes of this section, the term 
     `PACE provider' means an entity that--
       ``(i) subject to subparagraph (B), is (or is a distinct 
     part of) a public entity or a private, nonprofit entity 
     organized for charitable purposes under section 501(c)(3) of 
     the Internal Revenue Code of 1986, and
       ``(ii) has entered into a PACE program agreement with 
     respect to its operation of a PACE program.
       ``(B) Treatment of private, for-profit providers.--Clause 
     (i) of subparagraph (A) shall not apply--

[[Page S6638]]

       ``(i) to entities subject to a demonstration project waiver 
     under subsection (h); and
       ``(ii) after the date the report under section 5743(b) of 
     the Balanced Budget Act of 1997 is submitted, unless the 
     Secretary determines that any of the findings described in 
     subparagraph (A), (B), (C), or (D) of paragraph (2) of such 
     section are true.
       ``(4) PACE program agreement defined.--For purposes of this 
     section, the term `PACE program agreement' means, with 
     respect to a PACE provider, an agreement, consistent with 
     this section, section 1894 (if applicable), and regulations 
     promulgated to carry out such sections, among the PACE 
     provider, the Secretary, and a State administering agency for 
     the operation of a PACE program by the provider under such 
     sections.
       ``(5) PACE program eligible individual defined.--For 
     purposes of this section, the term `PACE program eligible 
     individual' means, with respect to a PACE program, an 
     individual who--
       ``(A) is 55 years of age or older;
       ``(B) subject to subsection (c)(4), is determined under 
     subsection (c) to require the level of care required under 
     the State medicaid plan for coverage of nursing facility 
     services;
       ``(C) resides in the service area of the PACE program; and
       ``(D) meets such other eligibility conditions as may be 
     imposed under the PACE program agreement for the program 
     under subsection (e)(2)(A)(ii).
       ``(6) PACE protocol.--For purposes of this section, the 
     term `PACE protocol' means the Protocol for the Program of 
     All-inclusive Care for the Elderly (PACE), as published by On 
     Lok, Inc., as of April 14, 1995, or any successor protocol 
     that may be agreed upon between the Secretary and On Lok, 
     Inc.
       ``(7) PACE demonstration waiver program defined.--For 
     purposes of this section, the term `PACE demonstration waiver 
     program' means a demonstration program under either of the 
     following sections (as in effect before the date of their 
     repeal):
       ``(A) Section 603(c) of the Social Security Amendments of 
     1983 (Public Law 98-21), as extended by section 9220 of the 
     Consolidated Omnibus Budget Reconciliation Act of 1985 
     (Public Law 99-272).
       ``(B) Section 9412(b) of the Omnibus Budget Reconciliation 
     Act of 1986 (Public Law 99-509).
       ``(8) State administering agency defined.--For purposes of 
     this section, the term `State administering agency' means, 
     with respect to the operation of a PACE program in a State, 
     the agency of that State (which may be the single agency 
     responsible for administration of the State plan under this 
     title in the State) responsible for administering PACE 
     program agreements under this section and section 1894 in the 
     State.
       ``(9) Trial period defined.--
       ``(A) In general.--For purposes of this section, the term 
     `trial period' means, with respect to a PACE program operated 
     by a PACE provider under a PACE program agreement, the first 
     3 contract years under such agreement with respect to such 
     program.
       ``(B) Treatment of entities previously operating pace 
     demonstration waiver programs.--Each contract year (including 
     a year occurring before the effective date of this section) 
     during which an entity has operated a PACE demonstration 
     waiver program shall be counted under subparagraph (A) as a 
     contract year during which the entity operated a PACE program 
     as a PACE provider under a PACE program agreement.
       ``(10) Regulations.--For purposes of this section, the term 
     `regulations' refers to interim final or final regulations 
     promulgated under subsection (f) to carry out this section 
     and section 1894.
       ``(b) Scope of Benefits; Beneficiary Safeguards.--
       ``(1) In general.--Under a PACE program agreement, a PACE 
     provider shall--
       ``(A) provide to PACE program eligible individuals, 
     regardless of source of payment and directly or under 
     contracts with other entities, at a minimum--
       ``(i) all items and services covered under title XVIII (for 
     individuals enrolled under section 1894) and all items and 
     services covered under this title, but without any limitation 
     or condition as to amount, duration, or scope and without 
     application of deductibles, copayments, coinsurance, or other 
     cost-sharing that would otherwise apply under such title or 
     this title, respectively; and
       ``(ii) all additional items and services specified in 
     regulations, based upon those required under the PACE 
     protocol;
       ``(B) provide such enrollees access to necessary covered 
     items and services 24 hours per day, every day of the year;
       ``(C) provide services to such enrollees through a 
     comprehensive, multidisciplinary health and social services 
     delivery system which integrates acute and long-term care 
     services pursuant to regulations; and
       ``(D) specify the covered items and services that will not 
     be provided directly by the entity, and to arrange for 
     delivery of those items and services through contracts 
     meeting the requirements of regulations.
       ``(2) Quality assurance; patient safeguards.--The PACE 
     program agreement shall require the PACE provider to have in 
     effect at a minimum--
       ``(A) a written plan of quality assurance and improvement, 
     and procedures implementing such plan, in accordance with 
     regulations, and
       ``(B) written safeguards of the rights of enrolled 
     participants (including a patient bill of rights and 
     procedures for grievances and appeals) in accordance with 
     regulations and with other requirements of this title and 
     Federal and State law designed for the protection of 
     patients.
       ``(c) Eligibility Determinations.--
       ``(1) In general.--The determination of--
       ``(A) whether an individual is a PACE program eligible 
     individual shall be made under and in accordance with the 
     PACE program agreement, and
       ``(B) who is entitled to medical assistance under this 
     title shall be made (or who is not so entitled, may be made) 
     by the State administering agency.
       ``(2) Condition.--An individual is not a PACE program 
     eligible individual (with respect to payment under this 
     section) unless the individual's health status has been 
     determined by the Secretary or the State administering 
     agency, in accordance with regulations, to be comparable to 
     the health status of individuals who have participated in the 
     PACE demonstration waiver programs. Such determination shall 
     be based upon information on health status and related 
     indicators (such as medical diagnoses and measures of 
     activities of daily living, instrumental activities of daily 
     living, and cognitive impairment) that are part of a uniform 
     minimum data set collected by PACE providers on potential 
     eligible individuals.
       ``(3) Annual eligibility recertifications.--
       ``(A) In general.--Subject to subparagraph (B), the 
     determination described in subsection (a)(5)(B) for an 
     individual shall be reevaluated at least annually.
       ``(B) Exception.--The requirement of annual reevaluation 
     under subparagraph (A) may be waived during a period in 
     accordance with regulations in those cases in which the State 
     administering agency determines that there is no reasonable 
     expectation of improvement or significant change in an 
     individual's condition during the period because of the 
     advanced age, severity of the advanced age, severity of 
     chronic condition, or degree of impairment of functional 
     capacity of the individual involved.
       ``(4) Continuation of eligibility.--An individual who is a 
     PACE program eligible individual may be deemed to continue to 
     be such an individual notwithstanding a determination that 
     the individual no longer meets the requirement of subsection 
     (a)(5)(B) if, in accordance with regulations, in the absence 
     of continued coverage under a PACE program the individual 
     reasonably would be expected to meet such requirement within 
     the succeeding 6-month period.
       ``(5) Enrollment; disenrollment.--The enrollment and 
     disenrollment of PACE program eligible individuals in a PACE 
     program shall be pursuant to regulations and the PACE program 
     agreement and shall permit enrollees to voluntarily disenroll 
     without cause at any time. Such regulations and agreement 
     shall provide that the PACE program may not disenroll a PACE 
     program eligible individual on the ground that the individual 
     has engaged in noncompliant behavior if such behavior is 
     related to a mental or physical condition of the individual. 
     For purposes of the preceding sentence, the term 
     `noncompliant behavior' includes repeated noncompliance with 
     medical advice and repeated failure to appear for 
     appointments.
       ``(d) Payments to PACE Providers on a Capitated Basis.--
       ``(1) In general.--In the case of a PACE provider with a 
     PACE program agreement under this section, except as provided 
     in this subsection or by regulations, the State shall make 
     prospective monthly payments of a capitation amount for each 
     PACE program eligible individual enrolled under the agreement 
     under this section.
       ``(2) Capitation amount.--The capitation amount to be 
     applied under this subsection for a provider for a contract 
     year shall be an amount specified in the PACE program 
     agreement for the year. Such amount shall be an amount, 
     specified under the PACE agreement, which is less than the 
     amount that would otherwise have been made under the State 
     plan if the individuals were not so enrolled and shall be 
     adjusted to take into account the comparative frailty of PACE 
     enrollees and such other factors as the Secretary determines 
     to be appropriate. The payment under this section shall be in 
     addition to any payment made under section 1894 for 
     individuals who are enrolled in a PACE program under such 
     section.
       ``(e) PACE Program Agreement.--
       ``(1) Requirement.--
       ``(A) In general.--The Secretary, in close cooperation with 
     the State administering agency, shall establish procedures 
     for entering into, extending, and terminating PACE program 
     agreements for the operation of PACE programs by entities 
     that meet the requirements for a PACE provider under this 
     section, section 1894, and regulations.
       ``(B) Numerical limitation.--
       ``(i) In general.--The Secretary shall not permit the 
     number of PACE providers with which agreements are in effect 
     under this section or under section 9412(b) of the Omnibus 
     Budget Reconciliation Act of 1986 to exceed--

       ``(I) 40 as of the date of the enactment of this section, 
     or
       ``(II) as of each succeeding anniversary of such date, the 
     numerical limitation under this subparagraph for the 
     preceding year plus 20.

     Subclause (II) shall apply without regard to the actual 
     number of agreements in effect as of a previous anniversary 
     date.
       ``(ii) Treatment of certain private, for-profit 
     providers.--The numerical limitation in clause (i) shall not 
     apply to a PACE provider that--

       ``(I) is operating under a demonstration project waiver 
     under subsection (h), or
       ``(II) was operating under such a waiver and subsequently 
     qualifies for PACE provider status pursuant to subsection 
     (a)(3)(B)(ii).

       ``(2) Service area and eligibility.--
       ``(A) In general.--A PACE program agreement for a PACE 
     program--
       ``(i) shall designate the service area of the program;

[[Page S6639]]

       ``(ii) may provide additional requirements for individuals 
     to qualify as PACE program eligible individuals with respect 
     to the program;
       ``(iii) shall be effective for a contract year, but may be 
     extended for additional contract years in the absence of a 
     notice by a party to terminate, and is subject to termination 
     by the Secretary and the State administering agency at any 
     time for cause (as provided under the agreement);
       ``(iv) shall require a PACE provider to meet all applicable 
     State and local laws and requirements; and
       ``(v) shall have such additional terms and conditions as 
     the parties may agree to, provided that such terms and 
     conditions are consistent with this section and regulations.
       ``(B) Service area overlap.--In designating a service area 
     under a PACE program agreement under subparagraph (A)(i), the 
     Secretary (in consultation with the State administering 
     agency) may exclude from designation an area that is already 
     covered under another PACE program agreement, in order to 
     avoid unnecessary duplication of services and avoid impairing 
     the financial and service viability of an existing program.
       ``(3) Data collection; development of outcome measures.--
       ``(A) Data collection.--
       ``(i) In general.--Under a PACE program agreement, the PACE 
     provider shall--

       ``(I) collect data;
       ``(II) maintain, and afford the Secretary and the State 
     administering agency access to, the records relating to the 
     program, including pertinent financial, medical, and 
     personnel records; and
       ``(III) submit to the Secretary and the State administering 
     agency such reports as the Secretary finds (in consultation 
     with State administering agencies) necessary to monitor the 
     operation, cost, and effectiveness of the PACE program.

       ``(ii) Requirements during trial period.--During the first 
     3 years of operation of a PACE program (either under this 
     section or under a PACE demonstration waiver program), the 
     PACE provider shall provide such additional data as the 
     Secretary specifies in regulations in order to perform the 
     oversight required under paragraph (4)(A).
       ``(B) Development of outcome measures.--Under a PACE 
     program agreement, the PACE provider, the Secretary, and the 
     State administering agency shall jointly cooperate in the 
     development and implementation of health status and quality 
     of life outcome measures with respect to PACE program 
     eligible individuals.
       ``(4) Oversight.--
       ``(A) Annual, close oversight during trial period.--During 
     the trial period (as defined in subsection (a)(9)) with 
     respect to a PACE program operated by a PACE provider, the 
     Secretary (in cooperation with the State administering 
     agency) shall conduct a comprehensive annual review of the 
     operation of the PACE program by the provider in order to 
     assure compliance with the requirements of this section and 
     regulations. Such a review shall include--
       ``(i) an onsite visit to the program site;
       ``(ii) comprehensive assessment of a provider's fiscal 
     soundness;
       ``(iii) comprehensive assessment of the provider's capacity 
     to provide all PACE services to all enrolled participants;
       ``(iv) detailed analysis of the entity's substantial 
     compliance with all significant requirements of this section 
     and regulations; and
       ``(v) any other elements the Secretary or the State 
     administering agency considers necessary or appropriate.
       ``(B) Continuing oversight.--After the trial period, the 
     Secretary (in cooperation with the State administering 
     agency) shall continue to conduct such review of the 
     operation of PACE providers and PACE programs as may be 
     appropriate, taking into account the performance level of a 
     provider and compliance of a provider with all significant 
     requirements of this section and regulations.
       ``(C) Disclosure.--The results of reviews under this 
     paragraph shall be reported promptly to the PACE provider, 
     along with any recommendations for changes to the provider's 
     program, and shall be made available to the public upon 
     request.
       ``(5) Termination of pace provider agreements.--
       ``(A) In general.--Under regulations--
       ``(i) the Secretary or a State administering agency may 
     terminate a PACE program agreement for cause, and
       ``(ii) a PACE provider may terminate such an agreement 
     after appropriate notice to the Secretary, the State 
     administering agency, and enrollees.
       ``(B) Causes for termination.--In accordance with 
     regulations establishing procedures for termination of PACE 
     program agreements, the Secretary or a State administering 
     agency may terminate a PACE program agreement with a PACE 
     provider for, among other reasons, the fact that--
       ``(i) the Secretary or State administering agency 
     determines that--

       ``(I) there are significant deficiencies in the quality of 
     care provided to enrolled participants; or
       ``(II) the provider has failed to comply substantially with 
     conditions for a program or provider under this section or 
     section 1894; and

       ``(ii) the entity has failed to develop and successfully 
     initiate, within 30 days of the date of the receipt of 
     written notice of such a determination, a plan to correct the 
     deficiencies, or has failed to continue implementation of 
     such a plan.
       ``(C) Termination and transition procedures.--An entity 
     whose PACE provider agreement is terminated under this 
     paragraph shall implement the transition procedures required 
     under subsection (a)(2)(C).
       ``(6) Secretary's oversight; enforcement authority.--
       ``(A) In general.--Under regulations, if the Secretary 
     determines (after consultation with the State administering 
     agency) that a PACE provider is failing substantially to 
     comply with the requirements of this section and regulations, 
     the Secretary (and the State administering agency) may take 
     any or all of the following actions:
       ``(i) Condition the continuation of the PACE program 
     agreement upon timely execution of a corrective action plan.
       ``(ii) Withhold some or all further payments under the PACE 
     program agreement under this section or section 1894 with 
     respect to PACE program services furnished by such provider 
     until the deficiencies have been corrected.
       ``(iii) Terminate such agreement.
       ``(B) Application of intermediate sanctions.--Under 
     regulations, the Secretary may provide for the application 
     against a PACE provider of remedies described in section 
     1857(f)(2) (or, for periods before January 1, 1999, section 
     1876(i)(6)(B)) or 1903(m)(5)(B) in the case of violations by 
     the provider of the type described in section 1857(f)(1) (or 
     1876(i)(6)(A) for such periods) or 1903(m)(5)(A), 
     respectively (in relation to agreements, enrollees, and 
     requirements under section 1894 or this section, 
     respectively).
       ``(7) Procedures for termination or imposition of 
     sanctions.--Under regulations, the provisions of section 
     1857(g) (or for periods before January 1, 1999, section 
     1876(i)(9)) shall apply to termination and sanctions 
     respecting a PACE program agreement and PACE provider under 
     this subsection in the same manner as they apply to a 
     termination and sanctions with respect to a contract and a 
     Medicare Choice organization under part C of title XVIII (or 
     for such periods an eligible organization under section 
     1876).
       ``(8) Timely consideration of applications for pace program 
     provider status.--In considering an application for PACE 
     provider program status, the application shall be deemed 
     approved unless the Secretary, within 90 days after the date 
     of the submission of the application to the Secretary, either 
     denies such request in writing or informs the applicant in 
     writing with respect to any additional information that is 
     needed in order to make a final determination with respect to 
     the application. After the date the Secretary receives such 
     additional information, the application shall be deemed 
     approved unless the Secretary, within 90 days of such date, 
     denies such request.
       ``(f) Regulations.--
       ``(1) In general.--The Secretary shall issue interim final 
     or final regulations to carry out this section and section 
     1894.
       ``(2) Use of pace protocol.--
       ``(A) In general.--In issuing such regulations, the 
     Secretary shall, to the extent consistent with the provisions 
     of this section, incorporate the requirements applied to PACE 
     demonstration waiver programs under the PACE protocol.
       ``(B) Flexibility.--In order to provide for reasonable 
     flexibility in adapting the PACE service delivery model to 
     the needs of particular organizations (such as those in rural 
     areas or those that may determine it appropriate to use 
     nonstaff physicians according to State licensing law 
     requirements) under this section and section 1894, the 
     Secretary (in close consultation with State administering 
     agencies) may modify or waive provisions of the PACE protocol 
     so long as any such modification or waiver is not 
     inconsistent with and would not impair the essential 
     elements, objectives, and requirements of this section, but 
     may not modify or waive any of the following provisions:
       ``(i) The focus on frail elderly qualifying individuals who 
     require the level of care provided in a nursing facility.
       ``(ii) The delivery of comprehensive, integrated acute and 
     long-term care services.
       ``(iii) The interdisciplinary team approach to care 
     management and service delivery.
       ``(iv) Capitated, integrated financing that allows the 
     provider to pool payments received from public and private 
     programs and individuals.
       ``(v) The assumption by the provider of full financial 
     risk.
       ``(3) Application of certain additional beneficiary and 
     program protections.--
       ``(A) In general.--In issuing such regulations and subject 
     to subparagraph (B), the Secretary may apply with respect to 
     PACE programs, providers, and agreements such requirements of 
     part C of title XVIII (or, for periods before January 1, 
     1999, section 1876) and section 1903(m) relating to 
     protection of beneficiaries and program integrity as would 
     apply to Medicare Choice organizations under such part C (or 
     for such periods eligible organizations under risk-sharing 
     contracts under section 1876) and to health maintenance 
     organizations under prepaid capitation agreements under 
     section 1903(m).
       ``(B) Considerations.--In issuing such regulations, the 
     Secretary shall--
       ``(i) take into account the differences between populations 
     served and benefits provided under this section and under 
     part C of title XVIII (or, for periods before January 1, 
     1999, section 1876) and section 1903(m);
       ``(ii) not include any requirement that conflicts with 
     carrying out PACE programs under this section; and
       ``(iii) not include any requirement restricting the 
     proportion of enrollees who are eligible for benefits under 
     this title or title XVIII.
       ``(g) Waivers of Requirements.--With respect to carrying 
     out a PACE program under this section, the following 
     requirements of this title (and regulations relating to such 
     requirements) shall not apply:
       ``(1) Section 1902(a)(1), relating to any requirement that 
     PACE programs or PACE program services be provided in all 
     areas of a State.

[[Page S6640]]

       ``(2) Section 1902(a)(10), insofar as such section relates 
     to comparability of services among different population 
     groups.
       ``(3) Sections 1902(a)(23) and 1915(b)(4), relating to 
     freedom of choice of providers under a PACE program.
       ``(4) Section 1903(m)(2)(A), insofar as it restricts a PACE 
     provider from receiving prepaid capitation payments.
       ``(h) Demonstration Project for For-Profit Entities.--
       ``(1) In general.--In order to demonstrate the operation of 
     a PACE program by a private, for-profit entity, the Secretary 
     (in close consultation with State administering agencies) 
     shall grant waivers from the requirement under subsection 
     (a)(3) that a PACE provider may not be a for-profit, private 
     entity.
       ``(2) Similar terms and conditions.--
       ``(A) In general.--Except as provided under subparagraph 
     (B), and paragraph (1), the terms and conditions for 
     operation of a PACE program by a provider under this 
     subsection shall be the same as those for PACE providers that 
     are nonprofit, private organizations.
       ``(B) Numerical limitation.--The number of programs for 
     which waivers are granted under this subsection shall not 
     exceed 10. Programs with waivers granted under this 
     subsection shall not be counted against the numerical 
     limitation specified in subsection (e)(1)(B).
       ``(i) Post-Eligibility Treatment of Income.--A State may 
     provide for post-eligibility treatment of income for 
     individuals enrolled in PACE programs under this section in 
     the same manner as a State treats post-eligibility income for 
     individuals receiving services under a waiver under section 
     1915(c).
       ``(j) Miscellaneous Provisions.--Nothing in this section or 
     1894 shall be construed as preventing a PACE provider from 
     entering into contracts with other governmental or 
     nongovernmental payers for the care of PACE program eligible 
     individuals who are not eligible for benefits under part A, 
     or enrolled under part B, of title XVIII or eligible for 
     medical assistance under this title.''.
       (b) Conforming Amendments.--
       (1) Section 1902(j) (42 U.S.C. 1396a(j)), as amended by 
     section 5702(a)(2)(B), is amended by striking ``(26)'' and 
     inserting ``(27)''.
       (2) Section 1924(a)(5) (42 U.S.C. 1396r-5(a)(5)) is 
     amended--
       (A) in the heading, by striking ``from organizations 
     receiving certain waivers'' and inserting ``under pace 
     programs''; and
       (B) by striking ``from any organization'' and all that 
     follows and inserting ``under a PACE demonstration waiver 
     program (as defined in section 1932(a)(7)) or under a PACE 
     program under section 1932 or 1894.''.
       (3) Section 1903(f)(4)(C) (42 U.S.C. 1396b(f)(4)(C)) is 
     amended by inserting ``or who is a PACE program eligible 
     individual enrolled in a PACE program under section 1932,'' 
     after ``section 1902(a)(10)(A),''.

     SEC. 5742. EFFECTIVE DATE; TRANSITION.

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

     SEC. 5743. STUDY AND REPORTS.

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

           CHAPTER 4--MEDICAID MANAGEMENT AND PROGRAM REFORMS

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

       (a) Repeal of State Plan Provision.--Section 1902(a)(25) 
     (42 U.S.C. 1396a(a)(25)) is amended--
       (1) by striking subparagraph (G); and
       (2) by redesignating subparagraphs (H) and (I) as 
     subparagraphs (G) and (H), respectively.

[[Page S6641]]

       (b) Repeal of Enrollment Requirements.--Section 1906 (42 
     U.S.C. 1396e) is repealed.
       (c) Reinstatement of State Option.--Section 1905(a) (42 
     U.S.C. 1396a(a)) is amended, in the matter preceding clause 
     (i), by inserting ``(including, at State option, through 
     purchase or payment of enrollee costs of health insurance)'' 
     after ``The term `medical assistance' means payment''.

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

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

     SEC. 5753. PHYSICIAN QUALIFICATION REQUIREMENTS.

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

     SEC. 5754. EXPANDED COST-SHARING REQUIREMENTS.

       Section 1916 (42 U.S.C. 1396o) is amended by adding at the 
     end the following:
       ``(g)(1) Notwithstanding any other provision of this title, 
     the State plan may impose cost-sharing with respect to any 
     medical assistance provided to an individual who is not 
     described in section 1902(a)(10)(A)(i) in accordance with the 
     provisions of this subsection, except that no cost-sharing 
     may be imposed with respect to medical assistance provided to 
     an individual who has not attained age 18 if such 
     individual's family income does not exceed 150 percent of the 
     poverty line applicable to a family of the size involved, and 
     if, as of the date of enactment of the Balanced Budget Act of 
     1997, cost-sharing could not be imposed with respect to 
     medical assistance provided to such individual.
       ``(2) Any cost-sharing imposed under this subsection shall 
     be pursuant to a public schedule and shall reflect such 
     economic factors, employment status, and family size with 
     respect to each such individual as the State determines 
     appropriate.
       ``(3) In the case of any family whose income is less than 
     150 percent of the income official poverty line (as defined 
     by the Office of Management and Budget, and revised annually 
     in accordance with section 673(2) of the Omnibus Budget 
     Reconciliation Act of 1981) applicable to a family of the 
     size involved, the total annual amount of cost-sharing that 
     may be imposed for such family shall not exceed 3 percent of 
     the family's average gross monthly earnings (less the average 
     monthly costs for such child care as is necessary for the 
     employment of the caretaker relative) for such period.
       ``(4) In the case of any family whose income exceeds 150 
     percent, but does not exceed 200 percent of, such poverty 
     line, paragraph (3) shall be applied by substituting `5 
     percent' for `3 percent'.
       ``(5) Nothing in this subsection shall be construed as 
     preventing a State from imposing cost-sharing with respect to 
     individuals eligible for medical assistance under the State 
     plan, or with respect to items or services provided as 
     medical assistance under such plan, if the provisions of this 
     title otherwise allow the State to do so or if the State has 
     received a waiver that authorizes such cost-sharing.
       ``(6) Any cost-sharing imposed under this subsection may 
     not be included in determining the amount of the State 
     percentage required for reimbursement of expenditures under a 
     State plan under this title.
       ``(7) In this subsection, the term `cost-sharing' includes 
     copayments, deductibles, coinsurance, enrollment fees, 
     premiums, and other charges for the provision of health care 
     services.''.

     SEC. 5755. PENALTY FOR FRAUDULENT ELIGIBILITY.

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

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

       (a) Ban on Spending for Nonhealth Related Items.--Section 
     1903(i) (42 U.S.C. 1396b(i)) is amended--
       (1) in paragraphs (2) and (15), by striking the period at 
     the end and inserting ``; or'';
       (2) in paragraphs (10)(B), (11), and (13), by adding ``or'' 
     at the end; and
       (3) by inserting after paragraph (15), the following:
       ``(16) with respect to any amount expended for roads, 
     bridges, stadiums, or any other item or service not covered 
     under a State plan under this title.''.
       (b) Disclosure of Information and Surety Bond Requirement 
     for Suppliers of Durable Medical Equipment.--
       (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)), is 
     amended--
       (A) by striking ``and'' at the end of paragraph (62);
       (B) by striking the period at the end of paragraph (63) and 
     inserting ``; and''; and
       (C) by inserting after paragraph (63) the following:
       ``(64) provide that the State shall not issue or renew a 
     provider number for a supplier of medical assistance 
     consisting of durable medical equipment, as defined in 
     section 1861(n), for purposes of payment under this part for 
     such assistance that is furnished by the supplier, unless the 
     supplier provides the State agency on a continuing basis 
     with--
       ``(A)(i) full and complete information as to the identity 
     of each person with an ownership or control interest (as 
     defined in section 1124(a)(3)) in the supplier or in any 
     subcontractor (as defined by the Secretary in regulations) in 
     which the supplier directly or indirectly has a 5 percent or 
     more ownership interest; and
       (ii) to the extent determined to be feasible under 
     regulations of the Secretary, the name of any disclosing 
     entity (as defined in section 1124(a)(2)) with respect to 
     which a person with such an ownership or control interest in 
     the supplier is a person with such an ownership or control 
     interest in the disclosing entity; and
       ``(B) a surety bond in a form specified by the State and in 
     an amount that is not less than $50,000.''.
       (2) Effective Date.--The amendment made by paragraph (1) 
     shall apply to suppliers of medical assistance consisting of 
     durable medical equipment furnished on or after January 1, 
     1998.
       (c) Surety Bond Requirement for Home Health Agencies.--
       (1) In general.--Section 1905(a)(7) (42 U.S.C. 1396d(a)(7) 
     is amended by inserting ``, provided that the agency or 
     organization providing such services provides the State 
     agency on a continuing basis with a surety bond in a form 
     specified by the State and in an amount that is not less than 
     $50,000'' after ``services''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to home health agencies with respect to services 
     furnished on or after January 1, 1998.
       (d) Conflict of Interest Safeguards.--Section 1902(a)(4) 
     (42 U.S.C. 1396a(a)(4)) is amended to read as follows:
       ``(4) provide--
       ``(A) such methods of administration (including methods 
     relating to the establishment and maintenance of personnel 
     standards on a merit basis, except that the Secretary shall 
     exercise no authority with respect to the selection, tenure 
     of office, and compensation of any individual employed in 
     accordance with such methods, and including provision for 
     utilization of professional medical personnel in the 
     administration and, where administered locally, supervision 
     of administration of the plan) as are found by the Secretary 
     to be necessary for the proper and efficient operation of the 
     plan;
       ``(B) for the training and effective use of paid 
     subprofessional staff, with particular emphasis on the full-
     time or part-time employment of recipients and other persons 
     of low income, as community service aides, in the 
     administration of the plan and for the use of nonpaid or 
     partially paid volunteers in a social service volunteer 
     program in providing services to applicants and recipients 
     and in assisting any advisory committees established by the 
     State agency; and
       ``(C) that each State or local officer or employee, or 
     independent contractor--
       ``(i) who is responsible for the expenditure of substantial 
     amounts of funds under the State plan, or who is responsible 
     for administering the State plan under this title, each 
     individual who formerly was such an officer, employee, or 
     independent contractor, and each partner of such an officer, 
     employee, or independent contractor shall be prohibited from 
     committing any act, in relation to any activity under the 
     plan, the commission of which, in connection with any 
     activity concerning the United States Government, by an 
     officer or employee of the United States Government, an 
     individual who was such an officer or employee, or a partner 
     of such an officer or employee is prohibited by section 207 
     or 208 of title 18, United States Code; and
       ``(ii) who is responsible for selecting, awarding, or 
     otherwise obtaining items and services under the State plan 
     shall be subject to safeguards against conflicts of interest 
     that are at least as stringent as the safeguards that apply 
     under section 27 of the Office of Federal Procurement Policy 
     Act (41 U.S.C. 423) to persons described in subsection (a)(2) 
     of such section of that Act;''.
       (e) Authority to Refuse to Enter Into Medicaid Agreements 
     with Individuals or Entities Convicted of Felonies.--Section 
     1902(a)(23) (42 U.S.C. 1396a(a)(23)) is amended to read as 
     follows:
       ``(23) provide that--
       ``(A) any individual eligible for medical assistance 
     (including drugs) may obtain such assistance from any 
     institution, agency, community pharmacy, or person, qualified 
     to perform the service or services required (including an 
     organization which provides such services, or arranges for 
     their availability, on a prepayment basis), who undertakes to 
     provide him such services; and
       ``(B) an enrollment of an individual eligible for medical 
     assistance in a primary care case-management system 
     (described in section 1915(b)(1)), a health maintenance 
     organization, or a similar entity shall not restrict the 
     choice of the qualified person from whom the individual may 
     receive services under section 1905(a)(4)(C),
     except as provided in subsection (g) and in section 1915, 
     except in the case of Puerto Rico, the Virgin Islands, and 
     Guam, and except that nothing in this paragraph shall be 
     construed as requiring a State to provide medical assistance 
     for items or services furnished by a person or entity 
     convicted of a felony under Federal or State law for an 
     offense which the State agency determines is inconsistent 
     with the best interest of beneficiaries under the State 
     plan;''.
       (f) Monitoring Payments for Dual Eligibles.--The 
     Administrator of the Health Care Financing Administration 
     shall--

[[Page S6642]]

       (1) develop mechanisms to better monitor and prevent 
     inappropriate payments under the medicaid program under title 
     XIX of the Social Security Act (42 U.S.C. 1396 et seq.) in 
     the case of individuals who are dually eligible for benefits 
     under such program and under the medicare program under title 
     XVIII of such Act (42 U.S.C. 1395 et seq.);
       (2) study the use of case management or care coordination 
     in order to improve the appropriateness of care, quality of 
     care, and cost effectiveness of care for individuals who are 
     dually eligible for benefits under such programs; and
       (3) work with the States to ensure better care coordination 
     for dual eligibles and make recommendations to Congress as to 
     any statutory changes that would not compromise beneficiary 
     protections and that would improve or facilitate such care.
       (g) Beneficiary and Program Protection Against Waste, 
     Fraud, and Abuse.--Section 1902(a) (42 U.S.C. 1396a(a)), as 
     amended by subsection (b)(1), is amended--
       (1) by striking ``and'' at the end of paragraph (63);
       (2) by striking the period at the end of paragraph (64) and 
     inserting ``; and''; and
       (3) by inserting after paragraph (64) the following:
       ``(65) provide programs--
       ``(A) to ensure program integrity, protect and advocate on 
     behalf of individuals, and to report to the State data 
     concerning beneficiary concerns and complaints and instances 
     of beneficiary abuse or program waste or fraud by managed 
     care plans operating in the State under contact with the 
     State agency;
       ``(B) to provide assistance to beneficiaries, with 
     particular emphasis on the families of special needs children 
     and persons with disabilities to--
       ``(i) explain the differences between managed care and fee-
     for-service plans;
       ``(ii) clarify the coverage for such beneficiaries under 
     any managed care plan offered under the State plan under this 
     title;
       ``(iii) explain the implications of the choices between 
     competing plans;
       ``(iv) assist such beneficiaries in understanding their 
     rights under any managed care plan offered under the State 
     plan, including their right to--

       ``(I) access and benefits;
       ``(II) nondiscrimination;
       ``(III) grievance and appeal mechanisms; and
       ``(IV) change plans, as designated in the State plan; and

       ``(v) exercise the rights described in clause (iv); and
       ``(C) to collect and report to the State data on the number 
     of complaints or instances identified under subparagraph (A) 
     and to report to the State annually on any systematic 
     problems in the implementation of managed care entities 
     contracting with the State under the State plan under this 
     title.''.

     SEC. 5757. STUDY ON EPSDT BENEFITS.

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

     SEC. 5758. STUDY AND GUIDELINES REGARDING MANAGED CARE 
                   ORGANIZATIONS AND INDIVIDUALS WITH SPECIAL 
                   HEALTH CARE NEEDS.

       (a) Study and Recommendations.--The Secretary of Health and 
     Human Services (in this section referred to as the 
     ``Secretary''), in consultation with States, managed care 
     organizations, the National Academy of State Health Policy, 
     representatives of beneficiaries with special health care 
     needs, experts in specialized health care, and others, shall 
     conduct a study and develop the guidelines described in 
     subsection (b). Not later than 2 years after the date of 
     enactment of this Act, the Secretary shall report such 
     guidelines to Congress and make recommendations for 
     implementing legislation.
       (b) Guidelines Described.--The guidelines to be developed 
     by the Secretary shall relate to issues such as risk 
     adjustment, solvency, medical necessity definitions, case 
     management, quality controls, adequacy of provider networks, 
     access to specialists (including pediatric specialists and 
     the use of specialists as primary care providers), marketing, 
     compliance with the Americans with Disabilities Act of 1990 
     (42 U.S.C. 12101 et seq.), speedy grievance and appeals 
     procedures, data collection, and such other matters as the 
     Secretary may determine, as these issues affect care provided 
     to individuals with special health care needs and chronic 
     conditions in capitated managed care or primary care case 
     management plans. The Secretary shall distinguish which 
     guidelines should apply to primary care case management 
     arrangements, to capitated risk sharing arrangements, or to 
     both. Such guidelines should be designed to be used in 
     reviewing State proposals under title XIX of the Social 
     Security Act (42 U.S.C. 1396 et seq.) (by waiver request or 
     State plan amendment) to implement mandatory capitated 
     managed care or primary care case management arrangements 
     that enroll beneficiaries with chronic conditions or special 
     health care needs.

                        CHAPTER 5--MISCELLANEOUS

     SEC. 5761. INCREASED FMAPS.

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

     SEC. 5762. INCREASE IN PAYMENT CAPS FOR TERRITORIES.

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

     SEC. 5763. COMMUNITY-BASED MENTAL HEALTH SERVICES.

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

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

       (a) Coverage as Optional Categorically Needy Group.--
     Section 1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) is 
     amended--
       (1) in subclause (XI), by striking ``or'' at the end;
       (2) in subclause (XII), by adding ``or'' at the end; and
       (3) by adding at the end the following:

       ``(XIII) who are described in subsection (aa)(1)(relating 
     to certain CDC-screened breast cancer patients);''.

       (b) Group and Benefit Described.--Section 1902 (42 U.S.C. 
     1396a) is amended by adding at the end the following:
       ``(aa)(1) Individuals described in this paragraph are 
     individuals not described in subsection (a)(10)(A)(i) who--
       ``(A) have not attained age 65;
       ``(B) have been diagnosed with breast cancer through 
     participation in the program to screen women for breast and 
     cervical cancer conducted by the Director of the Centers for 
     Disease Control and Prevention under title 15 of the Public 
     Health Service Act (42 U.S.C. 300k et seq.);
       ``(C) satisfy the income and resource eligibility criteria 
     established by such Director for participation in such 
     program; and
       ``(D) are not otherwise eligible for medical assistance 
     under the State plan under this title.
       ``(2) For purposes of subsection (a)(10), the term ``breast 
     cancer-related services'' means

[[Page S6643]]

     each of the following services relating to treatment of 
     breast cancer:
       ``(A) Prescribed drugs.
       ``(B) Physicians' services and services described in 
     section 1905(a)(2).
       ``(C) Laboratory and X-ray services (including services to 
     confirm the presence of breast cancer).
       ``(D) Rural health clinic services and Federally-qualified 
     health center services.
       ``(E) Case management services (as defined in section 
     1915(g)(2)).
       ``(F) Services (other than room and board) designed to 
     encourage completion of regimens of prescribed drugs by 
     outpatients, including services to observe directly the 
     intake of prescribed drugs.''.
       (c) Limitation on Benefits.--Section 1902(a)(10) (42 U.S.C. 
     1396a(a)(10)) is amended in the matter following subparagraph 
     (F)--
       (1) by striking ``, and (XIII)''; and
       (2) by inserting before the semicolon at the end the 
     following: ``, and (XIV) the medical assistance made 
     available to an individual described in subsection (aa)(1) 
     who is eligible for medical assistance only because of 
     subparagraph (A)(ii)(XIII) shall be limited to medical 
     assistance for breast cancer-related services (described in 
     subsection (aa)(2))''.
       (d) Conforming Amendments.--
       (1) Section 1905(a) (42 U.S.C. 1396d(a)) is amended--
       (A) in clause (x), by striking ``or'' at the end;
       (B) in clause (xi), by adding ``or'' at the end;
       (C) by inserting after clause (xi) the following:
       ``(xii) individuals described in section 1902(aa)(1),''; 
     and
       (D) by striking paragraph (19) and inserting the following:
       ``(19) case management services (as defined in section 
     1915(g)(2)), TB-related services described in section 
     1902(z)(2)(F), and breast cancer-related services described 
     in section 1902)(2)(F);''.
       (2) Section 1915(g)(1) (42 U.S.C. 1396n(g)(1)) is amended 
     by inserting ``or section 1902(aa)(1)'' after ``section 
     1902(z)(1)(A)''.
       (e) Effective Date.--The amendments made by this section 
     apply to medical assistance furnished on or after October 1, 
     1997, without regard to whether or not final regulations to 
     carry out such amendments have been promulgated by such date.

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

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

     SEC. 5766. TREATMENT OF VETERANS PENSIONS UNDER MEDICAID.

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

     SEC. 5767. REMOVAL OF NAME FROM NURSE AIDE REGISTRY.

       (a) Medicare.--Section 1819(g)(1)(C) of the Social Security 
     Act (42 U.S.C. 1395i-3(g)(1)(C)) is amended--
       (1) in the first sentence by striking ``The State'' and 
     inserting ``(i) The State''; and
       (2) by adding at the end the following:
       ``(ii)(I) In the case of a finding of neglect, the State 
     shall establish a procedure to permit a nurse aide to 
     petition the State to have his or her name removed from the 
     registry upon a determination by the State that--
       ``(aa) the employment and personal history of the nurse 
     aide does not reflect a pattern of abusive behavior or 
     neglect; and
       ``(bb) the neglect involved in the original finding was a 
     singular occurrence.
       ``(II) In no case shall a determination on a petition 
     submitted under clause (I) be made prior to the expiration of 
     the 1-year period beginning on the date on which the name of 
     the petitioner was added to the registry under this 
     subparagraph.''.
       (b) Medicaid.--Section 1919(g)(1)(C) of the Social Security 
     Act (42 U.S.C. 1396r(g)(1)(C)) is amended--
       (1) in the first sentence by striking ``The State'' and 
     inserting ``(i) The State''; and
       (2) by adding at the end the following:
       ``(ii)(I) In the case of a finding of neglect, the State 
     shall establish a procedure to permit a nurse aide to 
     petition the State to have his or her name removed from the 
     registry upon a determination by the State that--
       ``(aa) the employment and personal history of the nurse 
     aide does not reflect a pattern of abusive behavior or 
     neglect; and
       ``(bb) the neglect involved in the original finding was a 
     singular occurrence.
       ``(II) In no case shall a determination on a petition 
     submitted under clause (I) be made prior to the expiration of 
     the 1-year period beginning on the date on which the name of 
     the petitioner was added to the registry under this 
     subparagraph.''.
       (c) Retroactive Review.--The procedures developed by a 
     State under the amendments made by subsection (a) and (b) 
     shall permit an individual to petition for a review of any 
     finding made by a State under section 1819(g)(1)(C) or 
     1919(g)(1)(C) of the Social Security Act (42 U.S.C. 1395i-
     3(g)(1)(C) or 1396r(g)(1)(C)) after January 1, 1995.
       (d) Study and Report.--
       (1) Study.--The Secretary of Health and Human Services 
     shall conduct a study of--
       (A) the use of nurse aide registries by States, including 
     the number of nurse aides placed on the registries on a 
     yearly basis and the circumstances that warranted their 
     placement on the registries;
       (B) the extent to which institutional environmental factors 
     (such as a lack of adequate training or short staffing) 
     contribute to cases of abuse and neglect at nursing 
     facilities; and
       (C) whether alternatives (such as a probational period 
     accompanied by additional training or mentoring or sanctions 
     on facilities that create an environment that encourages 
     abuse or neglect) to the sanctions that are currently applied 
     under the Social Security Act for abuse and neglect at 
     nursing facilities might be more effective in minimizing 
     future cases of abuse and neglect.
       (2) Report.--Not later than 2 years after the date of 
     enactment of this Act, the Secretary of Health and Human 
     Services shall prepare and submit to the appropriate 
     committees of Congress, a report concerning the results of 
     the study conducted under paragraph (1) and the 
     recommendation of the Secretary for legislation based on such 
     study.

     SEC. 5768. WAIVER OF CERTAIN PROVIDER TAX PROVISIONS.

       Notwithstanding any other provision of law, taxes, fees, or 
     assessments, as defined in section 1903(w)(3)(A) of the 
     Social Security Act (42 U.S.C. 1396b(w)(3)(A)), that were 
     collected by the State of New York from a health care 
     provider before June 1, 1997, and for which a waiver of the 
     provisions of subparagraph (B) or (C) of section 1903(w)(3) 
     of such Act has been applied for, or that would, but for this 
     paragraph require that such a waiver be applied for, in 
     accordance with subparagraph (E) of such section, and, (if so 
     applied for) upon which action by the Secretary of Health and 
     Human Services (including any judicial review of any such 
     proceeding) has not been completed as of the date of 
     enactment of this Act, are deemed to be permissible health 
     care related taxes and in compliance with the requirements of 
     subparagraphs (B) and (C) of sections 1903(w)(3) of such Act.

     SEC. 5769. CONTINUATION OF STATE-WIDE SECTION 1115 MEDICAID 
                   WAIVERS.

       (a) In General.--Section 1115 of the Social Security Act 
     (42 U.S.C. 1315) is amended by adding at the end the 
     following:
       ``(d)(1) The provisions of this subsection shall apply to 
     the extension of statewide comprehensive research and 
     demonstration projects (in this subsection referred to as 
     `waiver project') for which waivers of compliance with the 
     requirements of title XIX are granted under subsection (a). 
     With respect to a waiver project that, but for the enactment 
     of this subsection, would expire, the State at its option may 
     not later than 1 year before the waiver under subsection (a) 
     would expire (acting through the chief executive officer of 
     the State who is operating the project), submit to the 
     Secretary a written request for an extension of such waiver 
     project for up to 2 years.
       ``(2) The requirements of this paragraph are that the 
     waiver project--
       ``(A) has been successfully operated for 5 or more years; 
     and

[[Page S6644]]

       ``(B) has been shown, through independent evaluations 
     sponsored by the Health Care Financing Administration, to 
     successfully contain costs and provide access to health care.
       ``(3)(A) In the case of waiver projects described in 
     paragraph (1)(A), if the Secretary fails to respond to the 
     request within 6 months after the date on which the request 
     was submitted, the request is deemed to have been granted.
       ``(B) If the request is granted or deemed to have been 
     granted, the deadline for submittal of a final report shall 
     be 1 year after the date on which the waiver project would 
     have expired but for the enactment of this subsection.
       ``(C) The Secretary shall release an evaluation of each 
     such project not later than 1 year after the date of receipt 
     of the final report.
       ``(D) Phase-down provisions which were applicable to waiver 
     projects before an extension was provided under this 
     subsection shall not apply.
       ``(4) The extension of a waiver project under this 
     subsection shall be on the same terms and conditions 
     (including applicable terms and conditions related to quality 
     and access of services, budget neutrality as adjusted for 
     inflation, data and reporting requirements and special 
     population protections), except for any phase down 
     provisions, and subject to the same set of waivers that 
     applied to the project or were granted before the extension 
     of the project under this subsection. The permanent 
     continuation of a waiver project shall be on the same terms 
     and conditions, including financing, and subject to the same 
     set of waivers. No test of budget neutrality shall be applied 
     in the case of projects described in paragraph (2) after that 
     date on which the permanent extension was granted.
       ``(5) In the case of a waiver project described in 
     paragraph (2), the Secretary, acting through the Health Care 
     Financing Administration shall, deem any State's request to 
     expand medicaid coverage in whole or in part to individuals 
     who have an income at or below the Federal poverty level as 
     budget neutral if independent evaluations sponsored by the 
     Health Care Financing Administration have shown that the 
     State's medicaid managed care program under such original 
     waiver is more cost effective and efficient than the 
     traditional fee-for-service medicaid program that, in the 
     absence of any managed care waivers under this section, would 
     have been provided in the State.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall become effective on the date of enactment of this Act.

     SEC. 5770. EFFECTIVE DATE.

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

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

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

            ``TITLE XXI--CHILD HEALTH INSURANCE INITIATIVES

     ``SEC. 2101. PURPOSE.

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

     ``SEC. 2102. DEFINITIONS.

       ``In this title:
       ``(1) Base-year covered low-income child population.--The 
     term `base-year covered low-income child population' means 
     the total number of low-income children with respect to whom, 
     as of fiscal year 1996, an eligible State provides or pays 
     the cost of health benefits either through a State funded 
     program or through expanded eligibility under the State plan 
     under title XIX (including under a waiver of such plan), as 
     determined by the Secretary. Such term does not include any 
     low-income child described in paragraph (3)(A) that a State 
     must cover in order to be considered an eligible State under 
     this title.
       ``(2) Child.--The term `child' means an individual under 19 
     years of age.
       ``(3) Eligible state.--The term `eligible State' means, 
     with respect to a fiscal year, a State that--
       ``(A) provides, under section 1902(l)(1)(D) or under a 
     waiver, for eligibility for medical assistance under a State 
     plan under title XIX of individuals under 17 years of age in 
     fiscal year 1998, and under 19 years of age in fiscal year 
     2000, regardless of date of birth;
       ``(B) has submitted to the Secretary under section 2104 a 
     program outline that--
       ``(i) sets forth how the State intends to use the funds 
     provided under this title to provide health insurance 
     coverage for low-income children consistent with the 
     provisions of this title; and
       ``(ii) is approved under section 2104; and
       ``(iii) otherwise satisfies the requirements of this title; 
     and
       ``(C) satisfies the maintenance of effort requirement 
     described in section 2105(c)(5).
       ``(4) Federal medical assistance percentage.--The term 
     `Federal medical assistance percentage' means, with respect 
     to a State, the meaning given that term under section 
     1905(b). Any cost-sharing imposed under this title may not be 
     included in determining Federal medical assistance percentage 
     for reimbursement of expenditures under a State program 
     funded under this title.
       ``(5) FEHBP-equivalent children's health insurance 
     coverage.--The term `FEHBP-equivalent children's health 
     insurance coverage' means, with respect to a State, any plan 
     or arrangement that provides, or pays the cost of, health 
     benefits that the Secretary has certified are equivalent to 
     or better than the services covered for a child, including 
     hearing and vision services, under the standard Blue Cross/
     Blue Shield preferred provider option service benefit plan 
     offered under chapter 89 of title 5, United States Code.
       ``(6) Indians.--The term `Indians' has the meaning given 
     that term in section 4(c) of the Indian Health Care 
     Improvement Act (25 U.S.C. 1601 et seq.).
       ``(7) Low-income child.--The term `low-income child' means 
     a child in a family whose income is below 200 percent of the 
     poverty line for a family of the size involved.
       ``(8) Poverty line.--The term `poverty line' has the 
     meaning given that term in section 673(2) of the Community 
     Services Block Grant Act (42 U.S.C. 9902(2)), including any 
     revision required by such section.
       ``(9) Secretary.--The term `Secretary' means the Secretary 
     of Health and Human Services.
       ``(10) State.--The term `State' means each of the 50 
     States, the District of Columbia, Puerto Rico, Guam, the 
     Virgin Islands, American Samoa, and the Northern Mariana 
     Islands.
       ``(11) State children's health expenditures.--The term 
     `State children's health expenditures' means the State share 
     of expenditures by the State for providing children with 
     health care items and services under--
       ``(A) the State plan for medical assistance under title 
     XIX;
       ``(B) the maternal and child health services block grant 
     program under title V;
       ``(C) the preventive health services block grant program 
     under part A of title XIX of the Public Health Services Act 
     (42 U.S.C. 300w et seq.);
       ``(D) State-funded programs that are designed to provide 
     health care items and services to children;
       ``(E) school-based health services programs;
       ``(F) State programs that provide uncompensated or indigent 
     health care;
       ``(G) county-indigent care programs for which the State 
     requires a matching share by a county government or for which 
     there are intergovernmental transfers from a county to State 
     government; and
       ``(H) any other program under which the Secretary 
     determines the State incurs uncompensated expenditures for 
     providing children with health care items and services.
       ``(12) State medicaid program.--The term `State medicaid 
     program' means the program of medical assistance provided 
     under title XIX.

     ``SEC. 2103. APPROPRIATION.

       ``(a) Appropriation.--
       ``(1) In general.--Subject to subsection (b), out of any 
     money in the Treasury of the United States not otherwise 
     appropriated, there is appropriated for the purpose of 
     carrying out this title--
       ``(A) for fiscal year 1998, $2,500,000,000;
       ``(B) for each of fiscal years 1999 and 2000, 
     $3,200,000,000;
       ``(C) for fiscal year 2001, $3,600,000,000;
       ``(D) for fiscal year 2002, $3,500,000,000;
       ``(E) for each of fiscal years 2003 through 2007, 
     $4,580,000,000.
       ``(2) Availability.--Funds appropriated under this section 
     shall remain available without fiscal year limitation, as 
     provided under section 2105(b)(4).
       ``(b) Reduction for Increased Medicaid Expenditures.--With 
     respect to each of the fiscal years described in subsection 
     (a)(1), the amount appropriated under subsection (a)(1) for 
     each such fiscal year shall be reduced by an amount equal to 
     the amount of the total Federal outlays under the medicaid 
     program under title XIX resulting from--
       ``(1) the amendment made by section 5732 of the Balanced 
     Budget Act of 1997 (regarding the State option to provide 12-
     month continuous eligibility for children);
       ``(2) increased enrollment under State plans approved under 
     such program as a result of outreach activities under section 
     2106(a); and
       ``(3) the requirement under section 2102(3)A) to provide 
     eligibility for medical assistance under the State plan under 
     title XIX for all children under 19 years of age who have 
     families with income that is at or below the poverty line.
       ``(c) State Entitlement.--This title constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts provided in accordance with the 
     provisions of this title.
       ``(d) Effective Date.--No State is eligible for payments 
     under section 2105 for any calendar quarter beginning before 
     October 1, 1997.

[[Page S6645]]

     ``SEC. 2104. PROGRAM OUTLINE.

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

     ``SEC. 2105. DISTRIBUTION OF FUNDS.

       ``(a) Establishment of Funding Pools.--
       ``(1) In general.--From the amount appropriated under 
     section 2103(a)(1) for each fiscal year, determined after the 
     reduction required under section 2103(b), the Secretary 
     shall, for purposes of fiscal year 1998, reserve 85 percent 
     of such amount for distribution to eligible States through 
     the basic allotment pool under subsection (b) and 15 percent 
     of such amount for distribution through the new coverage 
     incentive pool under subsection (c)(2)(B)(ii).
       ``(2) Annual adjustment of reserve percentages.--The 
     Secretary shall annually adjust the amount of the percentages 
     described in paragraph (1) in order to provide sufficient 
     basic allotments and sufficient new coverage incentives to 
     achieve the purpose of this title.
       ``(b) Distribution of Funds Under the Basic Allotment 
     Pool.--
       ``(1) States.--
       ``(A) In general.--From the total amount reserved under 
     subsection (a) for a fiscal year for distribution through the 
     basic allotment pool, the Secretary shall first set aside 
     0.25 percent for distribution under paragraph (2) and shall 
     allot from the amount remaining to each eligible State not 
     described in such paragraph the State's allotment percentage 
     for such fiscal year.
       ``(B) State's allotment percentage.--
       ``(i) In general.--For purposes of subparagraph (A), the 
     allotment percentage for a fiscal year for each State is the 
     percentage equal to the ratio of the number of low-income 
     children in the base period in the State to the total number 
     of low-income children in the base period in all States not 
     described in paragraph (2).
       ``(ii) Number of low-income children in the base period.--
     In clause (i), the number of low-income children in the base 
     period for a fiscal year in a State is equal to the average 
     of the number of low-income children in the State for the 
     period beginning on October 1, 1992, and ending on September 
     30, 1995, as reported in the March 1994, March 1995, and 
     March 1996 supplements to the Current Population Survey of 
     the Bureau of the Census.
       ``(2) Other states.--
       ``(A) In general.--From the amount set aside under 
     paragraph (1)(A) for each fiscal year, the Secretary shall 
     make allotments for such fiscal year in accordance with the 
     percentages specified in subparagraph (B) to Puerto Rico, 
     Guam, the Virgin Islands, American Samoa, and the Northern 
     Mariana Islands, if such States are eligible States for such 
     fiscal year.
       ``(B) Percentages specified.--The percentages specified in 
     this subparagraph are in the case of--
       ``(i) Puerto Rico, 91.6 percent;
       ``(ii) Guam, 3.5 percent;
       ``(iii) the Virgin Islands, 2.6 percent;
       ``(iv) American Samoa, 1.2 percent; and
       ``(v) the Northern Mariana Islands, 1.1 percent.
       ``(3) Three-year availability of amounts allotted.--Amounts 
     allotted to a State pursuant to this subsection for a fiscal 
     year shall remain available for expenditure by the State 
     through the end of the second succeeding fiscal year.
       ``(4) Procedure for distribution of unused funds.--The 
     Secretary shall determine an appropriate procedure for 
     distribution of funds to eligible States that remain unused 
     under this subsection after the expiration of the 
     availability of funds required under paragraph (3). Such 
     procedure shall be developed and administered in a manner 
     that is consistent with the purpose of this title.
       ``(c) Payments.--
       ``(1) In general.--The Secretary shall--
       ``(A) before October 1 of any fiscal year, pay an eligible 
     State an amount equal to 1 percent of the amount allotted to 
     the State under subsection (b) for conducting the outreach 
     activities required under section 2106(a); and
       ``(B) make quarterly fiscal year payments to an eligible 
     State from the amount remaining of such allotment for such 
     fiscal year in an amount equal to the Federal medical 
     assistance percentage for the State (as defined under section 
     2102(4) and determined without regard to the amount of 
     Federal funds received by the State under title XIX before 
     the date of enactment of this title) of the Federal and State 
     incurred cost of providing health insurance coverage for a 
     low-income child in the State plus the applicable bonus 
     amount.
       ``(2) Applicable bonus.--
       ``(A) In general.--For purposes of paragraph (1), the 
     applicable bonus amount is--
       ``(i) 5 percent of the Federal and State incurred cost, 
     with respect to a period, of providing health insurance 
     coverage for children covered at State option among the base-
     year covered low-income child population (measured in full 
     year equivalency) (including such children covered by the 
     State through expanded eligibility under the medicaid program 
     under title XIX before the date of enactment of this title, 
     but excluding any low-income child described in section 
     2102(3)(A) that a State must cover in order to be considered 
     an eligible State under this title); and
       ``(ii) 10 percent of the Federal and State incurred cost, 
     with respect to a period, of providing health insurance 
     coverage for children covered at State option among the 
     number (as so measured) of low-income children that are in 
     excess of such population.
       ``(B) Source of bonuses.--
       ``(i) Base-year covered low-income child population.--A 
     bonus described in subparagraph (A)(i) shall be paid out of 
     an eligible State's allotment for a fiscal year.
       ``(ii) For other low-income child populations.--A bonus 
     described in subparagraph (A)(ii) shall be paid out of the 
     new coverage incentive pool reserved under subsection (a)(1).
       ``(3) Definition of cost of providing health insurance 
     coverage.--For purposes of this subsection the cost of 
     providing health insurance coverage for a low-income child in 
     the State means--
       ``(A) in the case of an eligible State that opts to use 
     funds provided under this title through the medicaid program, 
     the cost of providing such child with medical assistance 
     under the State plan under title XIX; and
       ``(B) in the case of an eligible State that opts to use 
     funds provided under this title under section 2107, the cost 
     of providing such child with health insurance coverage under 
     such section.
       ``(4) Limitation on total payments.--With respect to a 
     fiscal year, the total amount paid to an eligible State under 
     this title (including any bonus payments) shall not exceed 85 
     percent of the total cost of a State program conducted under 
     this title for such fiscal year.
       ``(5) Maintenance of effort.--
       ``(A) Deemed compliance.--A State shall be deemed to be in 
     compliance with this provision if--
       ``(i) it does not adopt income and resource standards and 
     methodologies that are more restrictive than those applied as 
     of June 1, 1997, for purposes of determining a child's 
     eligibility for medical assistance under the State plan under 
     title XIX; and
       ``(ii) in the case of fiscal year 1998 and each fiscal year 
     thereafter, the State children's health expenditures defined 
     in section 2102(11) are not less than the amount of such 
     expenditures for fiscal year 1996.
       ``(B) Failure to maintain medicaid standards and 
     methodologies.--A State that fails to meet the conditions 
     described in subparagraph (A) shall not receive--
       ``(i) funds under this title for any child that would be 
     determined eligible for medical assistance under the State 
     plan under title XIX using the income and resource standards 
     and methodologies applied under such plan as of June 1, 1997; 
     and
       ``(ii) any bonus amounts described in paragraph (2)(A)(ii).
       ``(C) Failure to maintain spending on child health 
     programs.--A State that fails to meet the condition described 
     in subparagraph (A)(ii) shall not receive funding under this 
     title.
       ``(6) Advance payment; retrospective adjustment.--The 
     Secretary may make payments under this subsection for each 
     quarter on the basis of advance estimates of expenditures 
     submitted by the State and such other investigation as the 
     Secretary may find necessary, and shall reduce or increase 
     the payments as necessary to adjust for any overpayment or 
     underpayment for prior quarters.

     ``SEC. 2106. USE OF FUNDS.

       ``(a) Set-Aside for Outreach Activities.--
       ``(1) In general.--From the amount allotted to a State 
     under section 2105(b) for a fiscal year, each State shall 
     conduct outreach activities described in paragraph (2).
       ``(2) Outreach activities described.--The outreach 
     activities described in this paragraph include activities 
     to--
       ``(A) identify and enroll children who are eligible for 
     medical assistance under the State plan under title XIX; and
       ``(B) conduct public awareness campaigns to encourage 
     employers to provide health insurance coverage for children.
       ``(b) State Options for Remainder.--A State may use the 
     amount remaining of the allotment to a State under section 
     2105(b) for a fiscal year, determined after the payment 
     required under section 2105(c)(1)(A), in accordance with 
     section 2107 or the State medicaid program (but not both). 
     Nothing in the preceding sentence shall be construed as 
     limiting a State's eligibility for receiving the 5 percent 
     bonus described in section 2105(c)(2)(A)(i) for children 
     covered by the State through expanded eligibility under the 
     medicaid program under title XIX before the date of enactment 
     of this title.
       ``(c) Prohibition On Use of Funds.--No funds provided under 
     this title may be used to provide health insurance coverage 
     for--

[[Page S6646]]

       ``(1) families of State public employees; or
       ``(2) children who are committed to a penal institution.
       ``(d) Use Limited to State Program Expenditures.--Funds 
     provided to an eligible State under this title shall only be 
     used to carry out the purpose of this title (as described in 
     section 2101), and any health insurance coverage provided 
     with such funds may include coverage of abortion only if 
     necessary to save the life of the mother or if the pregnancy 
     is the result of an act of rape or incest.
       ``(e) Administrative expenditures.--
       ``(1) In general.--Not more than the applicable percentage 
     of the amount allotted to a State under section 2105(b) for a 
     fiscal year, determined after the payment required under 
     section 2105(c)(1)(A), shall be used for administrative 
     expenditures for the program funded under this title.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage with respect to a fiscal year 
     is--
       ``(A) for the first 2 years of a State program funded under 
     this title, 10 percent;
       ``(B) for the third year of a State program funded under 
     this title, 7.5 percent; and
       ``(C) for the fourth year of a State program funded under 
     this title and each year thereafter, 5 percent.
       ``(f) Nonapplication of Five-Year Limited Eligibility for 
     Means-Tested Public Benefits.--The provisions of section 403 
     of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (8 U.S.C. 1613) shall not apply 
     with respect to a State program funded under this title.
       ``(g) Audits.--The provisions of section 506(b) shall apply 
     to funds expended under this title to the same extent as they 
     apply to title V.
       ``(h) Requirement to Follow State Program Outline.--The 
     State shall conduct the program in accordance with the 
     program outline approved by the Secretary under section 2104.

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

       ``(a) State Option.--
       ``(1) In general.--An eligible State that opts to use funds 
     provided under this title under this section shall use such 
     funds to provide FEHBP-equivalent children's health insurance 
     coverage for low-income children who reside in the State.
       ``(2) Priority for low-income children.--A State that uses 
     funds provided under this title under this section shall not 
     cover low-income children with higher family income without 
     covering such children with a lower family income.
       ``(3) Determination of eligibility and form of 
     assistance.--An eligible State may establish any additional 
     eligibility criteria for the provision of health insurance 
     coverage for a low-income child through funds provided under 
     this title, so long as such criteria and assistance are 
     consistent with the purpose and provisions of this title.
       ``(4) Affordability.--An eligible State may impose any 
     family premium obligations or cost-sharing requirements 
     otherwise permitted under this title on low-income children 
     with family incomes that exceed 150 percent of the poverty 
     line. In the case of a low-income child whose family income 
     is at or below 150 percent of the poverty line, limits on 
     beneficiary costs generally applicable under title XIX apply 
     to coverage provided such children under this section.
       ``(b) Nonentitlement.--Nothing in this section shall be 
     construed as providing an entitlement for an individual or 
     person to any health insurance coverage, assistance, or 
     service provided through a State program funded under this 
     title. If, with respect to a fiscal year, an eligible State 
     determines that the funds provided under this title are not 
     sufficient to provide health insurance coverage for all the 
     low-income children that the State proposes to cover in the 
     State program outline submitted under section 2104 for such 
     fiscal year, the State may adjust the applicable eligibility 
     criteria for such children appropriately or adjust the State 
     program in another manner specified by the Secretary, so long 
     as any such adjustments are consistent with the purpose of 
     this title.

     ``SEC. 2108. PROGRAM INTEGRITY.

       ``The following provisions of the Social Security Act shall 
     apply to eligible States under this title in the same manner 
     as such provisions apply to a State under title XIX:
       ``(1) Section 1116 (relating to administrative and judicial 
     review).
       ``(2) Section 1124 (relating to disclosure of ownership and 
     related information).
       ``(3) Section 1126 (relating to disclosure of information 
     about certain convicted individuals).
       ``(4) Section 1128 (relating to exclusion from individuals 
     and entities from participation in State health care plans).
       ``(5) Section 1128A (relating to civil monetary penalties).
       ``(6) Section 1128B (relating to criminal penalties).
       ``(7) Section 1132 (relating to periods within which claims 
     must be filed).
       ``(8) Section 1902(a)(4)(C) (relating to conflict of 
     interest standards).
       ``(9) Section 1903(i) (relating to limitations on payment).
       ``(10) Section 1903(m)(5) (as in effect on the day before 
     the date of enactment of the Balanced Budget Act of 1997).
       ``(11) Section 1903(w) (relating to limitations on provider 
     taxes and donations).
       ``(12) Section 1905(a)(B) (relating to the exclusion of 
     care or services for any individual who has not attained 65 
     years of age and who is a patient in an institution for 
     mental diseases from the definition of medical assistance).
       ``(13) Section 1921 (relating to state licensure 
     authorities).
       ``(14) Sections 1902(a)(25), 1912(a)(1)(A), and 1903(o) 
     (insofar as such sections relate to third party liability).
       ``(15) Sections 1948 and 1949 (as added by section 
     5701(a)(2) of the Balanced Budget Act of 1997).

     ``SEC. 2109. ANNUAL REPORTS.

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

                       CHAPTER 1--INCOME SECURITY

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

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

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

       (a) SSI.--Section 402(a)(2)(A) of the Personal 
     Responsibility and Work Opportunity Reconciliation Act of 
     1996 (8 U.S.C. 1612(a)(2)(A)) is amended to read as follows:
       ``(A) Time-limited exception for refugees and asylees.--
       ``(i) SSI.--With respect to the specified Federal program 
     described in paragraph (3)(A) paragraph 1 shall not apply to 
     an alien until 7 years after the date--

       ``(I) an alien is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act;
       ``(II) an alien is granted asylum under section 208 of such 
     Act; or
       ``(III) an alien's deportation is withheld under section 
     243(h) of such Act.

       ``(ii) Food stamps.--With respect to the specified Federal 
     program described in paragraph (3)(B), paragraph 1 shall not 
     apply to an alien until 5 years after the date--

       ``(I) an alien is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act;
       ``(II) an alien is granted asylum under section 208 of such 
     Act; or
       ``(III) an alien's deportation is withheld under section 
     243(h) of such Act.''.

       (b) Medicaid.--Section 402(b)(2)(A) of the Personal 
     Responsibility and Work Opportunity Reconciliation Act of 
     1996 (8 U.S.C. 1612(b)(2)(A)) is amended to read as follows:
       ``(A) Time-limited exception for refugees and asylees.--
       ``(i) Medicaid.--With respect to the designated Federal 
     program described in paragraph (3)(C), paragraph 1 shall not 
     apply to an alien until 7 years after the date--

       ``(I) an alien is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act;
       ``(II) an alien is granted asylum under section 208 of such 
     Act; or
       ``(III) an alien's deportation is withheld under section 
     243(h) of such Act.

       ``(ii) Other designated federal programs.--With respect to 
     the designated Federal programs under paragraph (3) (other 
     than subparagraph (C)), paragraph 1 shall not apply to an 
     alien until 5 years after the date--

       ``(I) an alien is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act;
       ``(II) an alien is granted asylum under section 208 of such 
     Act; or
       ``(III) an alien's deportation is withheld under section 
     243(h) of such Act.''.

[[Page S6647]]

       (c) Status of Cuban and Haitian Entrants.--For purposes of 
     sections 402(a)(2)(A) and 402(b)(2)(A) of the Personal 
     Responsibility and Work Opportunity Reconciliation Act of 
     1996 (8 U.S.C. 1612(a)(2)(A), (b)(2)(A)), an alien who is a 
     Cuban and Haitian entrant, as defined in section 501(e) of 
     the Refugee Education Assistance Act of 1980, shall be 
     considered a refugee.

     SEC. 5813. EXCEPTIONS FOR CERTAIN INDIANS FROM LIMITATION ON 
                   ELIGIBILITY FOR SUPPLEMENTAL SECURITY INCOME 
                   AND MEDICAID BENEFITS.

       (a) Exception from Limitation on SSI Eligibility.--Section 
     402(a)(2) of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)) is amended--
       (1) by redesignating subparagraph (D) and subparagraph (E); 
     and
       (2) by inserting after subparagraph (C) the following:
       ``(D) SSI exception for certain indians.--With respect to 
     eligibility for benefits for the program defined in paragraph 
     (3)(A) (relating to the supplemental security income 
     program), paragraph (1) shall not apply to any individual--
       ``(i) who is an American Indian born in Canada to whom the 
     provisions of section 289 of the Immigration and Nationality 
     Act (8 U.S.C. 1358) apply; or
       ``(ii) who is a member of an Indian tribe (as defined in 
     section 4(e) of the Indian Self-Determination and Education 
     Assistance Act (25 U.S.C. 450b(e)).''.
       (b) Exception from Limitation on Medicaid Eligibility.--
     Section 402(b)(2) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(b)(2)) 
     is amended--
       (1) by redesignating subparagraph (D) and subparagraph (E); 
     and
       (2) by inserting after subparagraph (C) the following:
       ``(D) Medicaid exception for certain indians.--With respect 
     to eligibility for benefits for the program defined in 
     paragraph (3)(A) (relating to the medicaid program), 
     paragraph (1) shall not apply to any individual described in 
     subsection (a)(2)(D).''.
       (c) SSI and Medicaid Exceptions from Limitation on 
     Eligibility of New Entrants.--Section 403(b) of the Personal 
     Responsibility and Work Opportunity Reconciliation Act of 
     1996 (8 U.S.C. 1613(b)) is amended by adding at the end the 
     following:
       ``(3) SSI and medicaid exception for certain indians.--An 
     individual described in section 402(a)(2)(D), but only with 
     respect to the programs specified in subsections (a)(3)(A) 
     and (b)(3)(C) of section 402.''.
       (d) Effective Date.--
       (1) Section 402.--The amendments made by subsections (a) 
     and (b) shall take effect as though they had been included in 
     the enactment of section 402 of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.
       (2) Section 403.--The amendment made by subsection (c) 
     shall take effect as though they had been included in the 
     enactment of section 403 of the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996.

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

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

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

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

     SEC. 5816. REINSTATEMENT OF ELIGIBILITY FOR BENEFITS.

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

     ``SEC. 436. DERIVATIVE ELIGIBILITY FOR BENEFITS.

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

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

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

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

     SEC. 5818. TREATMENT OF CERTAIN AMERASIAN IMMIGRANTS AS 
                   REFUGEES.

       (a) Amendments to Exceptions for Refugees/Asylees.--
       (1) For purposes of ssi and food stamps.--Section 
     402(a)(2)(A) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1612(a)(2)(A)) is amended--
       (A) by striking ``; or'' at the end of clause (ii);
       (B) by striking the period at the end of clause (iii) and 
     inserting ``; or''; and
       (C) by adding at the end the following:
       ``(iv) an alien who is admitted to the United States as an 
     Amerasian immigrant pursuant to section 584 of the Foreign 
     Operations, Export Financing, and Related Programs 
     Appropriations Act, 1988 (as contained in section 101(e) of 
     Public Law 100-202 and amended by the 9th proviso under 
     migration and refugee assistance in title II of the Foreign 
     Operations, Export Financing, and Related Programs 
     Appropriations Act, 1989, Public Law 100-461, as amended).''.
       (2) For purposes of tanf, ssbg, and medicaid.--Section 
     402(b)(2)(A) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1612(a)(2)(A)) is amended--
       (A) by striking ``; or'' at the end of clause (ii);
       (B) by striking the period at the end of clause (iii) and 
     inserting ``; or''; and
       (C) by adding at the end the following:
       ``(iv) an alien described in subsection (a)(2)(A)(iv) until 
     5 years after the date of such alien's entry into the United 
     States.''.
       (3) For purposes of exception from 5-year limited 
     eligibility of qualified aliens.--Section 403(b)(1) of the 
     Personal Responsibility and Work Opportunity Reconciliation 
     Act of 1996 (8 U.S.C. 1613(b)(1)) is amended by adding at the 
     end the following:
       ``(D) An alien described in section 402(a)(2)(A)(iv).''.
       (4) For purposes of certain state programs.--Section 
     412(b)(1) of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (8 U.S.C. 1622(b)(1)) is amended 
     by adding at the end the following new subparagraph:
       ``(D) An alien described in section 402(a)(2)(A)(iv).''.
       (b) Funding.--
       (1) Levy of fee.--The Attorney General through the 
     Immigration and Naturalization Service shall levy a $100 
     processing fee upon each alien that the Service determines--
       (A) is unlawfully residing in the United States;
       (B) has been arrested by a Federal law enforcement officer 
     for the commission of a felony; and
       (C) merits deportation after having been determined by a 
     court of law to have committed a felony while residing 
     illegally in the United States.
       (2) Collection and use.--In addition to any other penalty 
     provided by law, a court shall impose the fee described in 
     paragraph (1) upon an alien described in such paragraph upon 
     the entry of a judgment of deportation by such court. Funds 
     collected pursuant to this subsection shall be credited by 
     the Secretary of the Treasury as offsetting increased Federal 
     outlays resulting from the amendments made by section 5817A 
     of the Balanced Budget Act of 1997.
       (c) Effective Date.--The amendments made by this section 
     shall be effective with respect to the period beginning on or 
     after October 1, 1997.

     SEC. 5819. SSI ELIGIBILITY FOR SEVERELY DISABLED ALIENS.

       Section 402(a)(2) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (8 U.S.C. 1612(a)(2)), 
     as amended by section 5815, is amended by adding at the end 
     the following:
       ``(I) Ssi exception for severely disabled aliens.--With 
     respect to eligibility for benefits for the program defined 
     in paragraph (3)(A) (relating to the supplemental security 
     income program), paragraph (1), and the September 30, 1997 
     application deadline under subparagraph (G), shall not apply 
     to any alien who is lawfully present in the United States and 
     who has been denied approval of an application for 
     naturalization by the Attorney General solely on the ground 
     that the alien is so severely disabled that the alien is 
     otherwise unable to satisfy the requirements for 
     naturalization.''.

[[Page S6648]]

     SEC. 5820. EFFECTIVE DATE.

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

                CHAPTER 2--WELFARE-TO-WORK GRANT PROGRAM

     SEC. 5821. WELFARE-TO-WORK GRANTS.

       (a) Grants to States.--
       (1) In general.--Section 403(a) (42 U.S.C. 603(a)) is 
     amended by adding at the end the following:
       ``(5) Welfare-to-work grants.--
       ``(A) Noncompetitive grants.--
       ``(i) Entitlement.--A State shall be entitled to receive 
     from the Secretary a grant for each fiscal year specified in 
     subparagraph (H) of this paragraph for which the State is a 
     welfare-to-work State, in an amount that does not exceed the 
     greater of--

       ``(I) the allotment of the State under clause (iii) of this 
     subparagraph for the fiscal year; or
       ``(II) 0.5 percent of the amount specified in subparagraph 
     (H) for each fiscal year minus the total of the amounts 
     reserved pursuant to subparagraphs (E), (F), and (G) for the 
     fiscal year.

     The Secretary shall make pro rata reductions in the amounts 
     otherwise payable to States under this paragraph as necessary 
     so that grants under this paragraph do not exceed the 
     available amount, as defined in clause (iv).
       ``(ii) Welfare-to-work state.--A State shall be considered 
     a welfare-to-work State for a fiscal year for purposes of 
     this subparagraph if the Secretary determines that the State 
     meets the following requirements:

       ``(I) The State has submitted to the Secretary (in the form 
     of an addendum to the State plan submitted under section 402) 
     a plan which--

       ``(aa) describes how, consistent with this subparagraph, 
     the State will use any funds provided under this subparagraph 
     during the fiscal year;
       ``(bb) specifies the formula to be used pursuant to clause 
     (vi) to distribute funds in the State, and describes the 
     process by which the formula was developed;
       ``(cc) contains evidence that the plan was developed in 
     consultation and coordination with sub-State areas; and
       ``(dd) is approved by the agency administering the State 
     program funded under this part.

       ``(II) The State certifies to the Secretary that the State 
     intends to expend during the fiscal year (excluding 
     expenditures described in section 409(a)(7)(B)(iv)) for 
     activities described in clauses (i) and (ii) of subparagraph 
     (C) of this paragraph an amount equal to not less than 33 
     percent of the Federal funds provided under this paragraph.
       ``(III) The State has agreed to negotiate in good faith 
     with the Secretary with respect to the substance of any 
     evaluation under section 413(j), and to cooperate with the 
     conduct of any such evaluation.
       ``(IV) The State is an eligible State for the fiscal year.
       ``(V) Qualified State expenditures (within the meaning of 
     section 409(a)(7)) are the applicable percentage for the 
     immediately preceding fiscal year, as defined by section 
     409(a)(7)(B)(ii).

       ``(iii) Allotments to welfare-to-work states.--The 
     allotment of a welfare-to-work State for a fiscal year shall 
     be the available amount for the fiscal year multiplied by the 
     State percentage for the fiscal year.
       ``(iv) Available amount.--As used in this subparagraph, the 
     term `available amount' means, for a fiscal year, the sum 
     of--

       ``(I) 75 percent of the sum of--

       ``(aa) the amount specified in subparagraph (H) for the 
     fiscal year, minus the total of the amounts reserved pursuant 
     to subparagraphs (E), (F), and (G) for the fiscal year; and
       ``(bb) any amount reserved pursuant to subparagraph (F) for 
     the immediately preceding fiscal year that has not been 
     obligated; and

       ``(II) any available amount for the immediately preceding 
     fiscal year that has not been obligated by a State or sub-
     State entity.

       ``(v) State percentage.--As used in clause (iii), the term 
     `State percentage' means, with respect to a fiscal year, \1/
     3\ of the sum of--

       ``(I) the percentage represented by the number of 
     individuals in the State whose income is less than the 
     poverty line divided by the number of such individuals in the 
     United States;
       ``(II) the percentage represented by the number of 
     unemployed individuals in the State divided by the number of 
     such individuals in the United States; and
       ``(III) the percentage represented by the number of 
     individuals who are adult recipients of assistance under the 
     State program funded under this part divided by the number of 
     individuals in the United States who are adult recipients of 
     assistance under any State program funded under this part.

       ``(vi) Distribution of funds within states.--

       ``(I) In general.--A State to which a grant is made under 
     this subparagraph shall distribute not less than 85 percent 
     of the grant funds among the political subdivisions in the 
     State in which the percentage represented by the number of 
     individuals in the State whose income is less than the 
     poverty line divided by the number of such individuals in the 
     State, and the percentage represented by the number of 
     unemployed individuals in the State divided by the number of 
     such individuals in the State are both above the average such 
     percentages for the State, in accordance with a formula 
     which--

       ``(aa) determines the amount to be distributed for the 
     benefit of a political subdivision in proportion to the 
     number (if any) of individuals residing in the political 
     subdivision with an income that is less than the poverty 
     line, relative to such number of individuals for the other 
     political subdivisions in the State, and accords a weight of 
     not less than 50 percent to this factor;
       ``(bb) may determine the amount to be distributed for the 
     benefit of a political subdivision in proportion to the 
     number of adults residing in the political subdivision who 
     are recipients of assistance under the State program funded 
     under this part (whether in effect before or after the 
     amendments made by section 103(a) of the Personal 
     Responsibility and Work Opportunity Reconciliation Act first 
     applied to the State) for at least 30 months (whether or not 
     consecutive) relative to the number of such adults residing 
     in the other political subdivisions in the State; and
       ``(cc) may determine the amount to be distributed for the 
     benefit of a political subdivision in proportion to the 
     number of unemployed individuals residing in the political 
     subdivision relative to the number of such individuals 
     residing in the other political subdivisions in the State.

       ``(II) Special rule.--Notwithstanding subclause (I), if the 
     formula used pursuant to subclause (I) would result in the 
     distribution of less than $100,000 during a fiscal year for 
     the benefit of a political subdivision, then in lieu of 
     distributing such sum in accordance with the formula, such 
     sum shall be available for distribution under subclause (III) 
     during the fiscal year.
       ``(III) Projects to help long-term recipients of assistance 
     into the work force.--The Governor of a State to which a 
     grant is made under this subparagraph may distribute not more 
     than 15 percent of the grant funds (plus any amount required 
     to be distributed under this subclause by reason of subclause 
     (II)) to projects that appear likely to help long-term 
     recipients of assistance under the State program funded under 
     this part (whether in effect before or after the amendments 
     made by section 103(a) of the Personal Responsibility and 
     Work Opportunity Reconciliation Act first applied to the 
     State) enter the work force.

       ``(vii) Administration.--

       ``(I) In general.--A grant made under this subparagraph to 
     a State shall be administered by the State agency that is 
     administering, or supervising the administration of, the 
     State program funded under this part.

       ``(B) Competitive grants.--
       ``(i) In general.--The Secretary shall award grants in 
     accordance with this subparagraph, in fiscal years 1998 and 
     2000, for projects proposed by eligible applicants, based on 
     the following:

       ``(I) The effectiveness of the proposal in--

       ``(aa) expanding the base of knowledge about programs aimed 
     at moving recipients of assistance under State programs 
     funded under this part who are least job ready into the work 
     force.
       ``(bb) moving recipients of assistance under State programs 
     funded under this part who are least job ready into the work 
     force; and
       ``(cc) moving recipients of assistance under State programs 
     funded under this part who are least job ready into the work 
     force, even in labor markets that have a shortage of low-
     skill jobs.

       ``(II) At the discretion of the Secretary, any of the 
     following:

       ``(aa) The history of success of the applicant in moving 
     individuals with multiple barriers into work.
       ``(bb) Evidence of the applicant's ability to leverage 
     private, State, and local resources.
       ``(cc) Use by the applicant of State and local resources 
     beyond those required by subparagraph (A).
       ``(dd) Plans of the applicant to coordinate with other 
     organizations at the local and State level.
       ``(ee) Use by the applicant of current or former recipients 
     of assistance under a State program funded under this part as 
     mentors, case managers, or service providers.

       ``(III) Evidence that the proposal has the approval of the 
     State agency administering the program under this part.

       ``(ii) Eligible applicants.--As used in clause (i), the 
     term `eligible applicant' means a political subdivision of a 
     State or a community action agency, community development 
     corporation or other non-profit organizations with 
     demonstrated effectiveness in moving welfare recipients into 
     the workforce that submits a proposal that is approved by the 
     agency administering the State program funded under this 
     part.
       ``(iii) Determination of grant amount.--In determining the 
     amount of a grant to be made under this subparagraph for a 
     project proposed by an applicant, the Secretary shall provide 
     the applicant with an amount sufficient to ensure that the 
     project has a reasonable opportunity to be successful, taking 
     into account the number of long-term recipients of assistance 
     under a State program funded under this part, the level of 
     unemployment, the job opportunities and job growth, the 
     poverty rate, and such other factors as the Secretary deems 
     appropriate, in the area to be served by the project.
       ``(iv) Targeting of funds to rural areas.--

       ``(I) In general.--The Secretary shall use not less than 30 
     percent of the funds available for grants under this 
     subparagraph for a fiscal year to award grants for 
     expenditures in rural areas.
       ``(II) Rural area defined.--As used in subclause (I), the 
     term `rural area' means a city, town, or unincorporated area 
     that has a population of 50,000 or fewer inhabitants and that 
     is not an urbanized area immediately adjacent to a city, 
     town, or unincorporated area that has a population of more 
     than 50,000 inhabitants.

       ``(v) Funding.--For grants under this subparagraph for each 
     fiscal year specified in subparagraph (H), there shall be 
     available to the Secretary an amount equal to the sum of--

       ``(I) 25 percent of the sum of--

       ``(aa) the amount specified in subparagraph (H) for the 
     fiscal year, minus the total of the amounts reserved pursuant 
     to subparagraphs (E), (F), and (G) for the fiscal year; and
       ``(bb) any amount reserved pursuant to subparagraph (F) for 
     the immediately preceding fiscal year that has not been 
     obligated; and

       ``(II) any amount available for grants under this 
     subparagraph for the immediately preceding fiscal year that 
     has not been obligated.

[[Page S6649]]

       ``(C) Limitations on use of funds.--
       ``(i) Allowable activities.--An entity to which funds are 
     provided under this paragraph may use the funds to move into 
     the work force recipients of assistance under the program 
     funded under this part of the State in which the entity is 
     located and the noncustodial parent of any minor who is such 
     a recipient, by means of any of the following:

       ``(I) Job creation through public or private sector 
     employment wage subsidies.
       ``(II) On-the-job training.
       ``(III) Contracts with public or private providers of 
     readiness, placement, and post-employment services.
       ``(IV) Job vouchers for placement, readiness, and post-
     employment services.
       ``(V) Job support services (excluding child care services) 
     if such services are not otherwise available.
       ``(VI) Technical assistance and related services that lead 
     to self-employment through the microloan demonstration 
     program under section 7(m) of the Small Business Act (15 
     U.S.C. 636(m)).

     Contracts or vouchers for job placement services supported by 
     these funds must require that at least \1/2\ of the payment 
     occur after a eligible individual placed into the workforce 
     has been in the workforce for 6 months.
       ``(ii) Required beneficiaries.--An entity that operates a 
     project with funds provided under this paragraph shall expend 
     at least 90 percent of all funds provided to the project for 
     the benefit of recipients of assistance under the program 
     funded under this part of the State in which the entity is 
     located who meet the requirements of either of the following 
     subclauses:

       ``(I) At least 2 of the following apply to the recipient:

       ``(aa) The individual has not completed secondary school or 
     obtained a certificate of general equivalency, and has low 
     skills in reading and mathematics.
       ``(bb) The individual requires substance abuse treatment 
     for employment.
       ``(cc) The individual has a poor work history.

     The Secretary shall prescribe such regulations as may be 
     necessary to interpret this subclause.
       ``(II) The individual--

       ``(aa) has received assistance under the State program 
     funded under this part (whether in effect before or after the 
     amendments made by section 103 of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996 first apply 
     to the State) for at least 30 months (whether or not 
     consecutive); or
       ``(bb) within 12 months, will become ineligible for 
     assistance under the State program funded under this part by 
     reason of a durational limit on such assistance, without 
     regard to any exemption provided pursuant to section 
     408(a)(7)(C) that may apply to the individual.
       ``(iii) Limitation on applicability of section 404.--The 
     rules of section 404, other than subsections (b), (f), and 
     (h) of section 404, shall not apply to a grant made under 
     this paragraph.
       ``(iv) Cooperation with tanf agency.--On a determination by 
     the Secretary an entity that operates a project with funds 
     provided under this paragraph and the agency administering 
     the State program funded under this part are not adhering to 
     the agreement to implement any plan or project for which the 
     funds are provided, the recipient of the funds shall remit 
     the funds to the Secretary.
       ``(v) Prohibition against use of grant funds for any other 
     fund matching requirement.--An entity to which funds are 
     provided under this paragraph shall not use any part of the 
     funds to fulfill any obligation of any State, or political 
     subdivision to contribute funds under other Federal law.
       ``(vi) Deadline for expenditure.--An entity to which funds 
     are provided under this paragraph shall remit to the 
     Secretary any part of the funds that are not expended within 
     3 years after the date the funds are so provided.
       ``(D) Individuals with income less than the poverty line.--
     For purposes of this paragraph, the number of individuals 
     with an income that is less than the poverty line shall be 
     determined based on the methodology used by the Bureau of the 
     Census to produce and publish intercensal poverty data for 
     1993 for States and counties.
       ``(E) Set-aside for high performance bonus.--$100,000,000 
     of the amount specified in subparagraph (H) for fiscal year 
     1999 shall be reserved for use by the Secretary to make bonus 
     grants (in the same manner as such grants are determined 
     under paragraph (4)) for fiscal year 2003 to those States 
     that receive funds under this paragraph and that are most 
     successful in increasing the earnings of individuals 
     described in subparagraph (C)(ii)(II).
       ``(F) Set-aside for indian tribes.--1 percent of the amount 
     specified in subparagraph (H) for each fiscal year shall be 
     reserved for grants to Indian tribes under section 412(a)(3).
       ``(G) Set-aside for evaluations.--0.5 percent of the amount 
     specified in subparagraph (H) for each fiscal year shall be 
     reserved for use by the Secretary to carry out section 
     413(j).
       ``(H) Funding.--The amount specified in this subparagraph 
     is--
       ``(i) $750,000,000 for fiscal year 1998;
       ``(ii) $1,250,000,000 for fiscal year 1999; and
       ``(iii) $1,000,000,000 for fiscal year 2000.
       ``(I) Availability of funds.--Amounts appropriated pursuant 
     to this paragraph shall remain available through fiscal year 
     2002.
       ``(J) Budget scoring.--Notwithstanding section 457(b)(2) of 
     the Balanced Budget and Emergency Deficit Control Act of 
     1985, the baseline shall assume that no grant shall be 
     awarded under this paragraph or under section 412(a)(3) after 
     fiscal year 2000.
       ``(K) Nondisplacement in Work Activities.--
       ``(i) Prohibitions.--

       ``(I) General prohibition.--A participant in a work 
     activity pursuant to this paragraph shall not displace 
     (including a partial displacement, such as a reduction in the 
     hours of nonovertime work, wages, or employment benefits) any 
     individual who, as of the date of the participation, is an 
     employee.
       ``(II) Prohibition on impairment of contracts.--A work 
     activity pursuant to this paragraph shall not impair an 
     existing contract for services or collective bargaining 
     agreement, and a work activity that would be inconsistent 
     with the terms of a collective bargaining agreement shall not 
     be undertaken without the written concurrence of the labor 
     organization and employer concerned.
       ``(III) Other prohibitions.--A participant in a work 
     activity shall not be employed in a job--

       ``(aa) when any other individual is on layoff from the same 
     or any substantially equivalent job;
       ``(bb) when the employer has terminated the employment of 
     any regular employee or otherwise reduced the workforce of 
     the employer with the intention of filling the vacancy so 
     created with the participant; or
       ``(cc) which is created in a promotional line that will 
     infringe in any way upon the promotional opportunities of 
     employed individuals.
       ``(ii) Health and safety.--Health and safety standards 
     established under Federal and State law otherwise applicable 
     to working conditions of employees shall be equally 
     applicable to working conditions of participants engaged in a 
     work activity pursuant to this paragraph. To the extent that 
     a State workers' compensation law applies, workers' 
     compensation shall be provided to participants on the same 
     basis as the compensation is provided to other individuals in 
     the State in similar employment.
       ``(iii) Grievance procedure.--

       ``(I) In general.--Each State to which a grant is made 
     under this paragraph shall establish and maintain a procedure 
     for grievances or complaints alleging violations of clauses 
     (i) or (ii) from participants and other interested or 
     affected parties. The procedure shall include an opportunity 
     for a hearing and be completed within 60 days after the 
     grievance or complaint is filed.
       ``(II) Investigation.--

       ``(aa) In general.--The Secretary of Labor shall 
     investigate an allegation of a violation of clause (i) or 
     (ii) if a decision relating to the violation is not reached 
     within 60 days after the date of the filing of the grievance 
     or complaint, and either party appeals to the Secretary of 
     Labor, or a decision relating to the violation is reached 
     within the 60-day period, and the party to which the decision 
     is adverse appeals the decision to the Secretary of Labor.
       ``(bb) Additional requirement.--The Secretary of Labor 
     shall make a final determination relating to an appeal made 
     under item (aa) not later than 120 days after receiving the 
     appeal.

       ``(III) Remedies.--Remedies for violation of clause (i) or 
     (ii) shall be limited to--

       ``(aa) suspension or termination of payments under this 
     paragraph;
       ``(bb) prohibition of placement of a participant with an 
     employer that has violated clause (i) or (ii);
       ``(cc) where applicable, reinstatement of an employee, 
     payment of lost wages and benefits, and reestablishment of 
     other relevant terms, conditions and privileges of 
     employment; and
       ``(dd) where appropriate, other equitable relief.''.
       (2) Conforming amendment.--Section 409(a)(7)(B)(iv) of such 
     Act (42 U.S.C. 609(a)(7)(B)(iv)) is amended to read as 
     follows:
       ``(iv) Expenditures by the state.--The term `expenditures 
     by the State' does not include--

       ``(I) any expenditure from amounts made available by the 
     Federal Government;
       ``(II) any State funds expended for the medicaid program 
     under title XIX;
       ``(III) any State funds which are used to match Federal 
     funds provided under section 403(a)(5); or
       ``(IV) any State funds which are expended as a condition of 
     receiving Federal funds other than under this part.

     Notwithstanding subclause (IV) of the preceding sentence, 
     such term includes expenditures by a State for child care in 
     a fiscal year to the extent that the total amount of the 
     expenditures does not exceed the amount of State expenditures 
     in fiscal year 1994 or 1995 (whichever is the greater) that 
     equal the non-Federal share for the programs described in 
     section 418(a)(1)(A).''.
       (b) Grants to Outlying Areas.--Section 1108(a)(1) of such 
     Act (42 U.S.C. 1308(a)(1)) is amended by inserting ``(except 
     section 403(a)(5))'' after ``title IV''.
       (c) Grants to Indian Tribes.--Section 412(a) of such Act 
     (42 U.S.C. 612(a)) is amended by adding at the end the 
     following:
       ``(3) Welfare-to-work grants.--
       ``(A) In general.--The Secretary shall award a grant in 
     accordance with this paragraph to an Indian tribe for each 
     fiscal year specified in section 403(a)(5)(H) for which the 
     Indian tribe is a welfare-to-work tribe, in such amount as 
     the Secretary deems appropriate, subject to subparagraph (B) 
     of this paragraph.
       ``(B) Welfare-to-work tribe.--An Indian tribe shall be 
     considered a welfare-to-work tribe for a fiscal year for 
     purposes of this paragraph if the Indian tribe meets the 
     following requirements:
       ``(i) The Indian tribe has submitted to the Secretary (in 
     the form of an addendum to the tribal family assistance plan, 
     if any, of the Indian tribe) a plan which describes how, 
     consistent with section 403(a)(5), the Indian tribe will use 
     any funds provided under this paragraph during the fiscal 
     year.
       ``(ii) The Indian tribe has provided the Secretary with an 
     estimate of the amount that the Indian tribe intends to 
     expend during the fiscal year (excluding tribal expenditures 
     described in section 409(a)(7)(B)(iv)) for activities 
     described in section 403(a)(5)(C)(i).

[[Page S6650]]

       ``(iii) The Indian tribe has agreed to negotiate in good 
     faith with the Secretary of Health and Human Services with 
     respect to the substance of any evaluation under section 
     413(j), and to cooperate with the conduct of any such 
     evaluation.
       ``(C) Limitations on use of funds.--Section 403(a)(5)(C) 
     shall apply to funds provided to Indian tribes under this 
     paragraph in the same manner in which such section applies to 
     funds provided under section 403(a)(5).''.
       (d) Funds Received From Grants To Be Disregarded in 
     Applying Durational Limit on Assistance.--Section 408(a)(7) 
     of such Act (42 U.S.C. 608(a)(7)) is amended by adding at the 
     end the following:
       ``(G) Inapplicability to welfare-to-work grants and 
     assistance.--For purposes of subparagraph (A) of this 
     paragraph, a grant made under section 403(a)(5) shall not be 
     considered a grant made under section 403, and assistance 
     from funds provided under section 403(a)(5) shall not be 
     considered assistance.''.
       (e) Evaluations.--Section 413 of such Act (42 U.S.C. 613) 
     is amended by adding at the end the following:
       ``(j) Evaluation of Welfare-to-Work Programs.--
       ``(1) Evaluation.--The Secretary--
       ``(A) shall, in consultation with the Secretary of Labor, 
     develop a plan to evaluate how grants made under sections 
     403(a)(5) and 412(a)(3) have been used;
       ``(B) may evaluate the use of such grants by such grantees 
     as the Secretary deems appropriate, in accordance with an 
     agreement entered into with the grantees after good-faith 
     negotiations; and
       ``(C) shall include the following outcome measures in the 
     plan developed under subparagraph (A):
       ``(i) Placements in the labor force and placements in the 
     labor force that last for at least 6 months.
       ``(ii) Placements in the private and public sectors.
       ``(iii) Earnings of individuals who obtain employment.
       ``(iv) Average expenditures per placement.
       ``(2) Reports to the congress.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), 
     the Secretary, in consultation with the Secretary of Labor 
     and the Secretary of Housing and Urban Development, shall 
     submit to the Congress reports on the projects funded under 
     sections 403(a)(5) and 412(a)(3) and on the evaluations of 
     the projects.
       ``(B) Interim report.--Not later than January 1, 1999, the 
     Secretary shall submit an interim report on the matter 
     described in subparagraph (A).
       ``(C) Final report.--Not later than January 1, 2001 (or at 
     a later date, if the Secretary informs the committees of the 
     Congress with jurisdiction over the subject matter of the 
     report) the Secretary shall submit a final report on the 
     matter described in subparagraph (A).''.

     SEC. 5822. CLARIFICATION OF A STATE'S ABILITY TO SANCTION AN 
                   INDIVIDUAL RECEIVING ASSISTANCE UNDER TANF FOR 
                   NONCOMPLIANCE.

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

                  CHAPTER 3--UNEMPLOYMENT COMPENSATION

     SEC. 5831. INCREASE IN FEDERAL UNEMPLOYMENT ACCOUNT CEILING.

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

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

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

     SEC. 5833. TREATMENT OF CERTAIN SERVICES PERFORMED BY 
                   INMATES.

       (a) In General.--Subsection (c) of section 3306 of the 
     Internal Revenue Code of 1986 (defining employment) is 
     amended--
       (1) by striking ``or'' at the end of paragraph (19),
       (2) by striking the period at the end of paragraph (20) and 
     inserting ``; or'', and
       (3) by adding at the end the following new paragraph:
       ``(21) service performed by a person committed to a penal 
     institution.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to service performed after March 26, 
     1996.
         DIVISION 4--EARNED INCOME CREDIT AND OTHER PROVISIONS
         Subtitle L--Earned Income Credit and Other Provisions

                    CHAPTER 1--EARNED INCOME CREDIT

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

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

[[Page S6651]]

                CHAPTER 2--INCREASE IN PUBLIC DEBT LIMIT

     SEC. 5861. INCREASE IN PUBLIC DEBT LIMIT.

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

                        CHAPTER 3--MISCELLANEOUS

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

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

     SEC. 5900. SHORT TITLE OF SUBTITLE.

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

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

     SEC. 5901. AMENDMENT OF THE SOCIAL SECURITY ACT.

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

     SEC. 5902. ELIGIBLE STATES; STATE PLAN.

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

     SEC. 5903. GRANTS TO STATES.

       (a) Bonus for Decrease in Illegitimacy Modified To Take 
     Account of Certain Territories.--
       (1) In general.--Section 403(a)(2)(B) (42 U.S.C. 
     603(a)(2)(B)) is amended to read as follows:
       ``(B) Amount of grant.--
       ``(i) In general.--If, for a bonus year, none of the 
     eligible States is Guam, the Virgin Islands, or American 
     Samoa, then the amount of the grant shall be--

       ``(I) $20,000,000 if there are 5 eligible States; or
       ``(II) $25,000,000 if there are fewer than 5 eligible 
     States.

       ``(ii) Amount if certain territories are eligible.--If, for 
     a bonus year, Guam, the Virgin Islands, or American Samoa is 
     an eligible State, then the amount of the grant shall be--

       ``(I) in the case of such a territory, 25 percent of the 
     mandatory ceiling amount (as defined in section 1108(c)(4)) 
     with respect to the territory; and
       ``(II) in the case of a State that is not such a 
     territory--

       ``(aa) if there are 5 eligible States other than such 
     territories, $20,000,000, minus \1/5\ of the total amount of 
     the grants payable under this paragraph to such territories 
     for the bonus year; or
       ``(bb) if there are fewer than 5 such eligible States, 
     $25,000,000, or such lesser amount as may be necessary to 
     ensure that the total amount of grants payable under this 
     paragraph for the bonus year does not exceed $100,000,000.''.
       (2) Certain territories to be 
     ignored in ranking other states.--
     Section 403(a)(2)(C)(i)(I)(aa) (42 U.S.C. 
     603(a)(2)(C)(i)(I)(aa)) is amended by adding at the end the 
     following: ``In the case of a State that is not a territory 
     specified in subparagraph (B), the comparative magnitude of 
     the decrease for the State shall be determined without regard 
     to the magnitude of the corresponding decrease for any such 
     territory.''.
       (b) Computation of Bonus Based on Ratios of Out-of-Wedlock 
     Births to All Births Instead of Numbers of Out-of-Wedlock 
     Births.--Section 403(a)(2) (42 U.S.C. 603(a)(2)) is amended--
       (1) in the paragraph heading, by inserting ``ratio'' before 
     the period;
       (2) in subparagraph (A), by striking all that follows 
     ``bonus year'' and inserting a period; and
       (3) in subparagraph (C)--
       (A) in clause (i)--
       (i) in subclause (I)(aa)--

       (I) by striking ``number of out-of-wedlock births that 
     occurred in the State during'' and inserting ``illegitimacy 
     ratio of the State for''; and
       (II) by striking ``number of such births that occurred 
     during'' and inserting ``illegitimacy ratio of the State 
     for''; and

       (ii) in subclause (II)(aa)--

       (I) by striking ``number of out-of-wedlock births that 
     occurred in'' each place such term appears and inserting 
     ``illegitimacy ratio of''; and
       (II) by striking ``calculate the number of out-of-wedlock 
     births'' and inserting ``calculate the illegitimacy ratio''; 
     and

       (B) by adding at the end the following:
       ``(iii) Illegitimacy ratio.--The term `illegitimacy ratio' 
     means, with respect to a State and a period--

       ``(I) the number of out-of-wedlock births to mothers 
     residing in the State that occurred during the period; 
     divided by
       ``(II) the number of births to mothers residing in the 
     State that occurred during the period.''.

       (c) Use of Calendar Year Data Instead of Fiscal Year Data 
     in Calculating Bonus for Decrease in Illegitimacy Ratio.--
     Section 403(a)(2)(C) (42 U.S.C. 603(a)(2)(C)) is amended--
       (1) in clause (i)--
       (A) in subclause (I)(bb)--
       (i) by striking ``the fiscal year'' and inserting ``the 
     calendar year for which the most recent data are available''; 
     and
       (ii) by striking ``fiscal year 1995'' and inserting 
     ``calendar year 1995'';
       (B) in subclause (II), by striking ``fiscal'' each place 
     such term appears and inserting ``calendar''; and
       (2) in clause (ii), by striking ``fiscal years'' and 
     inserting ``calendar years''.
       (d) Correction of Heading.--Section 403(a)(3)(C)(ii) (42 
     U.S.C. 603(a)(3)(C)(ii)) is amended in the heading by 
     striking ``1997'' and inserting ``1998''.
       (e) Clarification of Contingency Fund Provision.--Section 
     403(b) (42 U.S.C. 603(b)) is amended--
       (1) in paragraph (6), by striking ``(5)'' and inserting 
     ``(4)'';
       (2) by striking paragraph (4) and redesignating paragraphs 
     (5) and (6) as paragraphs (4) and (5), respectively; and
       (3) by inserting after paragraph (5) the following:
       ``(6) Annual reconciliation.--
       ``(A) In general.--Notwithstanding paragraph (3), if the 
     Secretary makes a payment to a State under this subsection in 
     a fiscal year, then the State shall remit to the Secretary, 
     within 1 year after the end of the first subsequent period of 
     3 consecutive months for which the State is not a needy 
     State, an amount equal to the amount (if any) by which--
       ``(i) the total amount paid to the State under paragraph 
     (3) of this subsection in the fiscal year; exceeds
       ``(ii) the product of--

       ``(I) the Federal medical assistance percentage for the 
     State (as defined in section 1905(b), as such section was in 
     effect on September 30, 1995);
       ``(II) the State's reimbursable expenditures for the fiscal 
     year; and
       ``(III) \1/12\ times the number of months during the fiscal 
     year for which the Secretary made a payment to the State 
     under such paragraph (3).

       ``(B) Definitions.--As used in subparagraph (A):
       ``(i) Reimbursable expenditures.--The term `reimbursable 
     expenditures' means, with respect to a State and a fiscal 
     year, the amount (if any) by which--

       ``(I) countable State expenditures for the fiscal year; 
     exceeds
       ``(II) historic State expenditures (as defined in section 
     409(a)(7)(B)(iii)), excluding any amount expended by the 
     State for child care under subsection (g) or (i) of section 
     402 (as in effect during fiscal year 1994) for fiscal year 
     1994.

       ``(ii) Countable state expenditures.--The term `countable 
     expenditures' means, with respect to a State and a fiscal 
     year--

       ``(I) the qualified State expenditures (as defined in 
     section 409(a)(7)(B)(i) (other than the expenditures 
     described in subclause (I)(bb) of such section)) under the 
     State program funded under this part for the fiscal year; 
     plus
       ``(II) any amount paid to the State under paragraph (3) 
     during the fiscal year that is expended by the State under 
     the State program funded under this part.''.

       (f) Administration of Contingency Fund Transferred to the 
     Secretary of HHS.--Section 403(b)(7) (42 U.S.C. 603(b)(7)) is 
     amended to read as follows:

[[Page S6652]]

       ``(7) State defined.--As used in this subsection, the term 
     `State' means each of the 50 States and the District of 
     Columbia.''.

     SEC. 5904. USE OF GRANTS.

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

     SEC. 5905. MANDATORY WORK REQUIREMENTS.

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

     SEC. 5906. PROHIBITIONS; REQUIREMENTS.

       (a) Elimination of Redundant Language; Clarification of 
     Home Residence Requirement.--Section 408(a)(1) (42 U.S.C. 
     608(a)(1)) is amended to read as follows:
       ``(1) No assistance for families without a minor child.--A 
     State to which a grant is made under section 403 shall not 
     use any part of the grant to provide assistance to a family, 
     unless the family includes a minor child who resides with the 
     family (consistent with paragraph (10)) or a pregnant 
     individual.''.
       (b) Clarification of Terminology.--Section 408(a)(3) (42 
     U.S.C. 608(a)(3)) is amended--
       (1) by striking ``leaves'' the 1st, 3rd, and 4th places 
     such term appears and inserting ``ceases to receive 
     assistance under''; and
       (2) by striking ``the date the family leaves the program'' 
     the 2nd place such term appears and inserting ``such date''.
       (c) Elimination of Space.--Section 408(a)(5)(A)(ii) (42 
     U.S.C. 608(a)(5)(A)(ii)) is amended by striking 
     ``described.-- For'' and inserting ``described.--For''.
       (d) Corrections to 5-Year Limit on Assistance.--
       (1) Clarification of limitation on hardship exemption.--
     Section 408(a)(7)(C)(ii) (42 U.S.C. 608(a)(7)(C)(ii)) is 
     amended--
       (A) by striking ``The number'' and inserting ``The average 
     monthly number''; and
       (B) by inserting ``during the fiscal year or the 
     immediately preceding fiscal year (but not both), as the 
     State may elect'' before the period.
       (2) Residence exception made more uniform and easier to 
     administer.--Section 408(a)(7)(D) (42 U.S.C. 608(a)(7)(D)) is 
     amended to read as follows:
       ``(D) Disregard of months of assistance received by adult 
     while living in indian country or an alaskan native village 
     with 50 percent unemployment.--
       ``(i) In general.--In determining the number of months for 
     which an adult has received assistance under a State or 
     tribal program funded under this part, the State or tribe 
     shall disregard any month during which the adult lived in 
     Indian country or an Alaskan Native village if the most 
     reliable data available with respect to the month (or a 
     period including the month) indicate that at least 50 percent 
     of the adults living in Indian country or in the village were 
     not employed.
       ``(ii) Indian country defined.--As used in clause (i), the 
     term `Indian country' has the meaning given such term in 
     section 1151 of title 18, United States Code.''.
       (e) Reinstatement of Deeming and Other Rules Applicable to 
     Aliens Who Entered the United States Under Affidavits of 
     Support Formerly Used.--Section 408 (42 U.S.C. 608) is 
     amended by striking subsection (d) and inserting the 
     following:
       ``(d) Special Rules Relating to Treatment of Certain 
     Aliens.--For special rules relating to the treatment of 
     certain aliens, see title IV of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.
       ``(e) Special Rules Relating to the Treatment of Non-213A 
     Aliens.--The following rules shall apply if a State elects to 
     take the income or resources of any sponsor of a non-213A 
     alien into account in determining whether the alien is 
     eligible for assistance under the State program funded under 
     this part, or in determining the amount or types of such 
     assistance to be provided to the alien:
       ``(1) Deeming of sponsor's income and resources.--For a 
     period of 3 years after a non-213A alien enters the United 
     States:
       ``(A) Income deeming rule.--The income of any sponsor of 
     the alien and of any spouse of the sponsor is deemed to be 
     income of the alien, to the extent that the total amount of 
     the income exceeds the sum of--
       ``(i) the lesser of--

       ``(I) 20 percent of the total of any amounts received by 
     the sponsor or any such spouse in the month as wages or 
     salary or as net earnings from self-employment, plus the full 
     amount of any costs incurred by the sponsor and any such 
     spouse in producing self-employment income in such month; or
       ``(II) $175;

       ``(ii) the cash needs standard established by the State for 
     purposes of determining eligibility for assistance under the 
     State program funded under this part for a family of the same 
     size and composition as the sponsor and any other individuals 
     living in the same household as the sponsor who are claimed 
     by the sponsor as dependents for purposes of determining the 
     sponsor's Federal personal income tax liability but whose 
     needs are not taken into account in determining whether the 
     sponsor's family has met the cash needs standard;
       ``(iii) any amounts paid by the sponsor or any such spouse 
     to individuals not living in the household who are claimed by 
     the sponsor as dependents for purposes of determining the 
     sponsor's Federal personal income tax liability; and
       ``(iv) any payments of alimony or child support with 
     respect to individuals not living in the household.
       ``(B) Resource deeming rule.--The resources of a sponsor of 
     the alien and of any spouse of the sponsor are deemed to be 
     resources of the alien to the extent that the aggregate value 
     of the resources exceeds $1,500.
       ``(C) Sponsors of multiple non-213a aliens.--If a person is 
     a sponsor of 2 or more non-213A aliens who are living in the 
     same home, the income and resources of the sponsor and any 
     spouse of the sponsor that would be deemed income and 
     resources of any such alien under subparagraph (A) shall be 
     divided into a number of equal shares equal to the number of 
     such aliens, and the State shall deem the income and 
     resources of each such alien to include 1 such share.
       ``(2) Ineligibility of non-213a aliens sponsored by 
     agencies; exception.--A non-213A alien whose sponsor is or 
     was a public or private agency shall be ineligible for 
     assistance under a State program funded under this part, 
     during a period of 3 years after the alien enters the United 
     States, unless the State agency administering the program 
     determines that the sponsor either no longer exists or has 
     become unable to meet the alien's needs.
       ``(3) Information provisions.--
       ``(A) Duties of non-213a aliens.--A non-213A alien, as a 
     condition of eligibility for assistance under a State program 
     funded under this part

[[Page S6653]]

     during the period of 3 years after the alien enters the 
     United States, shall be required to provide to the State 
     agency administering the program--
       ``(i) such information and documentation with respect to 
     the alien's sponsor as may be necessary in order for the 
     State agency to make any determination required under this 
     subsection, and to obtain any cooperation from the sponsor 
     necessary for any such determination; and
       ``(ii) such information and documentation as the State 
     agency may request and which the alien or the alien's sponsor 
     provided in support of the alien's immigration application.
       ``(B) Duties of federal agencies.--The Secretary shall 
     enter into agreements with the Secretary of State and the 
     Attorney General under which any information available to 
     them and required in order to make any determination under 
     this subsection will be provided by them to the Secretary 
     (who may, in turn, make the information available, upon 
     request, to a concerned State agency).
       ``(4) Non-213a alien defined.--An alien is a non-213A alien 
     for purposes of this subsection if the affidavit of support 
     or similar agreement with respect to the alien that was 
     executed by the sponsor of the alien's entry into the United 
     States was executed other than pursuant to section 213A of 
     the Immigration and Nationality Act.
       ``(5) Inapplicability to alien minor sponsored by a 
     parent.--This subsection shall not apply to an alien who is a 
     minor child if the sponsor of the alien or any spouse of the 
     sponsor is a parent of the alien.
       ``(6) Inapplicability to certain categories of aliens.--
     This subsection shall not apply to an alien who is--
       ``(A) admitted to the United States as a refugee under 
     section 207 of the Immigration and Nationality Act;
       ``(B) paroled into the United States under section 
     212(d)(5) of such Act for a period of at least 1 year; or
       ``(C) granted political asylum by the Attorney General 
     under section 208 of such Act.''.

     SEC. 5907. PENALTIES.

       (a) States Given More Time To File Quarterly Reports.--
     Section 409(a)(2)(A) (42 U.S.C. 609(a)(2)(A)) is amended by 
     striking ``1 month'' and inserting ``45 days''.
       (b) Treatment of Support Payments Passed Through to 
     Families as Qualified State Expenditures.--Section 
     409(a)(7)(B)(i)(I)(aa) (42 U.S.C. 609(a)(7)(B)(i)(I)(aa)) is 
     amended by inserting ``, including any amount collected by 
     the State as support pursuant to a plan approved under part 
     D, on behalf of a family receiving assistance under the State 
     program funded under this part, that is distributed to the 
     family under section 457(a)(1)(B) and disregarded in 
     determining the eligibility of the family for, and the amount 
     of, such assistance'' before the period.
       (c) Disregard of Expenditures Made To Replace Penalty Grant 
     Reductions.--Section 409(a)(7)(B)(i) (42 U.S.C. 
     609(a)(7)(B)(i)) is amended by redesignating subclause (III) 
     as subclause (IV) and by inserting after subclause (II) the 
     following:

       ``(III) Exclusion of amounts expended to replace penalty 
     grant reductions.--Such term does not include any amount 
     expended in order to comply with paragraph (12).''.

       (d) Treatment of Families of Certain Aliens as Eligible 
     Families.--Section 409(a)(7)(B)(i)(IV) (42 U.S.C. 
     609(a)(7)(B)(i)(IV)), as so redesignated by subsection (c) of 
     this section, is amended--
       (1) by striking ``and families'' and inserting 
     ``families''; and
       (2) by striking ``Act or section 402'' and inserting ``Act, 
     and families of aliens lawfully present in the United States 
     that would be eligible for such assistance but for the 
     application of title IV''.
       (e) Elimination of Meaningless Language.--Section 
     409(a)(7)(B)(ii) (42 U.S.C. 609(a)(7)(B)(ii)) is amended by 
     striking ``reduced (if appropriate) in accordance with 
     subparagraph (C)(ii)''.
       (f) Clarification of Source of Data To Be Used in 
     Determining Historic State Expenditures.--Section 
     409(a)(7)(B) (42 U.S.C. 609(a)(7)(B)) is amended by adding at 
     the end the following:
       ``(v) Source of data.--In determining expenditures by a 
     State for fiscal years 1994 and 1995, the Secretary shall use 
     information which was reported by the State on ACF Form 231 
     or (in the case of expenditures under part F) ACF Form 331, 
     available as of the dates specified in clauses (ii) and (iii) 
     of section 403(a)(1)(D).''.
       (g) Conforming Title IV-A Penalties to Title IV-D 
     Performance-Based Standards.--Section 409(a)(8) (42 U.S.C. 
     609(a)(8)) is amended to read as follows:
       ``(8) Noncompliance of state child support enforcement 
     program with requirements of part d.--
       ``(A) In general.--If the Secretary finds, with respect to 
     a State's program under part D, in a fiscal year beginning on 
     or after October 1, 1997--
       ``(i)(I) on the basis of data submitted by a State pursuant 
     to section 454(15)(B), or on the basis of the results of a 
     review conducted under section 452(a)(4), that the State 
     program failed to achieve the paternity establishment 
     percentages (as defined in section 452(g)(2)), or to meet 
     other performance measures that may be established by the 
     Secretary;
       ``(II) on the basis of the results of an audit or audits 
     conducted under section 452(a)(4)(C)(i) that the State data 
     submitted pursuant to section 454(15)(B) is incomplete or 
     unreliable; or
       ``(III) on the basis of the results of an audit or audits 
     conducted under section 452(a)(4)(C) that a State failed to 
     substantially comply with 1 or more of the requirements of 
     part D; and
       ``(ii) that, with respect to the succeeding fiscal year--

       ``(I) the State failed to take sufficient corrective action 
     to achieve the appropriate performance levels or compliance 
     as described in subparagraph (A)(i); or
       ``(II) the data submitted by the State pursuant to section 
     454(15)(B) is incomplete or unreliable;

     the amounts otherwise payable to the State under this part 
     for quarters following the end of such succeeding fiscal 
     year, prior to quarters following the end of the first 
     quarter throughout which the State program has achieved the 
     paternity establishment percentages or other performance 
     measures as described in subparagraph (A)(i)(I), or is in 
     substantial compliance with 1 or more of the requirements of 
     part D as described in subparagraph (A)(i)(III), as 
     appropriate, shall be reduced by the percentage specified in 
     subparagraph (B).
       ``(B) Amount of reductions.--The reductions required under 
     subparagraph (A) shall be--
       ``(i) not less than 1 nor more than 2 percent;
       ``(ii) not less than 2 nor more than 3 percent, if the 
     finding is the 2nd consecutive finding made pursuant to 
     subparagraph (A); or
       ``(iii) not less than 3 nor more than 5 percent, if the 
     finding is the 3rd or a subsequent consecutive such finding.
       ``(C) Disregard of noncompliance which is of a technical 
     nature.--For purposes of this section and section 452(a)(4), 
     a State determined as a result of an audit--
       ``(i) to have failed to have substantially complied with 1 
     or more of the requirements of part D shall be determined to 
     have achieved substantial compliance only if the Secretary 
     determines that the extent of the noncompliance is of a 
     technical nature which does not adversely affect the 
     performance of the State's program under part D; or
       ``(ii) to have submitted incomplete or unreliable data 
     pursuant to section 454(15)(B) shall be determined to have 
     submitted adequate data only if the Secretary determines that 
     the extent of the incompleteness or unreliability of the data 
     is of a technical nature which does not adversely affect the 
     determination of the level of the State's paternity 
     establishment percentages (as defined under section 
     452(g)(2)) or other performance measures that may be 
     established by the Secretary.''.
       (h) Correction of Reference to 5-Year Limit on 
     Assistance.--Section 409(a)(9) (42 U.S.C. 609(a)(9)) is 
     amended by striking ``408(a)(1)(B)'' and inserting 
     ``408(a)(7)''.
       (i) Correction of Errors in Penalty for Failure To Meet 
     Maintenance of Effort Requirement Applicable to the 
     Contingency Fund.--Section 409(a)(10) (42 U.S.C. 609(a)(10)) 
     is amended--
       (1) by striking ``the expenditures under the State program 
     funded under this part for the fiscal year (excluding any 
     amounts made available by the Federal Government)'' and 
     inserting ``the qualified State expenditures (as defined in 
     paragraph (7)(B)(i) (other than the expenditures described in 
     subclause (I)(bb) of that paragraph)) under the State program 
     funded under this part for the fiscal year'';
       (2) by inserting ``excluding any amount expended by the 
     State for child care under subsection (g) or (i) of section 
     402 (as in effect during fiscal year 1994) for fiscal year 
     1994,'' after ``(as defined in paragraph (7)(B)(iii) of this 
     subsection),''; and
       (3) by inserting ``that the State has not remitted under 
     section 403(b)(6)'' before the period.
       (j) Penalty for State Failure to Expend Additional State 
     Funds To Replace Grant Reductions.--Section 409(a)(12) (42 
     U.S.C. 609(a)(12)) is amended--
       (1) in the heading--
       (A) by striking ``Failure'' and inserting ``Requirement''; 
     and
       (B) by striking ``reductions'' and inserting ``reductions; 
     penalty for failure to do so''; and
       (2) by inserting ``, and if the State fails to do so, the 
     Secretary may reduce the grant payable to the State under 
     section 403(a)(1) for the fiscal year that follows such 
     succeeding fiscal year by an amount equal to not more than 2 
     percent of the State family assistance grant'' before the 
     period.
       (k) Elimination of Certain Reasonable Cause Exceptions.--
     Section 409(b)(2) (42 U.S.C. 609(b)(2)) is amended by 
     striking ``(7) or (8)'' and inserting ``(6), (7), (8), (10), 
     or (12)''.
       (l) Clarification of What It Means To Correct a 
     Violation.--Section 409(c) (42 U.S.C. 609(c)) is amended--
       (1) in each of subparagraphs (A) and (B) of paragraph (1), 
     by inserting ``or discontinue, as appropriate,'' after 
     ``correct'';
       (2) in paragraph (2)--
       (A) in the heading, by inserting ``or discontinuing'' after 
     ``correcting''; and
       (B) by inserting ``or discontinues, as appropriate'' after 
     ``corrects''; and
       (3) in paragraph (3)--
       (A) in the heading, by inserting ``or discontinue'' after 
     ``correct''; and
       (B) by inserting ``or discontinue, as appropriate,'' before 
     ``the violation''.
       (m) Certain Penalties Not Avoidable Through Corrective 
     Compliance Plans.--Section 409(c)(4) (42 U.S.C. 609(c)(4)) is 
     amended to read as follows:
       ``(4) Inapplicability to certain penalties.--This 
     subsection shall not apply to the imposition of a penalty 
     against a State under paragraph (6), (7), (8), (10), or (12) 
     of subsection (a).''.
       (n) Failure to Satisfy Minimum Participation Rates.--
     Section 409(a)(3) (42 U.S.C. 609(a)(3)) is amended--
       (1) in subparagraph (A), by striking ``not more than''; and
       (2) in subparagraph (C), by inserting before the period the 
     following: ``or if the noncompliance is due to extraordinary 
     circumstances such as a natural disaster or regional 
     recession. The Secretary shall provide a written report to 
     Congress to justify any waiver or penalty reduction due to 
     such extraordinary circumstances''.

[[Page S6654]]

     SEC. 5908. DATA COLLECTION AND REPORTING.

       Section 411(a) (42 U.S.C. 611(a)) is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (A)--
       (i) by striking clause (ii) and inserting the following:
       ``(ii) Whether a child receiving such assistance or an 
     adult in the family is receiving--

       ``(I) Federal disability insurance benefits;
       ``(II) benefits based on Federal disability status;
       ``(III) aid under a State plan approved under title XIV (as 
     in effect without regard to the amendment made by section 301 
     of the Social Security Amendments of 1972));
       ``(IV) aid or assistance under a State plan approved under 
     title XVI (as in effect without regard to such amendment) by 
     reason of being permanently and totally disabled; or
       ``(V) supplemental security income benefits under title XVI 
     (as in effect pursuant to such amendment) by reason of 
     disability.'';

       (ii) in clause (iv), by striking ``youngest child in'' and 
     inserting ``head of'';
       (iii) in each of clauses (vii) and (viii), by striking 
     ``status'' and inserting ``level''; and
       (iv) by adding at the end the following:
       ``(xvii) With respect to each individual in the family who 
     has not attained 20 years of age, whether the individual is a 
     parent of a child in the family.''; and
       (B) in subparagraph (B)--
       (i) in the heading, by striking ``estimates'' and inserting 
     ``samples''; and
       (ii) in clause (i), by striking ``an estimate which is 
     obtained'' and inserting ``disaggregated case record 
     information on a sample of families selected''; and
       (2) by redesignating paragraph (6) as paragraph (7) and 
     inserting after paragraph (5) the following:
       ``(6) Report on families receiving assistance.--The report 
     required by paragraph (1) for a fiscal quarter shall include 
     for each month in the quarter the number of families and 
     individuals receiving assistance under the State program 
     funded under this part (including the number of 2-parent and 
     1-parent families), and the total dollar value of such 
     assistance received by all families.''.

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

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

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

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

     SEC. 5911. REPORT ON DATA PROCESSING.

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

     SEC. 5912. STUDY ON ALTERNATIVE OUTCOMES MEASURES.

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

     SEC. 5913. LIMITATION ON PAYMENTS TO THE TERRITORIES.

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

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

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

     SEC. 5915. OTHER CONFORMING AMENDMENTS.

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

[[Page S6655]]

     Personal Responsibility and Work Opportunity 
     Reconciliation''.

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

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

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

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

     SEC. 5918. TRANSITION RULE.

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

     SEC. 5919. PROTECTING VICTIMS OF FAMILY VIOLENCE.

       (a) Findings.--Congress finds that--
       (1) the intent of Congress in amending part A of title IV 
     of the Social Security Act (42 U.S.C. 601 et seq.) in section 
     103(a) of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (Public Law 104-193; 110 Stat 
     2112) was to allow States to take into account the effects of 
     the epidemic of domestic violence in establishing their 
     welfare programs, by giving States the flexibility to grant 
     individual, temporary waivers for good cause to victims of 
     domestic violence who meet the criteria set forth in section 
     402(a)(7)(B) of the Social Security Act (42 U.S.C. 
     602(a)(7)(B));
       (2) the allowance of waivers under such sections was not 
     intended to be limited by other, separate, and independent 
     provisions of part A of title IV of the Social Security Act 
     (42 U.S.C. 601 et seq.);
       (3) under section 402(a)(7)(A)(iii) of such Act (42 U.S.C. 
     602(a)(7)(A)(iii)), requirements under the temporary 
     assistance for needy families program under part A of title 
     IV of such Act may, for good cause, be waived for so long as 
     necessary; and
       (4) good cause waivers granted pursuant to section 
     402(a)(7)(A)(iii) of such Act (42 U.S.C. 602(a)(7)(A)(iii)) 
     are intended to be temporary and directed only at particular 
     program requirements when needed on an individual case-by-
     case basis, and are intended to facilitate the ability of 
     victims of domestic violence to move forward and meet program 
     requirements when safe and feasible without interference by 
     domestic violence.
       (b) Clarification of Waiver Provisions.--
       (1) In general.--Section 402(a)(7) (42 U.S.C. 602(a)(7)) is 
     amended by adding at the end the following:
       ``(C) No numerical limits.--In implementing this paragraph, 
     a State shall not be subject to any numerical limitation in 
     the granting of good cause waivers under subparagraph 
     (A)(iii).
       ``(D) Waivered individuals not included for purposes of 
     certain other provisions of this part.--Any individual to 
     whom a good cause waiver of compliance with this Act has been 
     granted in accordance with subparagraph (A)(iii) shall not be 
     included for purposes of determining a State's compliance 
     with the participation rate requirements set forth in section 
     407, for purposes of applying the limitation described in 
     section 408(a)(7)(C)(ii), or for purposes of determining 
     whether to impose a penalty under paragraph (3), (5), or (9) 
     of section 409(a).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     takes effect as if it had been included in the enactment of 
     section 103(a) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (Public Law 104-193; 
     110 Stat. 2112).
       (c) Federal Parent Locator Service.--
       (1) In general.--Section 453 (42 U.S.C. 653), as amended by 
     section 5938, is further amended--
       (A) in subsection (b)(2)--
       (i) in the matter preceding subparagraph (A), by inserting 
     ``or that the health, safety, or liberty or a parent or child 
     would by unreasonably put at risk by the disclosure of such 
     information,'' before ``provided that'';
       (ii) in subparagraph (A), by inserting ``, that the health, 
     safety, or liberty or a parent or child would by unreasonably 
     put at risk by the disclosure of such information,'' before 
     ``and that information''; and
       (iii) in subparagraph (B)(i), by striking ``be harmful to 
     the parent or the child'' and inserting ``place the health, 
     safety, or liberty of a parent or child unreasonably at 
     risk''; and
       (B) in subsection (c)(2), by inserting ``, or to serve as 
     the initiating court in an action to seek and order,'' before 
     ``against a noncustodial''.
       (2) State plan.--Section 454(26) (42 U.S.C. 654), as 
     amended by section 5956, is further amended--
       (A) in subparagraph (C), by striking ``result in physical 
     or emotional harm to the party or the child'' and inserting 
     ``place the health, safety, or liberty of a parent or child 
     unreasonably at risk'';
       (B) in subparagraph (D), by striking ``of domestic violence 
     or child abuse against a party or the child and that the 
     disclosure of such information could be harmful to the party 
     or the child'' and inserting ``that the health, safety, or 
     liberty of a parent or child would be unreasonably put at 
     risk by the disclosure of such information''; and
       (C) in subparagraph (E), by striking ``of domestic 
     violence'' and all that follows through the semicolon and 
     inserting ``that the health, safety, or liberty of a parent 
     or child would be unreasonably put at risk by the disclosure 
     of such information pursuant to section 453(b)(2), the court 
     shall determine whether disclosure to any other person or 
     persons of information received from the Secretary could 
     place the health, safety, or liberty or a parent or child 
     unreasonably at risk (if the court determines that disclosure 
     to any other person could be harmful, the court and its 
     agents shall not make any such disclosure);''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect 1 day after the effective date described in 
     section 5961(a).

     SEC. 5920. EFFECTIVE DATES.

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

                CHAPTER 2--SUPPLEMENTAL SECURITY INCOME

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

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

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

       (a) Eligibility Redeterminations for Current Recipients.--
     Section 211(d)(2)(A) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (42 U.S.C. 1382c note) 
     is amended by striking ``1 year'' and inserting ``18 
     months''.
       (b) Eligibility Redeterminations and Continuing Disability 
     Reviews.--
       (1) Disability eligibility redeterminations required for 
     ssi recipients who attain 18 years of age.--Section 
     1614(a)(3)(H)(iii) (42 U.S.C. 1382c(a)(3)(H)(iii)) is amended 
     by striking subclauses (I) and (II) and all that follows and 
     inserting the following:
       ``(I) by applying the criteria used in determining initial 
     eligibility for individuals who are age 18 or older; and
       ``(II) either during the 1-year period beginning on the 
     individual's 18th birthday or, in lieu of a continuing 
     disability review, whenever the Commissioner determines that 
     an individual's case is subject to a redetermination under 
     this clause.
     With respect to any redetermination under this clause, 
     paragraph (4) shall not apply.''.
       (2) Continuing disability review required for low birth 
     weight babies.--Section 1614(a)(3)(H)(iv) (42 U.S.C. 
     1382c(a)(3)(H)(iv)) is amended--
       (A) in subclause (I), by striking ``Not'' and inserting 
     ``Except as provided in subclause (VI), not''; and
       (B) by adding at the end the following:

[[Page S6656]]

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

     SEC. 5923. ADDITIONAL TECHNICAL AMENDMENTS TO TITLE XVI.

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

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

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

     SEC. 5925. EFFECTIVE DATES.

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

                        CHAPTER 3--CHILD SUPPORT

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

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

     SEC. 5936. DISTRIBUTION OF COLLECTED SUPPORT.

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

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

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

     SEC. 5938. FEDERAL PARENT LOCATOR SERVICE.

       (a) In General.--Section 453 (42 U.S.C. 653) is amended--
       (1) in subsection (a)--
       (A) by inserting ``(1)'' after ``(a)''; and
       (B) by striking ``to obtain'' and all that follows through 
     the period and inserting ``for the purposes specified in 
     paragraphs (2) and (3).
       ``(2) For the purpose of establishing parentage, 
     establishing, setting the amount of, modifying, or enforcing 
     child support obligations, the

[[Page S6657]]

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

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

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

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

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

     SEC. 5941. ADOPTION OF UNIFORM STATE LAWS.

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

     SEC. 5942. STATE LAWS PROVIDING EXPEDITED PROCEDURES.

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

     SEC. 5943. VOLUNTARY PATERNITY ACKNOWLEDGEMENT.

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

     SEC. 5944. CALCULATION OF PATERNITY ESTABLISHMENT PERCENTAGE.

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

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

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

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

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

     SEC. 5947. DEFINITION OF SUPPORT ORDER.

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

     SEC. 5948. STATE LAW AUTHORIZING SUSPENSION OF LICENSES.

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

[[Page S6658]]

     SEC. 5949. INTERNATIONAL SUPPORT ENFORCEMENT.

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

     SEC. 5950. CHILD SUPPORT ENFORCEMENT FOR INDIAN TRIBES.

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

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

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

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

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

     SEC. 5953. DATE OF COLLECTION OF SUPPORT.

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

     SEC. 5954. ADMINISTRATIVE ENFORCEMENT IN INTERSTATE CASES.

       (a) Procedures.--Section 466(a)(14) (42 U.S.C. 666(a)(14)) 
     is amended to read as follows:
       ``(14) High-volume, automated administrative enforcement in 
     interstate cases.--
       ``(A) In general.--Procedures under which--
       ``(i) the State shall use high-volume automated 
     administrative enforcement, to the same extent as used for 
     intrastate cases, in response to a request made by another 
     State to enforce support orders, and shall promptly report 
     the results of such enforcement procedure to the requesting 
     State;
       ``(ii) the State may, by electronic or other means, 
     transmit to another State a request for assistance in 
     enforcing support orders through high-volume, automated 
     administrative enforcement, which request--

       ``(I) shall include such information as will enable the 
     State to which the request is transmitted to compare the 
     information about the cases to the information in the data 
     bases of the State; and
       ``(II) shall constitute a certification by the requesting 
     State--

       ``(aa) of the amount of support under an order the payment 
     of which is in arrears; and
       ``(bb) that the requesting State has complied with all 
     procedural due process requirements applicable to each case;
       ``(iii) if the State provides assistance to another State 
     pursuant to this paragraph with respect to a case, neither 
     State shall consider the case to be transferred to the 
     caseload of such other State; and
       ``(iv) the State shall maintain records of--

       ``(I) the number of such requests for assistance received 
     by the State;
       ``(II) the number of cases for which the State collected 
     support in response to such a request; and
       ``(III) the amount of such collected support.

       ``(B) High-volume automated administrative enforcement.--In 
     this part, the term `high-volume automated administrative 
     enforcement' means the use of automatic data processing to 
     search various State data bases, including license records, 
     employment service data, and State new hire registries, to 
     determine whether information is available regarding a parent 
     who owes a child support obligation.''.
       (b) Incentive Payments.--Section 458(d) (42 U.S.C. 658(d)) 
     is amended by inserting ``, including amounts collected under 
     section 466(a)(14),'' after ``another State''.

     SEC. 5955. WORK ORDERS FOR ARREARAGES.

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

     SEC. 5956. ADDITIONAL TECHNICAL STATE PLAN AMENDMENTS.

       Section 454 (42 U.S.C. 654) is amended--
       (1) in paragraph (8)--
       (A) in the matter preceding subparagraph (A)--
       (i) by striking ``noncustodial''; and
       (ii) by inserting ``, for the purpose of establishing 
     parentage, establishing, setting the amount of, modifying, or 
     enforcing child support obligations, or making or enforcing a 
     child custody or visitation determination, as defined in 
     section 463(d)(1)'' after ``provide that'';
       (B) in subparagraph (A), by striking the comma and 
     inserting a semicolon;
       (C) in subparagraph (B), by striking the semicolon and 
     inserting a comma; and
       (D) by inserting after subparagraph (B), the following 
     flush language:
     ``and shall, subject to the privacy safeguards required under 
     paragraph (26), disclose only the information described in 
     sections 453 and 463 to the authorized persons specified in 
     such sections for the purposes specified in such sections;'';

[[Page S6659]]

       (2) in paragraph (17)--
       (A) by striking ``in the case of a State which has'' and 
     inserting ``provide that the State will have''; and
       (B) by inserting ``and'' after ``section 453,''; and
       (3) in paragraph (26)--
       (A) in the matter preceding subparagraph (A), by striking 
     ``will'';
       (B) in subparagraph (A)--
       (i) by inserting ``, modify,'' after ``establish'', the 
     second place it appears; and
       (ii) by inserting ``, or to make or enforce a child custody 
     determination'' after ``support'';
       (C) in subparagraph (B)--
       (i) by inserting ``or the child'' after ``1 party'';
       (ii) by inserting ``or the child'' after ``former party''; 
     and
       (iii) by striking ``and'' at the end;
       (D) in subparagraph (C)--
       (i) by inserting ``or the child'' after ``1 party'';
       (ii) by striking ``another party'' and inserting ``another 
     person'';
       (iii) by inserting ``to that person'' after ``release of 
     the information''; and
       (iv) by striking ``former party'' and inserting ``party or 
     the child''; and
       (E) by adding at the end the following:
       ``(D) in cases in which the prohibitions under 
     subparagraphs (B) and (C) apply, the requirement to notify 
     the Secretary, for purposes of section 453(b)(2), that the 
     State has reasonable evidence of domestic violence or child 
     abuse against a party or the child and that the disclosure of 
     such information could be harmful to the party or the child; 
     and
       ``(E) procedures providing that when the Secretary 
     discloses information about a parent or child to a State 
     court or an agent of a State court described in section 
     453(c)(2) or 463(d)(2)(B), and advises that court or agent 
     that the Secretary has been notified that there is reasonable 
     evidence of domestic violence or child abuse pursuant to 
     section 453(b)(2), the court shall determine whether 
     disclosure to any other person of information received from 
     the Secretary could be harmful to the parent or child and, if 
     the court determines that disclosure to any other person 
     could be harmful, the court and its agents shall not make any 
     such disclosure;''.

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

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

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

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

     SEC. 5959. DEVELOPMENT COSTS OF AUTOMATED SYSTEMS.

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

     SEC. 5960. ADDITIONAL TECHNICAL AMENDMENTS.

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

     SEC. 5961. EFFECTIVE DATE.

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

     CHAPTER 4--RESTRICTING WELFARE AND PUBLIC BENEFITS FOR ALIENS

             Subchapter A--Eligibility for Federal Benefits

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

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

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

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

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

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

[[Page S6660]]

     amended by inserting ``, 1101, or 1301, or as described in 
     section 107'' after ``section 101''.

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

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

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

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

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

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

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

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

                    Subchapter B--General Provisions

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

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

     SEC. 5973. VERIFICATION OF ELIGIBILITY FOR BENEFITS.

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

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

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

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

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

[[Page S6661]]

       ``(2) benefits under laws administered by the Secretary of 
     Veterans Affairs.''.

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

     SEC. 5976. CORRECTING MISCELLANEOUS CLERICAL AND TECHNICAL 
                   ERRORS.

       (a) Information Reporting Under Title IV of the Social 
     Security Act.--Effective July 1, 1997, section 408 of the 
     Social Security Act (42 U.S.C. 608), as amended by section 
     5903, and as in effect pursuant to section 116 of the 
     Personal Responsibility and Work Opportunity Reconciliation 
     Act of 1996, and as amended by section 5906(e) of this Act, 
     is amended by adding at the end the following new subsection:
       ``(f) State Required To Provide Certain Information.--Each 
     State to which a grant is made under section 403 shall, at 
     least 4 times annually and upon request of the Immigration 
     and Naturalization Service, furnish the Immigration and 
     Naturalization Service with the name and address of, and 
     other identifying information on, any individual who the 
     State knows is not lawfully present in the United States.''.
       (b) Miscellaneous Clerical and Technical Corrections.--
       (1) Section 411(c)(3) of the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1621(c)(3)) is amended by striking ``4001(c)'' and inserting 
     ``401(c)''.
       (2) Section 422(a) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 (8 U.S.C. 1632(a)) is 
     amended by striking ``benefits (as defined in section 
     412(c)),'' and inserting ``benefits,''.
       (3) Section 412(b)(1)(C) of the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1622(b)(1)(C)) is amended by striking ``with-holding'' and 
     inserting ``withholding''.
       (4) The subtitle heading for subtitle D of title IV of the 
     Personal Responsibility and Work Opportunity Reconciliation 
     Act of 1996 is amended to read as follows:
                  ``Subtitle D--General Provisions''.
       (5) The subtitle heading for subtitle F of title IV of the 
     Personal Responsibility and Work Opportunity Reconciliation 
     Act of 1996 is amended to read as follows:
 ``Subtitle F--Earned Income Credit Denied to Unauthorized Employees''.
       (6) Section 431(c)(2)(B) of the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1641(c)(2)(B)) is amended by striking ``clause (ii) of 
     subparagraph (A)'' and inserting ``subparagraph (B) of 
     paragraph (1)''.
       (7) Section 431(c)(1)(B) of the Personal Responsibility and 
     Work Opportunity Reconciliation Act of 1996 (8 U.S.C. 
     1641(c)(1)(B)) is amended--
       (A) in clause (iii) by striking ``, or'' and inserting 
     ``(as in effect prior to April 1, 1997),''; and
       (B) by adding after clause (iv) the following new clause:
       ``(v) cancellation of removal pursuant to section 
     240A(b)(2) of such Act;''.

     SEC. 5977. EFFECTIVE DATE.

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

                      CHAPTER 5--CHILD PROTECTION

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

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

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

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

     SEC. 5983. EFFECTIVE DATE.

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

                         CHAPTER 6--CHILD CARE

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

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

     SEC. 5986. ADDITIONAL CONFORMING AND TECHNICAL AMENDMENTS.

       The Child Care and Development Block Grant Act of 1990 (42 
     U.S.C. 9858 et seq.) is amended--
       (1) in section 658E(c)(2)(E)(ii), by striking ``tribal 
     organization'' and inserting ``tribal organizations'';
       (2) in section 658K(a)--
       (A) in paragraph (1)--
       (i) in subparagraph (B)--

       (I) by striking clause (iv) and inserting the following:

       ``(iv) whether the head of the family unit is a single 
     parent;'';

       (II) in clause (v)--

       (aa) in the matter preceding subclause (I), by striking 
     ``including the amount obtained from (and separately 
     identified)--'' and inserting ``including--''; and
       (bb) by striking subclause (II) and inserting the 
     following:

       ``(II) cash or other assistance under--

       ``(aa) the temporary assistance for needy families program 
     under part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.); and
       ``(bb) a State program for which State spending is counted 
     toward the maintenance of effort requirement under section 
     409(a)(7) of the Social Security Act (42 U.S.C. 
     609(a)(7));''; and

       (III) in clause (x), by striking ``week'' and inserting 
     ``month''; and

       (ii) by striking subparagraph (D) and inserting the 
     following:
       ``(D) Use of samples.--
       ``(i) Authority.--A State may comply with the requirement 
     to collect the information described in subparagraph (B) 
     through the use of disaggregated case record information on a 
     sample of families selected through the use of scientifically 
     acceptable sampling methods approved by the Secretary.
       ``(ii) Sampling and other methods.--The Secretary shall 
     provide the States with such case sampling plans and data 
     collection procedures as the Secretary deems necessary to 
     produce statistically valid samples of the information 
     described in subparagraph (B). The Secretary may develop and 
     implement procedures for verifying the quality of data 
     submitted by the States.''; and

[[Page S6662]]

       (B) in paragraph (2)--
       (i) in the heading, by striking ``Biannual'' and inserting 
     ``Annual''; and
       (ii) by striking ``6'' and inserting ``12'';
       (3) in section 658L, by striking ``1997'' and inserting 
     ``1998'';
       (4) in section 658O(c)(6)(C), by striking ``(A)'' and 
     inserting ``(B)''; and
       (5) in section 658P(13), by striking ``or'' and inserting 
     ``and''.

     SEC. 5987. EFFECTIVE DATES.

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

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

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

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

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

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

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

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

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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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

     and inserting the following:


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

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


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


[[Page S6663]]

     and insert the following:


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

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


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

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


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

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


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

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


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

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


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


[[Page S6664]]

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


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

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


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

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


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

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

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

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

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

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

     SEC. 6004. MEDICARE MEANS TESTING STANDARD APPLICABLE TO 
                   SENATORS' HEALTH COVERAGE UNDER THE FEHBP.

       (a) Purpose.--The purpose of this section is to apply the 
     medicare means testing requirements for part B premiums to 
     individuals with adjusted gross incomes in excess of $100,000 
     as enacted under section 5542 of this Act, to United States 
     Senators with respect to their employee contributions and 
     Government contributions under the Federal Employees Health 
     Benefits Program.
       (b) In General.--Section 8906 of title 5, United States 
     Code, is amended by adding at the end the following:
       ``(j) Notwithstanding any other provision of this section, 
     each employee who is a Senator and is paid at an annual rate 
     of pay exceeding $100,000 shall pay the employee contribution 
     and the full amount of the Government contribution which 
     applies under this section. The Secretary of the Senate shall 
     deduct and withhold the contributions required under this 
     section and deposit such contributions in the Employees 
     Health Benefits Fund.''.
       (c) Effective Date.--This section shall take effect on the 
     first day of the first pay period beginning on or after the 
     date of enactment of this Act.
                     Subtitle B--GSA Property Sales

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

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

     SEC. 6012. SALE OF AIR RIGHTS.

       (a) In General.--Notwithstanding any other provision of 
     law, the Administrator of General Services shall sell, at 
     fair market value and in a manner to be determined by the 
     Administrator, the air rights adjacent to Washington Union 
     Station described in subsection (b), including air rights 
     conveyed to the Administrator under subsection (d). The 
     Administrator shall complete the sale by such date as is 
     necessary to ensure that the proceeds from the sale will be 
     deposited in accordance with subsection (c).
       (b) Description.--The air rights referred to in subsection 
     (a) total approximately 16.5 acres and are depicted on the 
     plat map of the District of Columbia as follows:
       (1) Part of lot 172, square 720.
       (2) Part of lots 172 and 823, square 720.
       (3) Part of lot 811, square 717.
       (c) Proceeds.--Before September 30, 2002, proceeds from the 
     sale of air rights under subsection (a) shall be deposited in 
     the general fund of the Treasury and credited as 
     miscellaneous receipts.
       (d) Conveyance of Amtrak Air Rights.--
       (1) General rule.--As a condition of future Federal 
     financial assistance, Amtrak shall convey to the 
     Administrator of General Services on

[[Page S6665]]

     or before December 31, 1997, at no charge, all of the air 
     rights of Amtrak described in subsection (b).
       (2) Failure to comply.--If Amtrak does not meet the 
     condition established by paragraph (1), Amtrak shall be 
     prohibited from obligating Federal funds after March 1, 1998.
           TITLE VII--COMMITTEE ON LABOR AND HUMAN RESOURCES

     SEC. 7001. MANAGEMENT AND RECOVERY OF RESERVES.

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

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

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

     SEC. 7003. FUNDS FOR ADMINISTRATIVE EXPENSES.

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

     SEC. 7004. EXTENSION OF STUDENT AID PROGRAMS.

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

     SEC. 8001. SHORT TITLE; TABLE OF CONTENTS.

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

               TITLE VIII--COMMITTEE ON VETERANS' AFFAIRS

Sec. 8001. Short title; table of contents.

             Subtitle A--Extension of Temporary Authorities

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

         Subtitle B--Copayments and Medical Care Cost Recovery

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

                       Subtitle C--Other Matters

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

     SEC. 8011. ENHANCED LOAN ASSET SALE AUTHORITY.

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

     SEC. 8012. HOME LOAN FEES.

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

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

       Section 3732(c)(11) of title 38, United States Code, is 
     amended by striking out ``October 1,

[[Page S6666]]

     1998'' and inserting in lieu thereof ``October 1, 2002''.

     SEC. 8014. INCOME VERIFICATION AUTHORITY.

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

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

       Section 5503(f)(7) of title 38, United States Code, is 
     amended by striking out ``September 30, 1998'' and inserting 
     in lieu thereof ``September 30, 2002''.
         Subtitle B--Copayments and Medical Care Cost Recovery

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

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

     SEC. 8022. MEDICAL CARE COST RECOVERY AUTHORITY.

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

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

       (a) Allocation of Receipts.--(1) Chapter 17 of title 38, 
     United States Code, is amended by inserting after section 
     1729 the following new section:

     ``Sec. 1729A. Department of Veterans Affairs Medical Care 
       Collections Fund

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

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

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

       (a) Compensation COLAs.--(1) Chapter 11 of title 38, United 
     States Code, is amended by inserting after section 1102 the 
     following new section:

     ``Sec. 1103. Cost-of-living adjustments

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

``1103. Cost-of-living adjustments.''.
       (b) DIC COLAs.--(1) Chapter 13 of title 38, United States 
     Code, is amended by inserting after section 1302 the 
     following new section:

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

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

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

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

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

     SEC. 8033. WITHHOLDING OF PAYMENTS AND BENEFITS.

       (a) Notice Required in Lieu of Consent or Court Order.--
     Section 3726 of title 38, United States Code, is amended--
       (1) by inserting ``(a)'' before ``No officer''; and
       (2) by striking out ``unless'' and all that follows and 
     inserting in lieu thereof the following: ``unless the 
     Secretary provides such veteran or surviving spouse with 
     notice by certified mail with return receipt requested of the 
     authority of the Secretary to waive the payment of 
     indebtedness under section 5302(b) of this title.
       ``(b) If the Secretary does not waive the entire amount of 
     the liability, the Secretary shall then determine whether the 
     veteran or surviving spouse should be released from liability 
     under section 3713(b) of this title.
       ``(c) If the Secretary determines that the veteran or 
     surviving spouse should not be released from liability, the 
     Secretary shall notify the veteran or surviving spouse of 
     that determination and provide a notice of the procedure for 
     appealing that determination, unless the Secretary has 
     previously made such determination and notified the veteran 
     or surviving spouse of the procedure for appealing the 
     determination.''.
       (b) Conforming Amendment.--Section 5302(b) of such title is 
     amended by inserting ``with return receipt requested'' after 
     ``certified mail''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to any indebtedness to the United 
     States arising pursuant to chapter 37 of title 38, United 
     States Code, before, on, or after the date of enactment of 
     this Act.
  Mr. CHAFEE. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. CHAFEE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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